Embedded Crypto: How Can Crypto Companies Partner with Banks Successfully?

Two different payment rails come together to deliver a profitable business model
Headshot of Daisy Lin
Daisy Lin
Head of Content
June 1, 2022
An image of cryptocurrency routing through Treasury Prime before passing through to a network bank.

Cryptocurrencies were created to give people greater control over their money by bypassing established banks, payment rails, and money movement systems, but most crypto and blockchain companies still need the support of traditional banking systems to operate and turn a profit. 

While cryptocurrency adoption is quickly growing, it is still in a nascent stage of development, and the infrastructure needs to massively scale before it can compete with the speed and usability of products from payment giants like Mastercard and VISA. Until that happens, crypto companies can tap into existing financial networks to connect the two systems. Some forward-looking crypto companies are seeing new opportunities in this sphere and are partnering with a banking as a service provider (BaaS) Treasury Prime to link up with banks and create a hybrid model to increase revenue streams.

We talk about these new trends with Treasury Prime bank partner BankProv, a leader in the fintech and digital asset industry. Treasury Prime’s complete API layer connects applications to BankProv’s infrastructure, giving crypto and blockchain companies that plug into our API software the ability to create a payments ecosystem on their platform. 

“The opportunity is for the crypto companies to go beyond trading and own white-labeled bank accounts, so that not only are they facilitating crypto transactions, they own the whole payment ecosystem and become the bank of choice for their customers,” says Carie Kelly, senior vice president of virtual banking at BankProv.

To learn more about how to offer embedded banking products, download our white paper

The best crypto friendly banks 

There are just a handful of banks that will work with crypto companies and navigate the shifting regulatory maze. BankProv is one of them. Even though it’s one of the oldest banks in the country, its CEO Dave Mansfield, a former bank regulator, saw an opportunity in carving out a niche and made a commitment to new technology. BankProv works with hundreds of crypto companies including crypto exchanges, trading platforms, NFT platforms, liquidity providers, wallet providers, and more.

"When you combine crypto and banking as a service and you're a bank that's integrating two payment rails into one system, it’s pretty exciting to be able to support companies in this way,” Kelly says.

Crypto banking services: why do crypto companies partner with banks?

Crypto companies have regular operational expenses like any other company. They have to pay bills, vendors and employees, provide insurance, and more, all using US dollars. In short, they have to open accounts with a bank to conduct everyday business.

Embedded crypto — embedded finance

An emerging field of opportunity for crypto companies is the ability to bundle embedded finance products on their platform. By partnering with a banking as a service provider and a bank, crypto companies can expand their offerings beyond trading. They can offer customers white-labeled FDIC-insured banking accounts right on their platform. Once a customer has an account, crypto companies can provide fiat onramps and offramps — which convert dollars and other legal tenders into cryptocurrencies and vice versa. Customers can easily use fiat money in their wallet to buy crypto, and when they sell their digital assets, they can convert the proceeds to fiat dollars, and all that money stays on the crypto platform. They can make or receive payments through electronic transfers such as ACH, peer-to-peer payments, and wires. Companies can also provide their users with a debit card to spend their fiat balance or crypto as well. The crypto company earns interchange fees on every debit card transaction, and interest on deposits. This income can be passed onto the end-users as well through rewards, incentive programs, or cashback bonuses in USD or in crypto.

“We’re seeing a lot of interest from centralized and decentralized digital asset businesses who want to work with banks to access fiat onramps and offramps, that collaboration excites the industry,” according to Nicholas Sweeney, VP of strategic partnerships at BankProv. “ Companies are building new infrastructure solutions like one-click checkout for buying goods with crypto.The concept of connecting traditional banking and payment rails with the blockchain is growing.” 

BaaS — the API software that connects you to the bank 

The easiest way for a crypto company to connect with a bank is by plugging into a software program which allows the two separate systems to work together. Treasury Prime wraps banks in a programmatic API, and then provides access to partner fintechs and crypto companies. The launch process can take as little as two weeks. 

The company can have a choice of opening customer accounts directly on the bank’s core, or opening one umbrella FBO account on the bank’s core for your company, then issuing virtual accounts for each of your customers within this account, which gives you greater freedom of account customization, feature enhancements, and faster account opening. For a more detailed breakdown, read our FBO vs. on-core accounts blog post.

Embedded financial technologies: How do you prepare to partner with a bank

Not many banks will want to do business with crypto companies because of heightened risk and regulatory scrutiny. Banks are subject to a slew of stringent regulations, and one wrong move can bring on disciplinary action with serious consequences. For those reasons, they are understandably cautious.

Before taking on a crypto partner there will be a due diligence process during which the bank will ask for a list of specific documents. “The documentation needed from a crypto company is a little bit more extensive because we really need to know the customer and how the funds are being used,” Kelly says.

Among the most important ones are:

  • FinCEN registration status
  • Money transmitter licenses (MTL) or licensing strategy
  • Flow of funds diagram

FinCEN registration

Banks will require FINCEN registered crypto companies to provide proof of their FinCEN registration. Any money service business — including many cryptocurrency businesses in the U.S. — are required to register with FinCEN, the U.S. Department of Treasury Financial Crimes Enforcement Network. Registering as a money services business (MSB) money transmitter can be done quickly online.

Money transmitter license (MTL) plan

The bank also wants to see that the crypto company has money transmitter licenses (MTL) or understand its plan to acquire, which is a considerably more complicated undertaking. Crypto companies who are MSBs have to meet licensing and regulatory requirements in every state that they anticipate operating in, and every state has its own requirements, applications and license fees. You typically would want to have an MTL for the states that are listed on your FinCEN registration. Sometimes this process could take up to a year. Enlisting the help of an experienced MTL legal or financial expert to navigate this process may be helpful. 

Flow of funds

When it comes time to discuss implementation, Kelly advises companies to map out their customer flow of funds and provide a diagram. The bank wants to see that the company has thought through the ideal customer experience and knows how to address their pain points. Providing a diagram helps to kick off the planning with the bank and the BaaS company. 

Some questions to help clarify the flow of funds chart: What is the vision for account opening? Do you want to open accounts directly on the bank’s core, or create an FBO account and issue white-labeled virtual accounts in your company’s name and own the whole experience? What types of payment rails do you want to provide: ACH, wire, debit card, check cashing, mobile deposit? Having clarity around these issues can help ensure a smooth launch process.

“Crypto companies want something to happen in a specific way for their clients, and that requires a very specific flow,” Kelly says. “If they come to us with a document that breaks that down, we can talk to each piece of it, where we will need the support from either the tech platform side or from the bank side. And also what would need to be built or customized in order to make that happen.”

Treasury Prime has the largest bank network in the industry, giving you the most flexibility and affordability at scale. If you want to be the next unicorn, you need a direct bank relationship and the best Baas company. To discuss how we can help your company scale, contact us here. Want to learn more about our process? View our API reference or play around with our Developer Sandbox.

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