Banking

‘You have to either go with a crappy bank or slip through the cracks’: The reality of getting banked as a crypto firm in Europe

Quick Take

  • Mid-size European crypto firms are facing a double-pronged banking crisis
  • The handful of small, “crypto-friendly” banks are seemingly only friendly in name, accepting only a select-few firms, while “blockchain phobia” among mainstream banks continues
  • Many firms are now resorting to back-room deals or facing long, expensive delays to get banked via alternative institutions
  • There are some preliminary plans to meet the serious demand for a Silvergate-equivalent in Europe, but not in the short term

£20,000 a month. It’s a steep price to pay for a checking account, but firms like crypto exchange LBX have little choice thanks to the sorry state of crypto banking across the Atlantic.

European firms face a serious issue, according to newcomers in the space. They lack options akin to the U.S.’s Silvergate; an eminent crypto-friendly bank that has onboarded hundreds of firms, while “Tier 1” institutions remain at a safe distance. 

This climate has given rise to a lucrative market of banking alternatives and consultants in Europe, which firms can enlist to help navigate the complex landscape. For a price. While they’re helping mid-size firms get rolling, their services don’t come cheap, hitting companies’ bottom lines.

A tough crowd

While there’s no shortage of banks in Europe advertising themselves as forward-thinking, innovative institutions, in reality, the options are few and far between; particularly for newer and mid-size firms.

Let’s take Fidor Bank, arguably the best-known EU provider, which is seemingly so enthusiastic it has a dedicated crypto onboarding page. However, according to sources who tried onboarding with them from the UK, Fidor isn’t as “crypto-friendly” as they seem.

“We bounced around department to department for 12 months before giving up,” said the director of one crypto exchange, adding that the bank “switch[es] their applications for crypto businesses on and off.”

Fidor did not respond to a request for comment about the number of crypto clients it serves. However, to date, it has only announced partnerships with Kraken and major European peer-to-peer exchange bitcoin.de, which required a new set of Terms and Conditions be created for them after an 18-month process. As such, while it may not be impossible to get accepted, it’s likely an exclusive bunch.

Similarly, LHV Estonia is known to bank at least two major crypto firms, including Coinbase, but none of smaller clout. It has also not yet launched a direct faster payments service, which is arguably central as a banking service.

Meanwhile, Falcon bank, another European crypto-friendly option recently closed operations in London. Others like Italy’s Bank Sella limit their services to two locally-based firms with the largest clout.

Elsewhere, Bank Frick, the Lichtenstein-based bank covered by Bloomberg and the FT, saw the mysterious murder of CEO Juergen Frick in 2014; a history that has scared off larger firms.

“Banking with a Lichtenstein bank with a history like that isn’t an option for us,” David Fauchier of London-based Cambrial Capital told The Block.

Fauchier said he also tried to get onboarded at one of the UK’s major competitor banks, Metro, but despite getting access to the top exec there he got shunned once identified as a crypto hedge fund manager.

Indeed, most Tier 1 banks aren’t interested, says Ben Dives, CEO of LBX Exchange.

“If you put ‘blockchain’, or ‘crypto’ or ‘bitcoin’ on a business bank account application, 99% of the banks in the EU will decline you,” Dives tells The Block. “We went to all of the [banks]…The reality is crypto is still considered very high risk.” 

Even a UK crypto lobbying association struggled to get banked according to one source.

The best of a bad bunch

This brings firms to the back door of a reputable bank, Cambrial Capital’s Fauchier said.

“You have to either go with a crappy bank or slip through the cracks,” the crypto hedge fund manager tells The Block, saying he chose the latter route via a bespoke U.S. bank after a 9-month endeavor.

Other sources say Barclays bank has “one guy” who can help crypto firms “slip through,” but the bank is not publicly accepting of crypto applications. The source would not disclose the name of the Barclays employee, calling him a “trade secret.”

Alternatively, LBX Exchange is one of many that have resorted to banking with a third-party electronic money institution (EMI). But it reportedly charges £20,000 a month for the short-in-supply service, providing the appropriate compliance systems and balancing the risk appetite. Coinfloor, another UK exchange, has also opted to store its funds and pay its bills via an EMI for an undisclosed fee.

Another option is to pay consulting firms for an extra helping hand. For example CoinAcquiring, a London-based consultancy charging £500 for an initial consultation plus follow-on fees, and claims to have seen 200 clients in the last year, such is the demand. Such firms are profiting from the roadblocks, promising to connect firms with their “banking partner” at one of a dwindling number of crypto-friendly banks in the region.

Indeed, those who have gotten legitimately banked know they are a rare breed. Among them is upcoming London-based securities token exchange Archax, who recently received banking approval from Clearbank, a UK challenger clearing bank.

“In our experience, innovative forward thinking banking providers do exist [in Europe], they are just in the minority,” Archax’s CFO Matthew Pollard told The Block. He added that for the most part, UK banks are ignoring a government mandate to foster SME entities. “It is clear some banks are shirking this mandate when it comes to crypto businesses. Distributed ledger technology is seen as an immediate “no” to some, just stopping the conversation dead.” 

Or, of course, there’s the option to ignore the banks altogether, as Mark Lamb’s crypto derivatives exchange CoinFLEX has opted for, paying employees in crypto instead. Still, that’s not an option for EU-registered firms, who legally must have a European current account and custodian. 

Distant hope?

Clearly, there’s a gaping hole in the market begging to be filled by affordable, widely available banking options. Upcoming initiatives include DAG Global, which is currently crowdfunding, pitching itself as the much-needed Silvergates of the EU in years to come. LSV Estonia also recently launched operations in the UK, although it’s unclear what their criteria for onboarding smaller firms or their fee-structure will be. Elsewhere, Dives of LBX says the firm is pivoting away from being an exchange only to operating crypto business accounts for other companies. He says his battles with banking has encouraged him to fill the demand.

“Because we understand how to mitigate that risk, we’re confident we can support other businesses who don’t want to go through the headache.”

Still, the roadmap looks long and shrouded in regulatory and funding uncertainty.

So for now, America, spare a thought for your fellow Europeans, and their painstakingly tricky fiat-banking ordeals.

Note: This piece has been updated to include additional details and banking experiences. It also emphasises that the wealth of those experiencing difficulties are small to mid-size firms. Please also note the list of banks included here is not exhaustive.