Fintech

Startups see gold in crypto compliance

Transak, Stripe, Plaid and others are helping customers like MetaMask and FTX follow a growing wave of financial regulations.

Sami Start, CEO of Transak

“It looks very simple what we do, but there's a lot of stuff underneath that,” said Sami Start, CEO of Transak.

Photo: Transak

Crypto companies want to build new products fast. Regulators are loading them up with new requirements every day. Now many are offloading key parts of their infrastructure to providers who see a big opportunity in helping crypto stay on the right side of the law.

It’s challenging to handle compliance, fraud checks and anti-money laundering checks on customers, as well as processing fiat payments and setting up crypto onramps across many countries — but it’s all necessary if customers are going to have crypto to spend on your app.

Stripe, which exited the crypto business in 2018, has reentered it in a big way, with FTX.US and Blockchain.com as customers. Transak has signed up a range of customers to handle compliance and payment work. And there are a range of other players, including MoonPay, Prime Trust and Wyre, which was recently acquired by Bolt.

The momentum in crypto compliance shows how the infrastructure supporting many of the largest applications has splintered behind the scenes, offloading complex, critical financial tasks to various parties for handling.

One driver of the business is the pace at which crypto regulations are changing across the globe, making an industry that promises to stay on top of compliance needs even more attractive to customers and investors. The latest big potential regulatory change is the EU’s proposed MiCA crypto bill, which could add significant new know-your-customer and anti-money laundering rules for crypto companies.

While the outsourcing of compliance work and other technical infrastructure occurs in the rest of fintech, the crypto version is newer, since bridges between traditional and crypto finance are not well established.

Catering to crypto

For the crypto industry, this bridgework is critical. But the industry is still nascent and who will ultimately win remains to be seen. Transak’s range of offerings, which compete with several other players, provides a good view into the kind of opportunities that abound.

Transak works with about 100 applications including unhosted wallets MetaMask and Ledger, games such as Decentraland and finance apps such as Cake DeFi. It handles the entire onboarding process for developers' new customers: KYC, AML and converting fiat to crypto so consumers can start transacting.

To convert into crypto, Transak connects with more than 10 sources of crypto liquidity to find the best prices and also holds some crypto on its balance sheet to offer liquidity, said Sami Start, CEO of Transak. This means that customers of Transak’s clients don’t have to leave the app to convert fiat to crypto. “It looks very simple what we do, but there's a lot of stuff underneath that,” Start said.

Because Transak, which works in over 100 countries, handles the fiat-to-crypto conversion, it also handles compliance, fraud and chargeback risks for those transactions, as well as customer service for disputes or other problems consumers face.

“We have built a lot of expertise and systems in house that can detect if a transaction is fraudulent,” Start said. “And then we also have operations to defend against chargebacks.” Many of its customers are noncustodial, which means that unlike exchanges, they don’t hold customers’ crypto and would just as soon not field customer support questions about it.

Transak automates fiat payments for users buying crypto, connecting to debit and credit cards, bank transfer and Apple Pay and Google Pay. It also connects with blockchains on the other side of the transaction such as Ethereum, Polygon and Avalanche.

Since it provides payment services, Transak also competes with some other payment providers. But Transak is not seeking to become a payment acquirer like Adyen or Stripe in traditional payments, Start said. Instead, Transak wants to remain the “merchant of record” — Transak’s name will show up on your credit card bill, not the crypto wallet or game that you’re using the crypto for.

This is a seemingly small but significant difference in the strategies of companies taking on crypto payments. It determines who has the direct relationship with the customer, who is responsible for customer service and complaints and who is handling more or less of the transaction.

Stripe has focused on extending offerings popular with conventional fintech app-makers, like identity checks and payouts, to crypto developers. The pitch is similar, too, with Stripe promising that customers can “stay focused on building your wallet and DeFi products.”

Plaid, another company catering to fintech, has also courted crypto business for payments and identity verification. It signed up Circle in September as a customer for its ACH payments service, and later added Cabital as a customer.

Europe’s compliance push

The MiCA bill is an example of the types of regulatory issues that crypto companies need to navigate, which Transak and others are hoping to build their businesses on.

The provisional MiCA agreement and a related update to fund-transfer rules would extend existing regulations to digital assets and require crypto firms to collect information and personal data on transactions regardless of size.

The changes would beef up KYC and AML rules for crypto. The crypto industry has come out against it, but it appears to be moving toward final passage.

The MiCA bill would provide similar regulation across the EU, which is currently missing, said James Young, head of compliance at Transak. “At present, there is no harmonized regulatory framework in the EU for crypto asset service providers,” he said. “MiCA introduces this framework, which I am sure will be welcomed by many firms who wish to expand into the EU without having to apply to each local regulatory authority.”

The U.S. is not as far along in developing a regulatory framework for crypto, but provisions of the Lummis-Gillibrand bill would bring crypto under the oversight of existing agencies, along with their existing requirements. And the crypto industry has been developing its own compliance standards for requirements like the Travel Rule. Other jurisdictions like India, the U.K. and Singapore are moving to impose their own requirements.

It’s not clear how a prolonged crypto winter might affect demand for these products, but even skeptical regulators are behaving as if they think digital assets are here to stay. That, along with the complexity of keeping up with regulations around the world, will provide a strong tailwind for companies that promise to take the chore of compliance off of customers’ hands.

Climate

How GM plans to make its ambitious EV goals reality

The automaker's chief sustainability officer is optimistic that GM is well-positioned to rapidly scale up the EV side of its business.

"I think everything that’s been put in place to support the transition will be a real positive for the industry and for the country."

Photo: Eva Marie Uzcategui/Bloomberg via Getty Images

Automakers are on the cusp of an entirely new era.

The transition to electric vehicles is quickly becoming more than just theoretical: More models are coming onto the scene every day. This week, the Inflation Reduction Act was signed into law, enshrining a new structure for EV tax credits and offering a boost to domestic critical mineral mining. The transition isn’t coming a moment too soon, given that the transportation sector makes up the largest share of greenhouse gas emissions in the U.S.

Keep Reading Show less
Lisa Martine Jenkins

Lisa Martine Jenkins is a senior reporter at Protocol covering climate. Lisa previously wrote for Morning Consult, Chemical Watch and the Associated Press. Lisa is currently based in Brooklyn, and is originally from the Bay Area. Find her on Twitter ( @l_m_j_) or reach out via email (ljenkins@protocol.com).

As management teams at financial institutions look for best practices to make part of their regular toolkit, they are reaching most for the ones that increase the speed and reduce the risk of large-scale change.

That forward-thinking approach can lead financial institutions to leverage AI technology, which can help give decision-makers trusted tools to solve integral challenges vital to the health of the business. One of the leading providers of AI and machine-learning software, DataRobot continues to attract clients in financial services who want to de-risk their AI investments and rapidly scale AI to almost every part of their operations, resulting in improved productivity and higher customer satisfaction.

Keep Reading Show less
David Silverberg
David Silverberg is a Toronto-based freelance journalist, editor and writing coach. He writes for The Washington Post, BBC News, Business Insider, The Toronto Star, New Scientist, Fodor's, and several alumni magazines. He also writes for brands such as 23andme, Shopify and Bold Commerce. He has served as editor of B2B News Network, Canada's only B2B news magazine, and Digital Journal, a leading pioneer in citizen journalism. Find more about him at www.davidsilverberg.ca
Entertainment

How Embracer Group bought ‘Lord of the Rings’ rights for a bargain

The Swedish holding company, known best for its gaming acquisitions, bought the rights to “The Lord of the Rings.” But the deal is much more complicated than it seems.

Who really owns LOTR's rights?

Photo: New Line/WireImage

A new stakeholder has entered the complex licensing web of “The Lord of the Rings,” and the landmark deal has further complicated the already messy media empire surrounding author J.R.R. Tolkien’s fantasy epic.

The buyer, the acquisition-hungry Swedish gaming conglomerate known as Embracer Group, has purchased Middle-earth Enterprises, and with it the associated film, video game, board game, merchandise, theater production and theme park rights to the core LOTR book trilogy and “The Hobbit'' from its previous owner, The Saul Zaentz Company. Formerly Tolkien Enterprises, Zaentz’s holding group has held onto the rights since purchasing them from United Artists in 1976. (Tolkien initially sold them to UA in 1969, four years before his death.)

Keep Reading Show less
Nick Statt

Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Fintech

Upstart has a new plan to sell Wall Street on its loans

The AI-powered lender will hold some loans on its balance sheet as it seeks partners for long-term capital.

Despite the current struggles, Upstart views the marketplace model as the best way to write to keep its loan business growing.

Photo: Upstart

After a revenue drop its CEO called “unacceptable,” the leadership at fintech lender Upstart is making a bet on the strength of its ability to underwrite loans with AI.

The San Mateo company is planning to leave some loans on its balance sheet that investors do not want to buy, as concerns about the economy shift Wall Street away from backing riskier consumer debt. Rather than pull back on its lending in response, the company said it will hold some loans as it seeks longer-term capital partners.

Keep Reading Show less
Ryan Deffenbaugh
Ryan Deffenbaugh is a reporter at Protocol focused on fintech. Before joining Protocol, he reported on New York's technology industry for Crain's New York Business. He is based in New York and can be reached at rdeffenbaugh@protocol.com.
Enterprise

Does your boss sound a little funny? It might be an audio deepfake

Voice deepfake attacks against enterprises, often aimed at tricking corporate employees into transferring money to the attackers, are on the rise. And at least in some cases, they’re succeeding.

Audio deepfakes are a new spin on the impersonation tactics that have long been used in social engineering and phishing attacks, but most people aren’t trained to disbelieve their ears.

Illustration: Christopher T. Fong/Protocol

As a cyberattack investigator, Nick Giacopuzzi’s work now includes responding to growing attacks against businesses that involve deepfaked voices — and has ultimately left him convinced that in today's world, "we need to question everything."

In particular, Giacopuzzi has investigated multiple incidents where an attacker deployed fabricated audio, created with the help of AI, that purported to be an executive or a manager at a company. You can guess how it went: The fake boss asked an employee to urgently transfer funds. And in some cases, it’s worked, he said.

Keep Reading Show less
Kyle Alspach

Kyle Alspach ( @KyleAlspach) is a senior reporter at Protocol, focused on cybersecurity. He has covered the tech industry since 2010 for outlets including VentureBeat, CRN and the Boston Globe. He lives in Portland, Oregon, and can be reached at kalspach@protocol.com.

Latest Stories
Bulletins