Fintech

How BankProv switched from community banking to crypto banking

BankProv is almost 200 years old, but it's competing with new banking startups by going after the newest area of finance — crypto.

BankProv’s main office in Amesbury, Massachusetts.

BankProv's main office in Amesbury, Massachusetts hearkens back to its past. But the bank is looking to the future.

Photo: Google Street View

When BankProv was started, horse and buggy was state of the art for moving money. Now it's looking to use bitcoin and ether.

The bank was founded in 1828 as the Provident Bank — a name it kept until last July — and now wants to be a key provider for crypto companies that need banking services.

Crypto companies need traditional banking services for a variety of purposes. But they can face a hard time getting access to financial services, because big institutions may not understand or trust them.

"There's a gap in who will provide banking services for them. They're safe and legal entities," said Carie Kelly, senior vice president of virtual banking at BankProv. "They're tired of hearing 'no' from other institutions."

It's easy for community and regional banks to see nimble neobanks and national online banks just as competitors for deposits and loans. But some instead see an opportunity to work with nonbank fintechs, either as sponsor banks or by providing services to these tech companies.

BankProv, the tenth oldest financial institution in the U.S., is looking to fill those needs with a number of services, from providing traditional business banking services to crypto firms to engaging in new forms of lending backed by crypto deposits and creating a real-time payment network. BankProv's main crypto clients are crypto software and protocol developers, crypto exchanges, crypto mining operators and large investment firms, as well as a few bitcoin ATM companies.

While the crypto industry's regulatory system is tangled and still unresolved, most crypto companies are businesses that need to deal in fiat currency at some point. For that, they need a regulated bank.

While BankProv is smaller than some other competitors in crypto banking such as Silvergate, it's hoping to leverage its long history along with new products to build out its crypto customer base.

BankProv offers banking as a service, offering APIs through startup Treasury Prime to connect with its banking products. There's also traditional business banking — which is used by crypto companies — with services such as deposits, loans, wire and ACH transfers, real-time payments and remote deposit capture. BankProv has seven branches in Massachusetts and New Hampshire and $1.5 billion in total assets and $1.3 billion in total loans in its most recent quarter, according to filings.

With the high volatility and risk involved in crypto, insurance is a selling point. BankProv has unlimited insurance for its deposits through the Depositors Insurance Fund, a Massachusetts-based private insurance company started in 1934 that provides unlimited deposit insurance above the $250,000 FDIC limit. DIF has about $500 million in deposits and is funded by its member banks. That unlimited insurance is appealing to crypto companies that may have some high risk, BankProv COO Joe Mancini said.

In 2020 BankProv released its first crypto loans backed by bitcoin. With this program, businesses can get loans backed by the crypto that they hold. It's similar to a traditional loan except that instead of using real estate or stock or other assets as collateral, they're using bitcoin. These loans can be either for BankProv's clients to loan out to their customers or for the clients to get the loans themselves — though they are mainly for loaning out to end customers.

In June, BankProv extended this program to ether-backed loans through a partnership with crypto custody bank Anchorage Digital. BankProv provided a $36 million line of credit to Anchorage, which then lends out dollars to its customers that have investments in ether and want a loan. By getting this loan, the customers or investors who hold ether don't need to liquidate their crypto to get a loan.

There are some differences from a traditional loan due to the wild volatility of crypto prices. BankProv has a system that tracks pricing continuously and sends alerts if price swings could trigger a margin call. If a customer gets that notification, they have a certain amount of time to add more bitcoin or ether to return the loan to its approved loan-to-value ratio, Mancini said.

"We've tested it. Every call we've made has been fulfilled. It's good to see the system working," said Mancini.

The bank also has ProvXchange, a new service that enables real-time payments between BankProv clients. This is appealing to tech-focused companies that are used to crypto-based transactions. "You can send payments and transfer funds at any point, in real time," Mancini said. Competitors like Silvergate and Signature also offer similar services.

BankProv's big move into crypto was headed by Dave Mansfield, who became CEO eight years ago after serving as CFO. Once known as a traditional community bank, the bank has been steered by Mansfield into building out these new business lines using his regulatory background to bring a focus on compliance to these new markets, Kelly said: Mansfield was previously a bank examiner.

About four years ago, the bank started moving into crypto and BankProv started interviewing crypto businesses and finding out what they needed. It started out with deposit services for crypto companies, Kelly said.

While serving crypto companies which are dealing heavily in cryptocurrencies, the capital BankProv holds for these clients is in fiat currency — which companies use for paying bills, payroll and other cash needs. That's an important distinction for the bank. Its customers may be exploring the Wild West of crypto, but BankProv is making money by taking care of their old-fashioned finance.

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