When Fidor Bank's Michael Maier spoke to CoinDesk in June, the Internet bank COO framed his industry as one that bitcoin would grow to challenge directly, suggesting at the time that its partnership with Kraken demonstrated its intent to accept this future and even cooperate with it.
However passive these statements may have seemed at the time, they came into sharper focus on 31st October, when Fidor announced it would team with its San Francisco-based bitcoin exchange partner to launch "the world's first cryptocurrency bank".
The unnamed project seeks to build a regulated financial institution that would help bitcoin startups that have struggled to secure and maintain accounts even for day-to-day business.
Given this backdrop, Kraken CEO Jesse Powell sees his company's most prominent collaboration with Fidor as more than an exercise in bringing another first to the ecosystem. In a new interview, Powell positioned the specialized bank for cryptocurrencies as a necessity should the ecosystem succeed at delivering on bitcoin's full technological potential.
"For Kraken to be a viable business long term, for most players to be viable, we need to see the pie grow. That’s what we want to do with Fidor, is create a bank with the specific mandate to bank bitcoin companies and provide reliable banking to end-users of bitcoin."
By providing stable banking partnerships to companies in the ecosystem, Powell aims to, in turn, return lost time and energy to the community. In the process, he will also expand his business beyond one that targets market makers and bitcoin companies with a VC-backed order-book exchange.
However, Powell contends that Kraken has the experience it will take to rise to the challenge and deliver on its goal.
"We’ve talked to more than 200 banks in the last year-and-a-half about banking bitcoin companies, and the successes are the ones you’ve seen so far, the 1% success rate," he said. "[The bitcoin community] can’t go on wasting time. How many man hours is the industry wasting talking to banks? It’s just insanity."
A 'bitcoinized' financial institution
Though Powell was clear on the goals the project is set out to achieve, his statements suggest that Fidor and Kraken are far from solidifying any concrete plans on the types of services they will provide. As the original release relayed, even the name of the bank – BICONDO, BYSE Bank or Cryptocurrency Bank – remains a matter of debate.
However, Powell indicated that the bank does intend to offer certain services to clients, like the ability to borrow against bitcoin assets and invest in lending products.
"We hope to leverage blockchain technology to offer some additional services and 'bitcoinized' traditional financial services," Powell added.
While acknowledging that the potential that lies in advanced financial services provided by crypto 2.0 protocols, Powell said that it remains "early days" for such projects. Still, he doesn't rule out that they could enable Kraken to build a more robust cryptocurrency bank offering.
"With colored coins, sidechains and Counterparty, there’s all sorts of interesting things that could merge and we could see more assets being held in this bank account that could serve as collateral," Powell mused.
He went on to suggest that the bank may seek to leverage the blockchain's applications for identity, implying that the institution could help other bitcoin companies validate customers even as he cautioned that any of the products the bank offers will need to meet the approval of European regulators.
Fighting back against big banks
Powell sought to frame the survival of Kraken as depending on the success of the bitcoin ecosystem itself, stressing that his company's main goal is to increase the size of the customer base it can serve in its current target markets, Europe and Japan.
He suggested that he sees the banking initiative as being in line with Kraken's existing goals.
"You see that Google is trying to bring faster Internet connections to people, because that will increase the number of searches, and that’s their business," he said. "We can give people a secure place to store and convert their bitcoin between fiat currencies and make bitcoin more functional."
Powell suggested he doesn't see the business incentive in the US market, which it stopped serving in February, given its hurdles and risks.
He further elaborated on his company's own struggles gaining access to banking in the US market, noting that it has lost key partnerships even though it is structured specifically to avoid this concern. Kraken is owned by parent company Payward Inc., which Powell described as a software company that officially licenses software to the Kraken exchange.
"When we go to a bank and say we need an account, we can legitimately say that we’re offering software and nothing else," Powell said.
Despite this, he said Payward has lost accounts at both Bank of America and Chase, accounts that were kept only for handling company expenses.
"Bank of America and Chase both terminated our account," he said. "The reason they gave was that they evaluated our account, they do it once in a while, and they determined that for the protection of our users they didn't want to service our account, some bullshit like that."
These frustrations, he suggested, caused operational difficulties that he hopes a cryptocurrency bank will help avoid once and for all.
Regulatory hurdles low, risks high
Powell went on to state that in the context of some of the more ambitious projects in the space, the regulatory hurdles for the new bank are low.
"In Germany, bitcoin is basically money, so this wouldn't be like having a bank account with multiple currency balances, one account with dollars and another in euros, it would be an account with euros and bitcoin. It fits within the framework that exists, and we’re not pointing out any problems there," he explained.
When asked if there had ever been a bank created to meet industry-specific needs, Powell compared the new offering to credit unions that serve specialized employees like teachers and firefighters, but stressed that the bitcoin ecosystem requires unique solutions.
Still, Powell said that the project isn't without its risks, noting that savvy banks could begin to serve the bitcoin industry, creating an ecosystem of new competitors.
Competition from banks aside, he said, should a sizeable portion of the ecosystem seek to utilize the institution, it would be easier for regulators to harm the industry as a whole.
Though optimistic about its potential, Powell suggested he sees the cryptocurrency bank as a necessary experiment, though one capable of falling short on its aims.
"It’s still not a foolproof plan," he concluded.
Images via LinkedIn; Cryptocurrency Bank
However passive these statements may have seemed at the time, they came into sharper focus on 31st October, when Fidor announced it would team with […]