GROWTH FORMULA

Bitcoin is steroids for fintech startups that big banks are afraid to touch

Too hot to handle?
Too hot to handle?
Image: Reuters/Dado Ruvic
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Making money by trading bitcoin, whose price has fallen by about 40% this year, has been difficult lately. But startups that provide services supporting crypto markets are faring much better. Companies like Revolut, a payment app, and Robinhood, a mobile broker, scored legions of new customers after they added buying and selling of digital tokens to their services.

TransferGo, a remittance company, is another fintech upstart that plans to offer crypto trading to customers. CEO Daumantas Dvilinskas says users were asking for ways to buy digital assets—about 4,000 people pre-registered for the service in just a few hours. The London-based firm, which announced today that it raised an additional $10 million from venture capital investors, will soon allow customers to buy and sell bitcoin, ethereum, XRP, litecoin, and bitcoin cash.

Although crypto services have proven effective in attracting a new generation of customers, bigger financial firms are wary. Earlier this year, Merrill Lynch barred customers and financial advisers who make transactions for them from buying bitcoin. Goldman Sachs is gearing up to provide crypto services for its institutional clients by means of financial derivatives, but still isn’t ready to handle bitcoin itself. A sticking point for crypto exchanges has often been partnering with banks to take deposits.

There are reasons to be cautious. Crypto tokens have been prone to theft, and regulations for the industry are far from fully formed. It makes sense that smaller, newer firms are willing to take more risks, while entrenched companies act conservatively because they feel they have more to lose.

At the same time, the ranks of startups offering financial services has multiplied. For payment and remittance companies, the trick is figuring out how to make money as competition increases. Some are seemingly throwing new products against the wall to see what sticks. In doing so, they’ve demonstrated that companies can offer a lot of bank-like services without quite becoming a bank.

TransferGo and Revolut, for example, had existing businesses before going crypto. Six-year-old TransferGo says it has transferred £1 billion ($1.35 billion) so far, with the amount of transfers doubling year over year. The company doesn’t have plans to become a bank, but is in talks with Lithuanian regulators for an e-money license, which allows companies to provide cash deposits and withdrawal services, as well as to perform direct debit and credit transfers. Down the road it may add things like overdraft and travel insurance.

TransferGo is still relatively small, with 600,000 customers, and says it’s attracting about 1,000 new users each day. The company started in the UK and has expanded into Poland, Germany, and the Nordics, and its CEO noted that the remittance business is growing especially quickly in Poland and Ukraine. It is experimenting with Ripple’s distributed-ledger technology to see if it can further cut costs and speed up transfers.

If the experience of other digital financial firms is any guide, crypto can help attract a lot of new customers. And this may be a good bet whether bitcoin soars or sinks: Casinos, after all, tend to make more money than gamblers.