Cryptocurrency was hailed for its disruption in payments, but its integration into mainstream use has been slow. Inadequate background checks for new users have been major concerns for traditional banks. Few institutions allow their customers to use their bank accounts to directly fund cryptocurrency purchases.
Because of banks’ reluctance to fund crypto exchanges, people who want to trade, buy, or sell crypto assets usually have to do so through offshore funding and alternative methods.
West Virginia-based MVB Bank, with $2 billion in assets, has become one of the first U.S. banks to break this trend. The bank, which has launched programs for fintechs like Credit Karma, Prism, and Divvy, now provides fiat currency funding to Kraken, a cryptocurrency exchange.
Through this partnership, Kraken customers can fund their accounts directly through wire transfers from their MVB accounts. This USD funding option will be available in all states Kraken operates in except for Texas.
Kraken recommends its customers switch to this funding option as quickly as possible.
“With this integration, MVB Bank is the preferred funding mechanism for most US residents looking to fund their account,” said David Ripley, chief operating officer of Kraken. “Their advanced and tech-friendly platform offers an extremely fast and smooth experience for our clients so they can focus on trading crypto.”
Other financial service providers are also showing more interest in crypto. Signature Bank just announced its partnership with Fireblocks, a blockchain-based payment platform that ensures security when transferring both fiat currency and cryptocurrency. Challenger bank Revolut has also just announced a crypto trading in the U.S. through partnership with crypto company Paxos.
Meanwhile, payment company Square continues to expand its cryptocurrency offering. In May, CEO Jack Dorsey announced a new feature to the Cash App, which will allow recurring Bitcoin purchases. Last year the company saw a significant increase in revenue from cryptocurrency. Through the company’s Cash App, Bitcoin revenue between October 1st and the end of 2019 was recorded at $178 million, almost half the app’s total revenue.
But in terms of seeing continued efforts from banks to support cryptocurrency exchanges in the near future, Matt West, chief strategy officer at MVB, seems doubtful.
“There are a small number of banks that have made the risk and compliance resource commitment to support crypto trading platforms,” said West. “My view is that number is likely to see limited growth in the short term. More banks will enter the market as crypto and digital assets become more ubiquitous and the regulatory environment for crypto platforms operating in the U.S. stabilizes. Having crypto platforms like Kraken that take risk and compliance seriously is also a key factor in the growth of banking partnerships.”
The fact that there haven’t been more recent partnerships between banks and crypto companies could have to do with traditional banks’ plans to create their own cryptocurrencies. JPMorgan Chase, for example, announced the development of its own cryptocurrency last year, becoming the first major bank in the United States to do so. Additionally, a BIS survey from earlier this year found that over 50 central banks have been working on developing their own cryptocurrencies.
But for smaller financial service providers, partnering with crypto companies may be a way to enter the cryptocurrency market.
“Kraken has more banking partners than any other cryptocurrency firm in the world,” said Ripley. “This positioning is important to us because clients need simple and widely available on-ramps to purchase crypto and achieve financial freedom.”
Kraken has already seen $1 million in volume since partnering with MVB and plans to continue forming these partnerships.
“Looking ahead, we aim to continue cultivating these types of relationships globally so that anyone can trade crypto with ease,” said Ripley. “We support funding in seven fiat currencies…and are always on the lookout for more provided that we can find the right partners and there is an appropriate level of customer demand.”