Challenger Bank in Puerto Rico combines checks and cryptocurrency in one account


“We are licensed as a bank and custodian of digital assets,” said Miles Paschini, Managing Director of FV Bank. “We combine these two worlds within one bank. FV Bank was founded in 2018 by two payments veterans and provides digital bank accounts to individuals and businesses around the world. The next phase, which will launch in late 2021 or the first quarter of 2022, is an account that can hold digital assets alongside fiat currencies and convert cryptocurrencies into US dollars or other traditional currencies.

FV’s account style that combines fiat and digital currencies is unusual, even as traditional banks and financial services firms are exploring crypto custody.

Last week, Visa authorized FV Bank to issue Visa cards as well; it plans to make debit cards available to customers by the end of 2021 and to introduce credit cards in early 2022. Credit cards will allow users to borrow against cryptocurrency assets and access credit lines on a Visa card.

“Usually you see institutions offering one or the other but not both,” said Sam Wyner, KPMG’s crypto practice manager in the Americas.

US Bancorp announced a number of crypto custody initiatives in April. Mastercard’s new partnership with the Bakkt digital asset marketplace means that customers of financial institutions connected to the Mastercard network can manage digital assets through Bakkt and spend cryptocurrency rewards at Mastercard merchants. Visa works with central banks on the central bank’s digital currency policy.

Quontic Bank already offers cards and a checking account that offer rewards in the form of bitcoin. Meanwhile, banking software provider Finastra and Bakkt have teamed up to help credit unions and community banks expand crypto services. Cryptocurrency services firm NYDIG is working with Fiserv and FIS to help some small banks build their capacity to buy, sell, and hold bitcoin. Several states have their own special purpose banking charters and regulations in place to accommodate digital currencies. Vast Bank in Tulsa, Oklahoma, allows customers to buy and sell cryptocurrency from their mobile banking app. Several other community banks are building the ability to allow customers to do the same with bitcoin.

There is a demand among consumers for all of this. According to a Raddon Research survey of 1,221 U.S. bank customers released last week, 29% would like to receive debit and credit cards with cryptocurrency rewards from their banks, and 28% would like to be able to buy and spend digital currency from their financial institution.

“There is no more physical movement of these assets or operational risk with multiple third parties,” Paschini said.

FV’s multi-asset account will resolve a number of potential risks for family offices, funds, exchanges, trading desks and liquidity providers targeted by the company, Paschini said. For example, if a family office wants to sell a large amount of bitcoin, it will need to remove the assets from custody, pass them on to an exchange to convert the amount into dollars, and pass the proceeds to a bank. But a family office banking with FV can keep these assets in a bank account, exchange them in one place and receive the proceeds of the transaction directly to the account.

Crypto custody presents unique risks and challenges, such as the need to deal with clients who transact for very high amounts and to understand and identify businesses around the world.

To address these issues, FV is working with partners who use Chainalysis and other tool vendors that detect crypto assets that may be linked to criminal activity. The bank is developing knowledge within its teams to understand how traditional banking and crypto intersect, and uses multi-party computing to secure private keys.

The conversion to account will be done like a traditional currency exchange, Paschini said.

Another unusual choice made by FV was to obtain a charter in Puerto Rico. The company has considered a number of countries but has moved to the United States because the Office of the Commissioner of Financial Institutions in Puerto Rico is open to the merger of blockchain and banking. Being based in Puerto Rico meant a lower corporate tax rate while still having access to the Federal Reserve system to apply for a master account and use the FedWire and ACH systems.

FV must adhere to the same bank secrecy law and anti-money laundering standards as any other US bank, but is considered part of the Latin America and Caribbean network for Visa and other networks. of payment. This means that it can issue credit and debit cards to both US and non-US customers, rather than just US customers if it was based in the United States. It took about two years to obtain banking and digital asset licenses from regulators in Puerto Rico. The founders estimate that it would have taken up to five years in the United States. The charter does not allow FV to do business in Puerto Rico and compete with local banks.

FV’s approach could be a model for how other banks are involved in cryptocurrency custody.

“For banks to become players in the markets of the future, they must participate,” he said. “They won’t be as aggressive as leading innovators like FV Bank, but they will learn from them and buy them or take advantage of their technology.”

John DelPonti, chief executive of consulting firm Berkeley Research Group, says crypto has seen tremendous growth.

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