Category Archives: banks

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Banks, Easy Target for Fintechs

Banks Easy Targets for Fintechs

The University of St. Gallen lecturer Matthias Weissl has pointed the finger at traditional banks as being easy prey for fintech companies, by being slow and unhelpful in crucial financial services such as settlement times, access and adoption of change.

Writing in Fintech Times, Weissl says that the way forward for banks should be to embrace automation, as it has obvious benefits for customers as well as businesses, not least in reducing manpower costs without the increase in software costs, reducing delays in processes and getting rid of human errors. For the user, it’s a simple proposition: faster, simpler, cheaper experiences.

But he admits that banks do not deliberately dally on adopting automation, as regulations and their increased importance have sometimes caused banks to derisk entirely by choosing to stay safe by sticking to old infrastructure that is already legally compliant.

The time it takes to migrate is another problem he says, citing Switzerland’s Credit Suisse, which will only completely migrate to a new IT infrastructure in four years at quickest. This is something that many banks will loath to consider as they want to remain competitive with growing volumes. He writes:

“Internet data is almost doubling every year and is projected to exceed 400 Exabytes per month by 2022.”

However, Weissl says banks have no choice if they want to survive because they are already lagging behind in terms of efficient profitability. He uses the example of UBS, the largest bank in Switzerland could earn USD 100 million in 2017, but needed 210 employees to do so. On the other hand, China’s Ant Financial needed fewer than half of that headcount — 100 employees — to earn the same amount.

He also said that the hours, days or weeks to open a bank account compared badly to several minutes on a fintech account like Revolut or N26. Transactions are not any better, with banks and clunky codes needing days, compared to a fintech transaction which happens in the app and instantly.

However, Weissl believes some banks are realizing this, and that a wave of change is coming with smaller institutions considering blockchain-based tokenizations to adapt:

“Small banks already express high interest levels… regarding the tokenization of physical assets and funds in order to increase their liquidity.”


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Top Irish Banks Take to Blockchain to Validate Employee Credentials

Ireland's 3 major banks incorporate Blockchain to verify employees' credentials

In an attempt to maintain the regulatory standards of the Central bank of Ireland, three of the “Big Four” banks are collaborating on a new education-based blockchain platform aimed to validate their employee credentials. The announcement was made during Blockchain Ireland week, hosted by government agencies and tech firms.

As reported by Irish Times, AIB, Bank of Ireland and Ulster Bank are teaming up with accounting firm Deloitte. The platform was built on the Ethereum blockchain by Deloitte’s EMEA Blockchain Lab which is based in Dublin.

Minister of Finance Pascal Donohoe said:

“[The Government] fully supports the development and adoption of new technologies like blockchain, as a way to encourage digitalization and foster innovation.”

All the employees of the banks will be provided with digital wallets which will contain their credentials. This will help them in conforming to the regulations of the Central bank of Ireland for maintaining a certain degree of standard when it comes to senior employees.

Mary O’Dea, Chief Executive of the Institute of Banking, said:

“(It’s) all about sustaining the highest professional standards for the benefit of the customers who are served by the financial services industry,”

Ireland’s Institute of Banking comprises 23,500 employees, and the project is expected to run till the mid-2020s.  The use of blockchain-based technology for verification of qualifications and credentials is experiencing growing popularity.

In another instance, the United States Securities and Exchange Commission took to Blockchain to set up a better verification model to evaluate the government department. In 2018, the Malaysian education ministry developed a blockchain-based platform to eliminate all kinds of fraudulent degrees. Similarly, back in 2017, the Massachusetts Institute of Technology (MIT) issued Blockchain based digital certificates to implement verification of these certificates by potential employers and other parties.


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India Worried Crypto Could Destabilize Rupee

Crypto Could Destabilize Rupee, Says Indian Gov’t Committee

A report by Quartz India suggests that the Indian government is concerned about the effect cryptocurrency may have on its national currency.

According to the article, a high-level panel working on a cryptocurrency regulatory framework has observed that a less-explored area for crypto use does exist and possesses as much risk as with the already established concerns of money laundering and terror financing.

The committee, led by the economic affairs secretary in the ministry of finance Subhas Chandra Garg, has expressed concerns about the impact of cryptocurrency on Indian rupee in the long term should it become a recognized medium of exchange.

“If Bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilizing the fiat currency is a major concern for them [the Garg panel],” the post reads, citing an anonymous crypto enthusiast who met with the ministers.

The article has cited another report compiled by the Bank for International Settlements (BIS) — of which the Indian central bank is a member — as being the basis for the fears which are further amplified by the uncertainties cryptocurrency may have on the financial ecosystem as a whole as current frameworks are void of an encompassing metric system to account for such scaling effects. More so, the BIS may also be worried that central bank issued digital currencies may also contribute to the instability of the financial system as well.

Perhaps these may be legitimate concerns, as cryptocurrency has so far demonstrated scaling features that could put legacy systems out of commission, and hence affect traditional banks that are unwilling to upgrade. Some forward-thinking financial institutions have begun exploring how to use the blockchain for interbank relations and are considering a digital currency to that effect.

While the banks involved in the transition to blockchain-based systems have stated that the digital currency will be for cross-border payments and would only involve bank-to-bank transactions, the BIS had warned last year that digital coins might destabilize traditional lenders if offered widely to the general public.

The legality of cryptocurrency in India remains flimsy since the committee involved with drafting a regulatory framework have given mixed signals on their stance with digital currencies. At one time, they recommended a ban on cryptocurrency, and later on, warmed up to the idea that “cryptocurrency cannot be dismissed as completely illegal”. With plans to develop its own state-backed cryptocurrency currently on hold, the threats may have indeed been real to the nation.

Rahul Raj, founder of Koinex, has opined that such worries are premature, as nothing of the sort could happen in the near term given that cryptocurrencies are only being used in a very small circle for purchases. But it was further suggested that the concerns can only become of effect if blockchain has scaled to the level of Mastercard and Visa.

Bitcoin News published early today a report on a sample poll survey revealing that in the US, only 3% of people used Bitcoin to make purchases in the past month. This goes further to prove Raj’s point and while the hype about cryptocurrencies is mainly bolstered by the speculative value, the utility aspect of most blockchain products are still a while off from full-scale adoption.


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CBDC Study: Mixed Sentiments but Positive Outlook from 21 Central Banks

Central bank digital currencies (CBDCs) are currently being trialed and researched by a number of major central banks around the world.

Statistical findings

Released on 25 October 2018, the collaborative study between IBM Blockchain World Wire and the Official Monetary and Financial Institutions Forum (OMFIF) has found that 38% of the 21 central banks studied and trialed CBDCs to “inform the next upgrades” of their real-time gross settlement (RTGS) systems.

The remaining 62% were not active in this field, though the study does reveal a growing sentiment toward distributed ledger technology (DLT) in fintech, as well as smart contracts.

According to the report, central bank experiments with CBDC DLT systems resulted in “mixed results”, which it boils down to the mixed objectives set out by researchers, seemingly these goals are outlined by “novel avenues” being explored as opposed to the creation of an entire RTGS system replacement.

A majority of the respondents (76%) were unsure as to whether or not DLT is the solution, questioning its ability to live up to the hype with regulation being a contentious area. That said, the report notes that the central banks themselves are not putting sufficient effort into to researching the regulation of DLT payments and how they would work.

Of all the legal frameworks available that wholesale CBDCs would have to abide by, the Principles for Financial Market Infrastructures (PFMIs) are most relevant, which are the international standards for “payment, clearing and settlement systems”, as defined by the Bank for International Settlements.

Expert views

Lael Brainard, Federal Reserve Board of Governors offers a quote to the report saying: “Digital tokens for wholesale payments and some aspects of distributed ledger technology – the key technologies underlying cryptocurrencies – may hold promise for strengthening traditional financial instruments and markets.”

The report concludes that cross-border collaboration is essential to overcoming the complexities that come with RTGS in domestic and cross-border payments.

Michelle Bullock, Assistant Governor (Financial System) of the Reserve Bank of Australia (RBA), writes that “cross-border payments are widely regarded as an area in which significant efficiency gains exist. Current processes are slow and costly, involving significant compliance burden and a number of different financial institutions in different jurisdictions.”

Offering somewhat of a solution, she adds, “New technologies and new business models could be used to address some of these frictions.”


Aside the statistical results and opinions, the report also breaks down particular areas of the subject across five sections, also offering some suggestions for those seeking to create CBDCs and how to manage particular issues that may arise.

It also makes note of several countries that are actively exploring DLT solutions and engaging with the potential issuance of a national CBDC, such as the Bank of Thailand who is developing a wholesale CBDC and has successfully tested its key payment capabilities, and the Bank of Canada who have tested DLT in payment systems to mixed results.

Furthermore, the need for a cooperative international regulation effort is considered as “critical” by the study, writing that PFMIs offer a “solid foundation”, but are limited as a long-term solution due to the potential of “regulatory arbitrage in different jurisdictions”.


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Bitfinex Launches Distributed Banking Solution for Fiat Deposits

Bitfinex, the largest USD to Bitcoin exchange in the world, has been making headlines recently with their banking troubles. Fiat deposits on Bitfinex were officially halted for about a week, while simultaneously the Bitfinex subreddit is filled with complaints that fiat withdrawals are not functioning correctly, even though Bitfinex says fiat withdrawals never stopped working. Bitfinex launched a new distributed banking solution on 16 October 2018 and has restarted fiat deposits for USD, GBP, JPY, and EUR.

With the new system, users initiate a request to deposit fiat, specifying the exact amount of fiat they wish to deposit. The user’s account is then reviewed, and then they receive a deposit notification telling them where to deposit the fiat. The user then deposits the fiat, which is processed in 6-10 days. The minimum deposit is USD 10,000, and there is a deposit fee of 0.1%.

This distributed banking solution for fiat deposits sounds similar to the method used by Bitcoin dealers on LocalBitcoins for many years. Large Bitcoin dealers generally have accounts with multiple banks, often under many different names, and they tell their clients where to deposit fiat on a case by case basis. This sort of system is done to distribute deposits between banks so that the load on each bank account is minimized. If a Bitcoin dealer uses the same bank account for every deposit they usually have their accounts shut down since a huge volume of deposits from many different people is suspicious to the bank.

Bitfinex is the largest USD exchange in the world, so even if they distribute fiat deposits between numerous different banks, the volumes in each bank will likely be high enough to raise suspicions. This system might work for a temporary period at each bank, but there is a large risk of Bitfinex’s bank accounts getting closed sporadically. It seems Bitfinex is removing risk for themselves by putting a 6-10 day wait period to approve a fiat deposit, but that certainly does not remove the risk for their customers who could end up getting deposits stuck in limbo if the bank they deposit to freezes the bank account.

Bitfinex seems to welcome the challenges that will come from dealing with banks like this, saying “We believe this system to be significantly more durable in the face of sustained attacks by our competition and their supporters. Ongoing campaigns against us will only result in our company becoming stronger and better”. This is the same sort of attitude that Bitcoin dealers have when dealing with banks. Generally, as Bitcoin dealers lose bank accounts, they simply add more bank accounts under different names, generating a prolific underground network to send and receive fiat. It seems Bitfinex is on track to doing something like that.

This distributed banking solution launched by Bitfinex is certainly not ideal. It is better for a crypto exchange to have a solid banking relationship with a single bank, rather than trying to circumvent the system with many banks. Coinbase processes fiat deposits and withdrawals relatively quickly when compared to Bitfinex since it is compliant and follows all regulations. This makes the customer experience much less stressful and more efficient on Coinbase versus Bitfinex. Generally, the longest a fiat deposit or withdrawal should take is 3-5 days with ACH, and Bitfinex’s deposit system is much slower than that.

The price of Bitcoin on Bitfinex continues to be more than USD 300 higher than on Coinbase and Bitstamp as of 17 October 2018, suggesting that arbitrage mechanisms are not working. This indicates that fiat functionality on Bitfinex continues to be inefficient, since if it was efficient then arbitrage traders would bring Bitfinex’s Bitcoin price down to the global market price.

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QuadrigaCX Crypto Exchange under Siege by Canadian Banks

QuadrigaCX, which is the largest crypto exchange headquartered in Canada, is under siege by Canadian banks. The Canadian Imperial Bank of Commerce (CIBC) seized USD 28 million from QuadrigaCX’s partner Costodian and the owner of QuadrigaCX, Jose Reyes, back in January 2018. This is a big sum of money for QuadrigaCX, since although it is the biggest crypto exchange in Canada, it processes less than USD 1 million in trading volume per day.

The CIBC filed a case with the Ontario Supreme Court of Justice, asking the court to take control of the funds, and for the court to decide if the funds belong to QuadrigaCX, Costodian, or the 388 customers which initially deposited the funds. QuadrigaCX is asking the court to unfreeze the funds, since it already credited customer’s accounts with Quadriga Bucks. It is unclear if the exchange will end up being insolvent if it can’t recover the money but at this time, it is still up and running – about ten months since funds were seized.

The reason for the seizure of the USD 28 million is unknown but highlights the continued friction between the crypto space and the banking system. The fund seizure occurred when Bitcoin was declining rapidly after hitting an all-time record of USD 20,000. Possible reasons stretch from money laundering to terrorism or Bitcoin being too risky for investors because of price swings. QuadrigaCX asserts that the CIBC is trying to find a reason to justify the seizure of the funds, and didn’t have any good reason for doing it. Further, it asserts the CBIC is part of a Canadian banking cartel that is trying to stifle Bitcoin, including the Royal Bank of Canada, the Bank of Montreal, and the Bank of Nova Scotia.

The freezing of bank accounts and seizure of funds is common in the crypto space. Although QuadrigaCX talks of a Canadian banking cartel, similar situations happen in the United States too. Banks can freeze, seize, and close accounts for any reason and don’t have to disclose the reason, although the law does say that money eventually has to be returned unless its associated with illegal activity.


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50cycles Banking Debacle Reveals Attitude of Banks Towards Bitcoin Trading

The owner of 50cycles, Scott Snaith is experiencing a banking nightmare after performing some relatively small peer to peer trades on Localbitcoins. Localbitcoins is the most popular peer to peer Bitcoin trading site in the world, where individuals can contact each other and exchange Bitcoin for every fiat payment method imaginable while using an escrow system that ensures minimum scamming. However, Scott Snaith did some deals in excess of USD 10,000, as little as 2 bitcoins, and his bank accounts with Barclays and HSBC were frozen. He received cash in his personal bank accounts in exchange for Bitcoin, but then those personal accounts and a connected business account were frozen.

Scott Snaith says “My two personal bank accounts and business account were frozen for using a well known Bitcoin trading site. No unlawful activity has taken place but just because the word ‘Bitcoin’ was mentioned my accounts were locked instantly. A ‘senior fraud advisor’ then closed my complaint off – leaving me with no choice but to take the issue to the Financial Ombudsman for appeal. This situation is a complete nightmare and the knock-on effects have been unbelievable. One of my staff left as they had just had a baby and couldn’t afford to be in a job that was unable to pay them, which isn’t surprising. I’ll never be able to bank with Barclays again. I’m a professional business owner taking advantage of new financial technologies and it looks like the banks are failing to keep up with their customers’ habits. We are the ones being punished. The banks are deliberately creating obstacles. They are anti-digital currency and displaying a new form of financial discrimination. The message is clear: your funds are not yours”.

Apparently, Scott Snaith had been exchanging the Bitcoin as part of research and development for his business 50cycles, which rewards a cryptocurrency named TOBA for every mile pedaled, about GBP 20 for every 1,000 miles. As seasoned Bitcoin traders know, frozen bank accounts are a common consequence of trading Bitcoin peer to peer, or even trading with an exchange. As Scott Snaith experienced, banks don’t have to give a reason for freezing an account and can hold the money long term or even outright seize it. Banks do this under the guise of protecting customers, while in reality, they are crippling their customers who use Bitcoin.

Perhaps some people would say Scott Snaith would have had better luck if he used his business account instead of his personal account, and the best way would have been to exchange the Bitcoin with an official regulated exchange like Coinbase via his business account. However, as Bitcoin traders know, even when doing everything with business accounts and official exchanges eventually the bank freezes the account anyways.

The most logical explanation that banks have is Bitcoins from Localbitcoins could be from money laundering, but they usually don’t explicitly say this since they are not required to give a reason. Banks have the right to freeze funds at will, that’s in the terms and conditions when people sign up for bank accounts. This logic breaks down when people have their bank accounts frozen even if they’ve only exchanged Bitcoins with an exchange like Coinbase, at that point, it becomes clear that banks have a very negative view of Bitcoin.

This incident and similar incidents that numerous other Bitcoin traders have experienced reveal a strong point of Bitcoin. Banks are centralized and can freeze money and ruin businesses at will. Bitcoin is decentralized, and can never be frozen or seized. This makes Bitcoin a much better option than banks for business and any other financial needs.

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