Customers Bank in West Reading, Pennsylvania, said this week it had signed up several cryptocurrency businesses as customers, making it one of a relatively small group of banks willing to take on such clients.
Signature Bank in New York and Silvergate Bank in La Jolla, California, have been catering to that market for some time. But it’s still a niche many banks steer clear of because of regulatory uncertainty, insufficient in-house expertise or the lack of the right technology infrastructure to meet the 24/7 needs of crypto clients.
Customers Bank, a $19.1 billion-asset subsidiary of Customers Bancorp, took its time studying the market opportunity and getting comfortable with it, CEO Sam Sidhu says. It’s now working with exchanges, funds, liquidity providers and businesses in the crypto ecosystem such as Genesis Global Trading, Blockfills, GSR and SFOX.
In an interview, Sidhu explained why and how his small regional bank is going after this market and seeking to build on- and off-ramps for crypto businesses to use U.S. dollars and the mainstream financial system.
Have you heard any stories recently of cryptocurrency companies that couldn't get a bank account or that had their account shut down?
SAM SIDHU: That inability to get a bank account still exists, but it's changing. There are a couple of banks that are taking them on, but they have waiting lists.
I think the challenge that a lot of banks face is they don't necessarily understand the nature of the business that these companies are in. We were in that same box a year ago. We had to spend the time and do the work and hired a team to work on this.
So you've hired a dedicated cryptocurrency business team?
That's right. We have a combination of technologists who are focusing on the real-time payments platform, which was the entrée that drew folks into our bank. And then we have business development, compliance, onboarding and customer support folks that are focused solely on this space. The team is growing by the day; someone joined us today, and another will join next week.
So you have built a real-time payments platform. What is the technology foundation for that? Is it based on The Clearing House's RTP?
You could use The Clearing House. That's more built on legacy rails. We felt we needed to have instant settlement for intrabank customers, so bank customers on both sides of the payments transaction could use internal technology transfers, and chose to do it on a blockchain. Our thought process was to go where the puck is going, as opposed to executing on where we are today. It would also allow us to have flexibility and speak to our customer base, which is not just digital-assets firms. Digital assets happened to be the best use case, because 24/7, 365 is how markets are open, and they need these on- and off-ramps to fiat.
What if one of your customers has a counterparty or a business partner that's not a Customers Bank customer? How will you handle those payment settlements?
Therein lies the network effect. We bring them on to be Customers Bank customers, which is actually one of the tremendous advantages, because right now, there is no interbank interoperability. We're thinking and strategizing as to how to work with other banks.
Several years ago there were some attempts to create interbank ledgers, like R3’s Corda, the Hyperledger Project and a few others. A lot of the difficulty with that was that banks didn't want to let their rivals see their transactions or how much money was going in and out and from which customers. Is there a way around that issue?
There are definitely some sensitivities, and I think that's why it needs to be truly a coalition. So the banks have to feel comfortable in working together. This isn't going to be a 100-member coalition. We are doing this on the Ethereum blockchain. We are thinking very thoughtfully about how we could turn our private network into more of a semi-private network, where multiple banks have access.
What are some of the benefits of using the Ethereum protocol for this? Sometimes Ethereum is considered too slow for high-volume transactions.
It can move fast enough because you have to remember the flip side of this is that ACH and wires take up to two days. And sometimes if there's a weekend in between, it could be up to four days. This is almost instantaneous. On a relative basis, it's good enough for financial transactions.
What role is your partner Tassat playing in this real-time platform? Is it the technology provider for the real-time payments platform?
They are our vendor, that's right. We're their first real customer, so we're helping them [establish a] road map. We're thinking about how we can bring in other banks. We're thinking about how interbank settlements could work. We're working on technology innovations that allow us to be able to take this partnership to the next level.
Do you think of Signature Bank and Silvergate Bank as your primary competitors here?
Signature and Silvergate are the first movers. They've done an incredible job. They have paved the road. We have a lot of respect for what they've been able to do. But the market is big enough that they don't have the ability to handle all the payments plus all the processes. All of us are helping to advance the ecosystem.
