Earlier today, two of the world’s hottest fintech startups, the US-based Robinhood and the UK-headquartered Revolut, separately announced new product offerings that could greatly benefit the crypto industry over the long-term and put pressure on bitcoin-hostile banks to begin modernizing their service lines.
Bitcoin-Friendly Fintech Startups Want to Replace Banks
Revolut, which recently achieved a $1.7 billion valuation, announced this morning that it had received a European banking license, enabling it to begin rolling out insured bank accounts to its more than 3 million customers in early 2019.
Revolut Receives European Banking License
Bitcoin-Friendly Revolut Receives European Banking License, Aims to be ‘Amazon of Banking’ https://t.co/xZvjzgxVP1
— CCN Markets (@CCNMarkets) December 13, 2018
The firm, whose app already features a built-in cryptocurrency exchange and will soon support commission-free stock trading, also plans to begin offering personal and business loans within the near future.
“With the banking licence now secured, commission-free stock trading progressing well and five new international markets at final stages of launch, we are living up to our reputation as the ‘Amazon of banking,’” said Nikolay Storonsky, founder and CEO of Revolut. “Our vision is simple: one app with tens of millions of users, where you can manage every aspect of your financial life with the best value and technology.”
“Our vision is that retail and business customers will be able to apply for a loan in just two minutes from within the app, and then have the money in their account almost instantly,” he added. “We’ll remove the bureaucratic process and come in cheaper than traditional lenders.”
Robinhood Announces Checking & Savings Accounts
Stock trading app and Silicon Valley darling Robinhood has also expressed its desire to become a licensed banking institution, and while the firm has not yet achieved that goal, it did take a major step toward becoming a viable digital banking alternative.
Hours after Revolut revealed that it had received a European banking license, the $5.6 billion Robinhood announced that its more than six million customers (up from 3 million in February) could begin registering for early access to its new zero-fee checking and savings service, which offers an industry-leading 3 percent interest rate.
In lieu of waiting to receive a full-fledged banking charter, Robinhood is offering the service through its broker-dealer license and says cash deposits will be insured by the Securities Investor Protection Corporation (SIPC) up to $250,000. Customers will receive a free debit card, as well as zero-fee withdrawals at more than 75,000 ATMs across the United States.
Robinhood, like Revolut, operates an in-app cryptocurrency exchange alongside its flagship stock trading platform. The service is now available throughout more than half of the US, and executives have said that they expect it to be the largest crypto trading platform within the near future.
“We expect by the end of the year to be either the largest or one of the largest crypto platforms out there,” Robinhood co-founder and co-CEO Baiju Bhatt said in May. “But we also really feel we’ll have the absolute best experience for investing in crypto as well—from having a large variety of coins available to a more favorable cost structure—mainly no commissions—to just quality of product.”
Crypto-First Firms Eye Banking Licenses
Revolut and Robinhood are far from the only fintech startups seeking to provide a digital alternative to conventional banks, nor are they the only ones to do so with an eye towards increasing cryptocurrency adoption.
Square, the digital payments startup that allows customers to trade bitcoin through its peer-to-peer Cash App, previously applied for a banking license but withdrew that application in July. The firm said at the time that it would refile the paperwork in the future but demurred about when this would occur.
Cryptocurrency unicorns Coinbase and Circle are also said to have held early-stage discussions with regulators about registering as licensed banks, but it’s not clear whether these talks will result in concrete action.
Can Fintechs Upend Anti-Bitcoin Banks?
In the meantime, these new digital banking products from Revolut and Robinhood appear to be primarily targeted at individuals in their core demographics, who skew younger due to the mobile-first nature of their platforms. However, as they continue to grow -- and acquire the necessary licenses -- it would not at all be surprising if they expand their offerings to target enterprise customers as well.
Indeed, Revolut has already said that it intends to offer business loans as part of its future lending service. If once those relationships were in place, Revolut began offering standard business accounts, it would -- to put it simply -- represent a huge opportunity for a cryptocurrency industry that has long found banks a thorn in its side.
Cryptocurrency Firms Face Cold Shoulder from Many Wall Street Banks
While some major cryptocurrency firms have managed to establish stable banking partnerships, many crypto startups continue to struggle to establish permanent relationships with reputable financial institutions. When they do, it is often with smaller outfits like the US-based Silvergate Bank, which are more readily willing than larger firms to endure the perceived risks associated with taking on crypto clients.
To wit, even as some large financial institutions like Goldman Sachs have confirmed that they are working on cryptocurrency products, others refuse to take on crypto firms as clients or in some cases shutter their accounts after the fact.
“Banking in this ecosystem,” Silvergate CEO Alan Lane stated in a recent Wall Street Journal interview, “is not for the faint of heart.”
The situation is particularly dire in smaller markets like Chile, whose Supreme Court recently ruled that banks could discriminate against cryptocurrency exchanges. The move effectively prevents local firms from offering fiat-to-cryptocurrency trading, stunting the industry’s ability to grow.
Embracing this industry is a calculated risk, one that most Wall Street institutions have thus far decided is not worth it. However, Main Street banks like Silvergate have scooped up US crypto heavyweights like Coinbase, Kraken, Genesis Global Trading, and bitFlyer USA.
Revolut: Banks Won't Catch up
Commenting on Wall Street’s hesitancy (and occasional outright hostility) to engage with crypto, Revolut’s Nikolay Storonsky predicted that fintech would continue to lead the charge on mainstream cryptocurrency adoption, regardless of whether legacy institutions change their tune on this nascent asset class.
“Fintech will be very big in crypto for the foreseeable future,’’ he said last month. ‘’I just don’t think banks will catch up.’’
At this stage, it’s far too early to eulogize the legacy financial sector, but for the cryptocurrency ecosystem, one thing is certain: the advent of crypto-friendly banking alternatives like Revolut and Robinhood will at the very least increase the opportunity cost of Wall Street failing to engage with this burgeoning industry.
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