After two years of laying the groundwork, crypto-friendly Arival Bank is launching in beta Thursday. (Yes, even a bank can "launch in beta" these days.)
But there's a catch: If you want to bank with Arival and you own crypto you also need to show what’s in your wallet.
The firm is using tools from the blockchain analysis firm Elliptic to scan the crypto addresses that onboarding clients provide and see if there are any suspicious transactions.
“To the extent that Arival will be servicing crypto customers, we take very seriously the need to complete due diligence to ensure they are regulated and legally compliant issuers. Arival has no intention of servicing non-compliant entities or bad actors,” such as those under the U.S. sanctions, co-founder and chief operating officer Jeremy Berger said.
The conditions are a stark reminder of the cryptocurrency industry's uneasy relationship with the legacy banking system. Traditional institutions have largely been loath to provide even basic accounts to the young sector's startups, for fear of enforcement actions if they even inadvertently facilitate money laundering, sanctions violations or other financial crimes. The revenue from the relationships often isn't enough to justify the risk in bankers' minds, and the few willing to do business with crypto firms, therefore, take a belt-and-suspenders approach to customer due diligence.
While monitoring a client's crypto dealings, Arival's compliance department would pay attention to things like where the clients and their own customers come from, transaction volume on the wallets, “specific cryptocurrencies utilized, conducting a transaction with a shell company” and other factors, Berger said.
The clients are obliged to report if they own crypto, and Arival will be looking out for publicly available information pointing at that, he said. “We do media checking so we see if the client has involvement in the crypto space, and then we make an educated guess that they do have a crypto wallet.”
A failure to report the fact of owning crypto would put a client “in a high-risk category” and potentially lead to suspending the account “until further investigation and receipt of corroborating information,” Berger said.
In the “beta” stage, clients will only be able to open a business account with Arival, park their funds and transfer it around the world if they need it, with more options coming later this year, Berger said.
In the pipeline for the coming months are individual accounts, card issuance, analytics products for businesses and remittances in different currencies. Arival is also aiming to introduce lending and deposit and savings products down the road.
According to Berger, there are around 3,000 prospects on Arival’s waiting list, and the firm will now start onboarding those clients. They come mostly from U.S., U.K, EU, Hong Kong, Singapore and more than 60 other countries.
Potential clients, Berger said, include new venture-backed crypto and fintech startups; crypto exchanges overseas that want to allow dollar deposits but have a hard time opening a U.S. bank account; independent contractors; and micro-businesses of three to five employees.
All of those businesses can open an account with Arival without visiting a physical office, Berger said. Crypto disclosures aside, the know-your-customer (KYC) procedure is quite painstaking, he said: A potential client needs to submit a selfie, a video, and three types of identifying documents.
Then, Arival runs the data through multiple datasets, from social media monitoring to face-recognition tools.
Arival applied for a Puerto Rico International Financial Entity (IFE) license in August 2018 because it is easier to get than a U.S. bank charter. However, the process turned out to be far from easy anyway: Arival has only received a preliminary approval (“permit to organize”) so far.
Part of the reason was the Puerto Rico authorities have been dealing with hectic times recently, with U.S. regulators cracking down on the country’s banking industry last summer and the coronavirus pandemic leaving government offices shut for almost two months this year, Berger said.
However, Arival is on its way for a full IFE license and has made overtures in other jurisdictions as well. The firm applied for a digital wholesale banking license in Singapore and an electronic money institution (EMI) license in Lithuania, Berger said.
Igor Pesin, Arival's co-founder and chief financial officer, said having a variety of licenses will help the firm become “a borderless digital bank and banking-as-a-service partner for global fintech startups.”
Arival was founded more than two years ago by a small team of fintech professionals from Russia and the U.S. with a focus on crypto entrepreneurs and gig economy workers, who may find it hard to get business accounts with traditional banks.
The company raised $2.4 million via a crowdfunding campaign at SeedInvest and is now raising its Series A round, Berger said.
EDIT (15:52 UTC, June 4 2020): A previous version of this article said one of Arival's offices was located in Saint Petersburg, Fla. It's in Miami, Fla.
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