Embracing digital assets just got easier for middle-market companies. The buzz surrounding cryptocurrency is deafening. With nearly 680 million transactions on the blockchain to date, the cryptocurrency market is predicted to grow from $1.6 trillion in value to $2.2 trillion by 2026, at a compound annual growth rate of 7.1%.
The market is bifurcated, with retail investors at one end and large financial institutions at the other, where Standard Chartered, BNY Mellon and Citibank lead the pack. These three banks alone have poured $980 million into just 25 crypto investments.
While the trajectory is clear, corporate crypto progress — especially in the middle market — has grabbed fewer headlines. Around 440 large U.S.-based businesses had dipped their toes into digital payments by the end of 2020, including global companies as wide-ranging as AXA, Sotheby’s, Expedia and Pavilion Hotels.
While many businesses — beyond the well-publicized journeys of Tesla, Square and MicroStrategy — are incorporating crypto payments and holdings into their operations, others are unsure where to start. BVNK, a new digital asset platform — and digital finance partner to Pavilion — wants to change that.
Smoother payment processes
While transactions in fiat currency can still take days to clear, accruing costs and taking up expensive resources, companies using digital currencies are working in real time, operating with greater transparency and ensuring accurate revenue sharing, while also providing the potential to generate significant returns on assets that would otherwise languish on a balance sheet, earning next to nothing.
As cryptocurrency is an asset class still in its infancy, the prospect of operating using crypto may be daunting to potential users. In BVNK’s experience, customers — whether high-net-worth individuals, forward-looking family offices or progressive mid-market corporations looking for a financial services partner — typically start with payments and investments.
“These two areas–payment and investment–are those in which we’ve seen the biggest hiccups and were the genesis for the idea of our business,” explains Chris Harmse, co-founder and Managing Director of BVNK. Having established a payments solution using blockchain technology through his original company, Coindirect, and seeing the exponential rise of the digital capital market infrastructure, the idea of bringing these innovations together was a no-brainer.
“Greater liquidity in capital markets enables new business models, and we were already solving traditional payment issues in the existing business. We merged them together, anchored by BVNK business accounts, which now serve as the gateway,” he explains.
Servicing the middle market
BVNK describes its clients as often too small to be serviced effectively by large financial institutions, leaving a large chunk of the middle market with unmet needs. “They were stuck in this void,” says Harmse. “Clients typically come in through the payments angle — and [by using BVNK], they don’t have to pay in one currency, only to then have to move it in five days, nor do they have to pre-fund accounts. They can just move their money in a couple of minutes on the blockchain, and their liquidity sits wherever it needs to, and they have one centralized treasury.”
Customers can select just one product, or they can streamline their operations by using BVNK for all their needs: BVNK Payments; earning on their digital assets with BVNK Yield; and gaining exposure to Bitcoin and other cryptos through BVNK Markets and the platform’s trading services.
Removing the pressure points
As digital payments are more widely adopted, it is little surprise that corporate treasurers want to position their balance sheets accordingly. According to Deloitte, companies that are able to receive and disburse crypto can assure a smoother exchange with key stakeholders.
“It depends on their risk mandates, but some companies are choosing to hold digital assets on their balance sheets in response to the revenues they are receiving digitally,” says Jesse Hemson-Struthers, BVNK’s co-founder and CEO.
Crypto is able to alleviate the pinch points of many traditional treasury activities. Executing real-time money transfers safely and securely allows financiers to keep a tighter rein on their corporate balance sheets, while leveraging the digital opportunity more broadly.
The use case for crypto is strong and interest is growing among many multinationals, according to Bloomberg Intelligence Senior Fintech and Payments Analyst Julie Chariell; the word on Wall Street is that many names in the Dow 30 are readying their operations. But their first challenge, she says, is putting the right talent in place.
Rahul Bhushan is a co-founder and Investment Strategies Lead at thematic exchange-traded fund (ETF) provider Rize ETF, which recently launched a product focused on the digital and cryptocurrency economies. Like Chariell, he believes that a skills shortage is one of the most immediate barriers holding back the entire digital finance sector.
“Given the relatively nascent stage of crypto, the number of technically proficient people is limited,” he says. “Companies are recognizing that they won’t find the talent in the usual places or can’t expect them to relocate. We expect to see an increasingly fragmented corporate structure where key people are based in multiple locations.”
Another challenge Chariell sees is the conflict of interests facing the big banks, whose traditional and arguably more onerous business processes generate the lion’s share of their fees; by moving toward the digital economy to benefit customers, they risk cannibalizing their more profitable — albeit antiquated — operations.
Bhushan believes that the entire concept of “the big banks” has become something of a misnomer; PayPal is already bigger than Citigroup, Goldman Sachs and Morgan Stanley, while Square already outranks HSBC, BNP Paribas and Société Générale.
“We are not convinced that the old banking businesses have a non-digital future. It’s far more likely that as the digital finance disruptors become bigger, more old banking businesses will get absorbed into their digital ecosystems, with them literally giving the traditional banks a run for their money.”
Beyond hiring the right talent, corporations looking to develop their internal cryptocurrency strategy need to set their commercial objectives and establish a risk tolerance framework, and assign the right internal champions, external partners and advisors.
For Hemson-Struthers’ prospective clients, one of the main areas of resistance to holding digital assets is uncertainty around taxation — for instance, on earned yield. It’s vital to fully understand the tax situation for the particular country of operations, such as noting any rules surrounding business versus personal declarations. While tax regulations for digital assets are evolving and can be inconsistent and complex, with many gray areas still existing, BVNK has embraced this challenge as part of its added-value offering.
Such customer concerns have helped inform the features of BVNK’s new proposition. “We’ve built functionality that allows our customers to do full reporting on any kind of income or fees derived from the assets that are on loan,” Hemson-Struthers says. “We also offer support on the different tax regimes that might be applicable to them.”
Elsewhere, customers have expressed reservations over counterparty exposure and the robustness of underlying-asset custody. With core business values that rely on accessibility and transparency, managing such risks underpins BVNK’s entire model, opening the world of crypto to those who might have been overlooked by others.
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