Navigating the U.S. regulatory landscape as a financial service provider is not easy, with laws that vary state by state and federal rules that are constantly evolving. It’s one factor in why so few challenger banks have launched in the country compared to markets like the U.K., where challenger banking has flourished in recent years.
However, there are efforts to lower the barriers to entry for market newcomers. One financial technology firm currently navigating the process of securing a bank charter is Avanti Financial Group, and as it approaches market launch, Founder and CEO Caitlin Long said the firm is focusing on another area of financial services that has struggled to manage complex regulatory challenges: digital assets.
In a conversation with PYMNTS, Long discussed how the U.S.’ ongoing development of a faster payments ecosystem has created space for digital assets and blockchain to play an increasingly important role in the landscape. And while this evolution will have widespread ramifications, Long noted that corporate treasurers stand to benefit significantly from the shift to real-time — if they’re able to seamlessly migrate away from legacy infrastructure and processes, that is.
Normalizing Digital Assets
As a whole, the U.S. has been nowhere near other markets like Japan and Switzerland in embracing digital assets within the banking arena, though it’s not necessarily a surprise.
“The U.S. has been, logically, more cautious in its regulatory approach,” explained Long. “Being the world’s reserve currency, naturally regulators are going to take more time. Things don’t change quickly in the banking industry.”
So it may seem like a big leap in the world of payments for a bank to be built on the foundations of blockchain and digital assets — but as Long pointed out, Avanti will be far from the only one to operate in the space, even in the U.S.
J.P. Morgan’s initiatives in cryptocurrency and stablecoin technology have ramped up in recent months, for instance. There are currently three community banks in the market that provide services to the digital asset arena: Signature Bank, Silvergate Bank and Metropolitan Commercial Bank.
More recently, Visa issued public support of bitcoin and other digital assets in a July blog post that similarly highlighted opportunities in real-time payments. That blog post, Long pointed out, was published the same day that the Office of the Comptroller of the Currency (OCC) released an interpretive letter that offered guidance on banks’ and federal savings associations’ ability to provide crypto custody services.
“That day made an earthquake in digital assets, because to me, it takes the narrative off the table that the government is going to ban bitcoin,” she said.
One of the biggest disruptions of the payments ecosystem as a result of the growing traction of digital assets and the ubiquity of real-time settlement will be felt by corporate treasurers, Long predicted.
Real-time settlement negates the need for batch settlement, which has been the norm in corporate treasury departments and within financial institutions (FIs) for decades. The ability of blockchain infrastructure to store data means transactions can not only be settled in real time, but can also be linked to one specific invoice, opening up the potential for automated reconciliation.
From a cash management perspective, this also means treasurers will have the chance to migrate away from the tradition of using payment terms across a wide swath of invoices, even for transactions where it is not the most economically beneficial to do so. And in the area of cross-border transactions, the transparency that blockchain provides can be unmatched against the legacy processes of the interbanking system.
“Here’s the big ‘ah-ha,’” said Long. “If you can make money programmable, then you can build that money into applications that optimize your processes in corporate treasury.”
Despite the potential benefits of migrating away from batch payments and embracing digital assets to manage company funds, any corporate treasury knows that change is difficult, and will almost certainly be met with resistance.
That’s especially true considering that many of the ongoing initiatives in the traditional financial services landscape to develop real-time payment systems, like the Federal Reserve’s FedNow or The Clearing House’s RTP Network, also aims to facilitate the shift away from batch processing, enhance transactions with value-added data and elevate transparency — leaving some treasurers to wonder why digital assets might be necessary at all.
But what’s key is that these systems can interoperate and coexist with each other, said Long, adding that companies like Avanti should act as a bridge between these two ecosystems to support their coexistence.
The surging adoption of digital assets outside of the banking sphere signals a market evolution in which the technology is going to be a reality, and the traditional banking system — and their corporate clients — must be ready.
“This is not a short-term prospect,” said Long. “But having an alternative is important. It’s not just about being forced into using one of the two legacy systems, or only working through a bank … we’ll have is a menu of options.”