Europe’s crypto banks: regulations make neobanks safer

It’s been over 11 years since the elusive Satoshi Nakamoto launched Bitcoin’s white paper - the very first cryptocurrency. The main idea behind it was to create a decentralized financial system that would allow anyone, anywhere in the world, to use one type of currency free from the mainstream banking system. 

Some might argue that cryptocurrencies are the antithesis of the banking system but some neobanks have embraced this new technology fully. Challenger and neobanks have come to challenge the banking system by nature, a lot like cryptocurrencies do.

One of them is Ziglu, the creation of Mark Hipperson, co-founder and CTO of UK based Starling Bank. Following a £5.25 million (US$6.6 million) seed round, Ziglu launched in the UK with the core focus to provide a seamless way for consumers to buy crypto currencies. 

Ziglu will allow users to exchange GBP for bitcoin (BTC), ethereum (ETH), litecoin (LTC) and bitcoin cash (BCH), with more fiat currencies to be added and a Mastercard debit card coming in July or August this year. 

And Ziglu is eyeing Millennials that want easy access to crypto.  In a recent interview Hipperson added, “In 2020, we think the 25-45 [age] demographic will want easy, safe access to crypto,” he said. “Only about 1% of people go to the large platforms to buy crypto and we think we can do better, and perhaps get them better prices as well.”

Mark Hipperson claims that will be 1.5% cheaper than the major crypto exchanges and with much lower fees, with the average being 1.25% of the transaction. The bank is still waiting for financial regulators to approve its banking licence, but in the meantime, users can buy and sell crypto and move fiat currencies in from their main bank account.

Getting a banking licence for crypto banks can be more complicated, as countries in Europe are still working on regulations that will prevent illegal financial activities like money laundering for instance. Some countries, like Malta for instance, have a more focused regulation for crypto companies, while other countries are still lagging behind in that sense.

In Germany, crypto neobank Bitwala bypassed the need for a banking license by partnering up with SolarisBank.  Bitwala’s strategy wasn’t aimed to “cut corners” as BaFin and Bundesbank, Germany’s financial regulatory bodies, require either a formal banking license or a partnership with an existing bank.

Bitwala operates like a “normal” bank with the added of a crypto wallet.  All users receive an Iban number, a contactless debit card to buy and sell crypto and manage expenses.

In this case, Bitwala has a through KYC (Know-your-customer) process, but it still is limited to only German residents. Even though the account only takes minutes to open, customers need an ID and video verification. Also, as with any bank account in Germany, all euro deposits up to €100,000 are protected by the German Deposit Guarantee Scheme (DGS).

Still in Germany, not a crypto bank but a crypto banking app and newcomer Spot9 has broght a lot of innovative ideas to Germany’s crypto community. In addition to an innovative mobile banking app, Spot9 will introduce legally compliant Crypto ATMs and offer a whitelabel solution in partnership with Sutor Bank.

Johannes Gorski, CEO of Spot9, when asked how Germany’s financial bodies are dealing with crypto banks, explained: “In comparison to other countries Germany does not provide a regulatory sandbox for fintechs and especially crypto banks. Thus the legal regulatory framework, mainly the banking act (KWG) is applicable. In addition, banks as credit institutes are obliged to conduct KYC and AML-procedures according to the German anti-money-laundering-law (GWG). “

He added that, on the supervisory level, the German regulator is acting with regard to GWG on the basis of its applicable notes. Furthermore, the regulator orientates itself with regard to crypto assets in particular to the regulations and recommendations of the FATF.

Comparing Germany with other European countries regarding anti-money laundering regulations is difficult but in practice, it has been shown that in Germany, the video identification procedure that is part of GWG, is regarded as standard in the case of identification of persons not present. As far as we know, this is more extensive than other EU countries regulate.