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Banking Briefing: Major Russian banks excluded from SWIFT

  • The big news this week is that major Russian banks have been excluded from SWIFT as part of the US and allies’ sanctions against Russia.
  • In the background, we’ve also got experts’ take on what’s happening in cannabis banking and some new numbers in the world of digital account opening.
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Banking Briefing: Major Russian banks excluded from SWIFT

As Russia wages war on Ukraine, the US, Canada, and EU allies are cutting off major Russian banks from interbank messaging system SWIFT. 

SWIFT currently functions as the interbank messaging system among over 11,000 banks in more than 2,000 countries.

The move means Russia will be cut off from a significant portion of the global financial system. The major banks in the country won’t be able to communicate easily with financial institutions in other countries. 

No country has been cut off from SWIFT since Iran in 2014, following the progress behind Tehran’s nuclear program. The move resulted in the country losing 30% of its foreign trade, according to the BBC.

The US and allies are planning on taking additional measures as well. The countries plan to take restrictive measures that will stop Russia’s central bank from tapping into international reserves in order to break sanctions.

“This will show that Russia’s supposed sanctions-proofing of its economy is a myth. The $600 billion-plus war chest of Russia’s foreign reserves is only powerful if Putin can use it,” said a senior administration official, to CNBC

Still, Russia may have other paths it could explore. As James Ledbetter points out in his newsletter FIN, there are a number of things the country could potentially do to evade sanctions. One example is turning to China for assistance, as the country wasn’t part of the economic sanctions coalition. 

Another option would be to rely on blockchain transfers – this would be a way to move money without opposing governments being able to get in the way. The Russian government was already experimenting with blockchain-based solutions as an alternative to the SWIFT payment system in 2021, according to deputy foreign minister Alexander Pankin.

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What’s going on in cannabis banking? 

Early in February, the buzz around cannabis banking got a tad louder as new developments made the news.

For one, the SAFE Banking Act, aka the Secure and Fair Enforcement Banking Act, passed the US House early this month. 

The proposal gives cannabis companies the same access to financial institutions’ services as other companies. It means they would no longer have to rely on cash-only business models and could get access to services like insurance, lending, and payroll.

The Senate is set to vote on the decision in the coming weeks. 

The recent re-introduction of the SAFE Act marks the bill’s sixth attempt at making it into law-law land.

Industry experts are still skeptical about whether or not this bill will pass this time around. 

According to Brian Bauer, president and co-founder of cannabis banking platform Abaca, it’s “anyone’s guess.”

“There is both bipartisan support and opposition to SAFE Banking in the Senate,” said Bauer. “Many Democratic Senators are holding out for more comprehensive federal reform and some fear passing SAFE Banking might erode support for a more robust bill.”

Meanwhile, Kevin Hart, founder and president of cannabis banking solution software Green Check Verified, seems even more skeptical of the whole affair. According to him, indecision means lack of progress in this respect.

“The difference of opinions on what should be the priority and sequence on the key points are too far apart and heavy in the ‘line in the sand’ rhetoric that’s already out there,” said Hart. “Now should lawmakers get their collective heads out from where they reside today, all businesses would stand to be the beneficiaries. But that is also part of the problem - some companies just aren’t ready to see that happen, at least not yet.”

In addition to the re-introduction of the SAFE Act, there’s also the news regarding Safe Harbor Financial.

Mid-month, Safe Harbor became one of the first cannabis banking firms to go public via a SPAC agreement. The company entered into an agreement with special acquisition company Northern Lights Acquisition Corp. 

With $11 billion processed in transactions since its establishment in 2015, including $4 billion in 2021 alone, and 600 accounts across 20 states, the company’s new public standing could give the industry a serious power boost. Abaca’s Baur seems optimistic about the move.

“Going public through a SPAC enables companies to tap into the public capital markets,” he said. “For the cannabis industry, this will result in greater access to services and financing to fuel growth.”

Even so, according to Green Check Verified’s Hart, there are still too many variables to reach a conclusion about what Safe Harbor’s IPO means for the cannabis banking industry.

“When it comes to ancillary companies that are helping the cannabis industry capitalize on current growth, the news of Safe Harbor going public certainly sets a new bar for valuations in the space. With that said, there were some questions I have about the deal and it remains to be seen what impact it will have on the industry.” 

What’s in the numbers: Digital account opening

Digital account opening (DAO) is once again on the rise, according to research by Insider Intelligence.

As more consumers look to open accounts online, incumbents will need to prepare for some competition from not only challenger banks but also big tech, which are both pros at making digital onboarding easy-peasy. 

By the end of this year, Insider predicts there will be 35.9 million digital-only bank consumers in the US. That number is expected to rise to 47.5 million by 2024.

As for big tech companies like Apple and Google – no numbers were given, but the research does say companies like these are bound to benefit from their ability to design quality digital user interfaces. Even if they don’t win over the consumers, per se, they may very well affect what consumers expect from their financial service providers. 

Larger banks have the funds to create quality digital onboarding on their own. But smaller institutions need to make the choice whether to go solo in building better digital interfaces or collaborate with a third party.

These banks seem pretty optimistic about choosing a third party to help them out. 29% said they were already doing so, while 42% said they were very interested, according to Cornerstone. 

What we’re reading

What it means to exclude Russia from SWIFT (FT)

New sanctions against Russia could mean several U.S. banks losing out on Russian investment banking business (Reuters)

Making digital banking stick in a post-Covid world (BAI)

Could open banking have helped detect Covid loan fraud? (altfi

Five new trends in digital banking (American Banker)

Open banking reaches the five million user milestone in the UK (Finextra)

What we’re writing

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What’s Happening in Payments Ep. 1: BNPL and credit scores, crypto payroll, Apple’s Tap to Pay feature, ‘Save Now, Pay Later’

Behind the new card partnership: Five questions with GM and Marcus by Goldman Sachs 

As community banks strive to modernize, Jack Henry zeroes in on payment-focused pain points

Data Snack: As finance apps’ ad spend soars, their conversion rates are declining

Where community banks stand in terms of tech and trust, in 4 charts

Fraud is becoming the biggest headache in financial services

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