In today’s constantly changing financial landscape, the fusion of traditional banking with innovative blockchain technology presents both opportunities and challenges.
Today, I’m speaking with Austin Kimm and we will explore his perspective on the future of banking, the potential of blockchain technology, and his advice for retail investors considering diving into the world of crypto banking.
Please introduce yourself and tell us what you do
My name is Austin Kimm, Vault’s CEO, founded Choise.com, which drives Vault’s cryptobanking infrastructure. I was CEO of Norwich Union Australia, Aviva Czech Republic, and Renaissance Insurance in Russia and Ukraine throughout my 35 years in insurance.
What are the primary benefits for banks and financial institutions in adopting blockchain technology?
Adopting blockchain technology is challenging for traditional banks, which operate as centralized ledgers controlling customer transactions. You put your money into a bank, they record the transaction, then they put that money to work, most probably in the form of a loan, and again record that transaction in their giant ledger.
But you, the depositor, have no idea where your money is or who it was lent to. George Bailey describes it best in the movie It’s a Wonderful Life: “You’re thinking of this place all wrong, as if I had the money back in a safe. The money’s not here. Well, your money’s in Joe’s house. That’s right next to yours. And then the Kennedy house, Mrs. Macklin’s house, and a hundred others. You’re lending them the money to build and then they’ll pay it back to you as best they can.”
In contrast, blockchain is a decentralized ledger, making every transaction publicly visible and not controlled by any single entity. It offers benefits like lower costs by eliminating middlemen, faster transactions, increased accountability reducing fraud, easier auditing, and fewer internal errors.
However, transitioning from a centralized model where banks control and limit information to a decentralized, transparent blockchain system is a significant shift. Consequently, banks are slow in adopting blockchain, paving the way for agile neobanks that offer innovative solutions.
How does this integration enhance the services offered to retail investors?
Traditional fiat currency was not designed to be recorded in blocks. However, blockchain technology led to the creation of cryptocurrency, which, like fiat, transfers value but operates differently. In traditional banking, a multinational company needs different banks in each territory, facing varied processes, paperwork, and costly international fees.
However, cryptocurrency simplifies this, making location irrelevant and allowing transactions to be done quickly and recorded transparently on the blockchain, eliminating the need for multiple banks and fees. Incorporating neobank functionality with traditional banking attracts customers who, a decade ago, wouldn’t consider a single banking solution, significantly impacting investor perspectives on customer behavior and preferences.
Could you explain how integrating crypto banking with traditional services impacts the liquidity and accessibility of funds for retail investors?
The main difference between traditional and crypto liquidity is the speed and volatility of money flow. Traditional banks can accurately predict their cash flow, but this is challenging for crypto neobanks. For instance, a neobank in Argentina offering access to USD-linked Stablecoins could rapidly grow, aiding businesses dealing with hard-to-obtain dollars or a rapidly devaluing local currency.
However, this growth is risky as external factors like government statements or competitors with better offerings can quickly shift funds, impacting the company’s operational expenses. In crypto markets, inertia doesn’t protect liquidity, requiring retail investors to act swiftly.
How does Vault’s white label solution for crypto banking compare with direct investment in cryptocurrencies regarding risk and return for retail investors?
Vault is not a cryptocurrency project. It does not have its token; it does not list itself on Coinbase or Binance, for example. It is banking as a service platform, BaaS, operating in a $24bn market. It just happens to be focused on combining the two worlds of fiat currency and cryptocurrency into one seamless solution.
Until now, that space has been relatively untouched by traditional BaaS companies. And like almost all Software as a Service Solutions, revenue differs greatly from traditional crypto payment applications. As most people know, crypto can be very volatile with huge highs, usually called a crypto summer, and equally dramatic lows, crypto winter. In the summer, a retail crypto payment platform can make much money. Everybody is buying, spending, and happy.
In the winter, nobody is buying, everybody is holding, and revenue can be less than 10% of the summer period. That’s not a business Vault wants to be in. With Vault’s BaaS, costs are fixed for white-label clients, reducing their risks, while income is fixed for Vault. Winter or summer, Vault is and will be profitable.
What are the potential risks and challenges for retail investors when using crypto-powered banking services?
The core risk has always been and will continue to be redundancy brought about by the impact of regulation. For a retail investor, finding a service provider that appears to have everything in one place – its own licenses, platform, and products can look exciting.
But dig a bit deeper, and that means enhanced risk. I would argue that investors need to find companies that manage that risk, share the risk, and have multiple solutions to respond to risk when, inevitably, at some point, something goes wrong somewhere in the network of global coverage.
For traditional banks looking to enter the crypto space, what advice would you give them based on your experience with Vault?
The key to succeeding in the cryptocurrency market is understanding both the technology and the culture surrounding it. Banks should focus on grasping the technicalities and the community ethos of various cryptocurrencies to develop services that appeal to their customer base.
Security and compliance are paramount, given crypto’s dynamic nature and its divergence from traditional financial systems. Banks must implement strong cybersecurity measures and stay updated with regulatory changes across jurisdictions.
Building the right partnerships is also vital; for many traditional banks, developing in-house crypto solutions is daunting. Collaborating with established crypto entities, like we did at Vault, can provide a strong foundation. Additionally, education is crucial, both internally and for customers. Simplifying the complexities of the crypto world through clear information and educational resources can make it more accessible and less intimidating for everyone involved.
In what ways can retail investors benefit from the combination of blockchain technology and traditional banking services?
Blockchain significantly enhances security in banking by encrypting and decentralizing transactions, reducing fraud and cyber threat risks.
It offers unparalleled transparency, with every transaction recorded on a public ledger, allowing investors to easily track and understand their money flows. Blockchain also speeds up banking processes like transaction clearing, beneficial for investors with tight timelines.
Additionally, it cuts costs by eliminating intermediaries, leading to lower transaction fees. Blockchain technology opens up new investment opportunities, like tokenized assets, diversifying portfolios beyond traditional banking offerings. It also simplifies compliance and record-keeping, easing regulatory adherence for banks and reassuring investors about the legality and ethics of their investments.
Overall, integrating blockchain with traditional banking offers retail investors a more secure, transparent, and efficient set of tools, along with exciting new investment possibilities.
Finally, what is your top advice for retail investors considering diversifying their portfolio with crypto banking products?
When venturing into cryptocurrency and blockchain, retail investors should engage in thorough research to understand this dynamic and sometimes unpredictable sector. Recognizing the inherent volatility of crypto markets is crucial; while they offer high return opportunities, they also carry increased risks.
Crypto investments should align with overall financial goals without jeopardizing financial stability. Choosing the right crypto banking platform is also critical, focusing on security, user-friendliness, regulatory compliance, the provider’s market reputation, and customer support quality.
So, to sum it up, successful crypto banking involves a mix of market awareness, prudent risk management, and selecting a suitable platform, balancing caution with openness to the opportunities of this innovative asset class.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.