Tech companies are moving to digital and offshore banking

0:01I'm Ashton Addison from Blockware Capital for Investment Pitch Media and today on the Crypto Coin Show we have back with us Jason Blick, the CEO of EQIBANK. Jason, welcome back to the show and it is great to see you again. Oh, it's great to be back, Ashton, and looking forward to this podcast. Likewise, so much has happened in the banking sector since we've last spoken

0:21and in the blockchain sector as well and and the merging of those two and I'm excited to dive into the insights on what EQIBANK is doing with neo-banking and and huge amount of products that you and your team are are building out and are servicing around the world as well. But for those who didn't see our first interview, I'd first like to just get a little

0:42refresher on bit on yourself and your history in in banking and blockchain, sort of how that led to EQIBANK. Yes, certainly. So, EQIBANK was formed in 2015 and we've gone on to become one of the largest global digital bank. So, we service the needs of customers in over 180 countries around the world and especially the digital asset and crypto community. So, the team itself had been

1:06working with major international banks for more than a combined 100 years. So, we were very conscious of the problems that banks have been creating for their clients for a very long time and none of these things will surprise you. They were looking clients are looking for better and quicker service, cheaper rates, more expansive product sets, and a complete ecosystem. So, they don't

1:28need to bounce from one provider to another provider in order to get their daily banking or trading needs met. So, we in 2015 created EQIBANK and we have gone on to become one of the one of the leading digital banks over the last 8 years now. That's amazing. And you know, I at the beginning of this year in 2023, I heard a lot in the news around the banking

1:50sector in America and it wasn't looking good, but it seems that the news sort of disappeared around that. I'm guessing that the solutions haven't been, you know, all the problems haven't been solved. But, you know, it's sort of not in the news. You know, there's probably something to that. But, I'm sure you sort of have a handle on what's the banking sector look like in

2:11in the US right now and you know, it's transition to to digital banking or crypto banking or even moving outside of the US. Well, it's a great question. There's no question that a whole plethora of clients were adversely impacted as a result of closures and mergers in the banking community in the US this year and towards the end of last year. So, there

2:34were some major brands that went out of business. Silvergate, Sovereign, Prime Trust, Silicon Valley, Bank Fidor. It's a long list. Now, for our industry, the problem that immediately hit the clients was the fact that there were so few other banks, good banks, that were prepared to support the digital asset business. Mhm. Uh the rise of Silvergate, Sovereign,

3:00Signature was tremendous. They did a great deal for the industry. However, they were perceived to have taken risks that adversely impacted their balance sheet and the end result is quite well well known. So, now what we're starting to see is the US regulators and the Fed specifically is really trying to get a handle on how they can support innovation but mitigate risk. The last

3:24thing they need is having to restructure banks and protect the ongoing security of the US banking system against relatively small industries such as crypto and digital assets. So, they are making some progress, but it's fair to say that the capital flight from the US continues and it's continuing unabated. So, we're seeing major exits of US entities and global

3:49entities that who happy and really were perhaps meeting getting their needs met by the US banking majors and are now moving to European offshore banks and Asian banks that can provide ongoing facilities. Obviously, however, we are still all reliant upon US correspondent banks. So, whilst the primary banks may no longer be that friendly to digital assets in the vast

4:15majority of instances in the US, there is an ongoing reliance on the or Nostro facilities provided by correspondents. But, what we have seen is a major inflow of the crypto and digital asset giants wanting to move offshore, obviously maintain accounts in USD, which accounts for about 90% of of most settlement and transaction activity for crypto entities.

4:41But, have it in a in a perhaps a more regulatory friendly environment in a regulatory friendly environment that understands this industry. So, there are always options. Other banks have have stepped up and met the the needs of the audience that was previously with those US giants. But, it's an important lesson for us all and we do need to be able to

5:01identify how a risk can impact a bank and then make an informed decision. We shouldn't always assume that every bank, just because they're a bank, is a safe bank and a stable bank. Definitely, and I think a lot of people, you know, they they most people, you don't really find out until it's too late, you know, or I I remember I remember in around March of

5:25of 2023, you know, I recall it was 80 to 90% of the of the startups in San Francisco were all using this specific bank that was very catered to digital assets and and innovative companies. And, you know, they all woke up at 4:00 in the morning and and and realized that like they couldn't pay their payrolls and it was too late. They didn't really have a a banking alternative. And,

5:45I know it's for some people it's hard to switch banks when you're already sort of tied up in things, but I think it's of utmost importance now to understand diversification geographically, um especially with regards to uh those startups in in the states that digital banking or global banking and offshore banking is actually a viable and potentially better alternative.

6:09Yes, I mean we live in a borderless world, we have done for a very long time and a lot of people misunderstand what offshore banking actually is. Offshore banking is very simple. If I'm based in Canada, but my bank is in the United States, that's banking offshore. It's uh the bank is just in a different country to the one in which I am based or operating.

6:27Um so the differences between on and offshore banking have really become less significant over the course of the last 15 years or so. Um and we always advise clients to pick a healthy mix of both domestic banks for some operating needs, etc., on-the-ground things, and good well-structured offshore banks that can provide global facilities. And you often

6:48find that global offshore banks are able to provide additional product sets, which may be a little harder for uh for domestic entities, such as trading and custody, OTC for crypto, uh etc. There's often a bit more um flexibility in terms of those product sets. Uh but as always, uh irrespective of the business that you're in, diversifying and spreading

7:10your portfolio, spreading the risk, if you will, over a series of banks remains the most sensible thing to do, uh as many have found that were previously with one or two institutions in the US. Once those institutions become compromised in some fashion or another, it can have a massive impact on your business. Funds can be frozen, there can be limits in terms of what you can

7:30withdraw. Ultimately, you're only protected up to $250,000, and whilst the chance of a macro failure is very low, because of the banks are always encouraged to absorb those entities, there is still substantial disruption. Uh and we have seen cases of clients nearly going out of business because of some of these delays. But thankfully, there are banks that are

7:50stepping up. Ourselves along with a series of others have been on boarding corporate clients from those those US banks with in as little as two or three days and then meeting their ongoing needs. So there are solutions out there. It's just about carefully picking those that meet your needs. Mhm. That's great insights, Jason. And I think in in the past

8:10you know, there there was a painting of some kind of black mark of you know, offshore banking is is bad or you know, there's it's a gray zone. But I feel like that might have even been a marketing campaign by the people within the US themselves trying to say, "Hey, you know, banking inside the US is safe. You know, don't go elsewhere because it's not going to be as good as us." But

8:28I think nowadays it's it's really hard to determine if that's true or not. Um do you have insights into, you know, the the the growth of people moving offshore into perfectly legal, better alternatives than US banking? Yes, of course. And you're absolutely right. Obviously, it's in the in interest of every domestic regulator or every banking association in every

8:50country in the world to claim that their banking is the best. And and we we all understand the polarizing nature of that. But why it's happening. So yeah, the I would say judging by our experience that over 40% of the top 100 top 100 crypto entities and digital asset entities have looked to move banking outside of the US. Judging by the deposits we have received from

9:15the top exchanges in the world plus largest OTC providers, liquidity providers, market makers, wealth managers in the space and funds, that continues unabated. And it's not just a matter of a risk factor for the bank itself or the underlying banks US banks. It's also about the efficiency of the services that have been provided. We just saw another major

9:36US bank that's based in Europe pull out of crypto yesterday. So, now they're going to stop close accounts in the UK that relate to or have a large crypto component. And that is a clearly a major blow to the industry and clearly a reflection of the fact that banks are still trying to find their comfort levels in this industry. So, the first thing to ask any bank is are you

9:59friendly to digital assets? Do you support the major digital asset clients across the world? And if so, can you talk about them? Some can, some can't and quite understandably. But it's about looking at credit rating, it's about looking at speed of wires, it's about looking at asset base and their ecosystems. Because what you tend to find is if there's the bank that's

10:21supporting, you know, one or two of the of the top five exchanges, perhaps a couple of liquidity providers and what have you, the chances are they do have the skills and the wherewithal to to provide you with the services that you need. But it can't just be obviously a digital asset bank and that became quite popular over the over the period of the last four or five years or so. But you

10:40need a bank that's that has a a nice back basket of of assets, public companies, funds, multinationals and a variety of industries. And that's becoming easier to spot because the the banks that are supporting our industry are becoming more willing to talk about it and more willing to differentiate themselves from those that are pulling pulling back.

11:02But in that process and in the process of looking to determine whether you are with a safe bank or if you're looking at new banks, what what what do clients need to look for? Because this this is often not talked about. We we just assume that banks are are safe, but you should always look at three core things. First of all, credit rating. What is their credit rating by

11:24any leading credit agency? And obviously the higher the credit rating, the better. The big one, especially now, is capital adequacy ratios. So, in the past we have allowed or we have watched I should say uh capital adequacy ratios for US and US banks, UK, US, and European banks decline to anywhere between 8 to 13%. Uh now that presents a real risk for

11:50depositors in the event of a run on any bank, any bank at all. So, uh sensible banks, well prudent banks, are now increasing those capital adequacy ratios materially. Now, that's really hard for some of the big traditional banks because they have already made commitments to treasuries, they've already made commitments to loans, to mortgages, etc., which makes

12:13it hard for them to improve their their credit rating and capital adequacy ratio in accordance with BIS standards. However, for new banks or those uh that perhaps are a bit more risk-averse, you don't have those issues. So, for example, Achi bank has a capital adequacy ratio of 81% which is around 9 to 10 times safer and better than the average US rate. And

12:37we're not alone in those in those very solid and stable numbers. There are other banks out there. So, it's important to look, first of all, at the credit rating, secondarily, do a really big deep dive into the capital adequacy ratio. If it's not a healthy number, if it's not a good number, choose an alternative provider. The The third is the Texas ratio. And the Texas ratio is

12:57another way to determine the liabilities uh on the bank and their ability to be able to meet those liabilities. So, those are the three ratios that people can and should look for. They can Google it online. They can see the the entries and what they represent, but they're good solid questions to ask any new potential bank. And the third part of this is differentiating. Make sure that

13:18you are using more than one corporate account or individual account. Make sure you're not reliant on just one institution because you never know what can happen. Um and in in combination, you will then end up with a very very safe portfolio, a very secure bank to work with or banks as it may happen. That's very great information. Thank you, Jason, for laying all that out. I'm

13:42going to make sure, you know, as we talked to a lot of tech startups and it's like some people just don't know what are the questions to ask on what actually makes it safe and I feel like the banking sector sort of make it, you know, convoluted and they just say, you know, of course we're safe. We're a bank. You know, just trust us with all the information and just give us your

14:00capital and we'll do the rest. Well, you're right. I think fundamentally banking hasn't really evolved for a hundred years. Banks, a lot of banks, still maintain this slightly ego position of not really working for for their client support, for their client satisfaction, and what have you. We're quite blessed. We have a 4.6 Trustpilot, which is excellent. We have

14:24an 81% net promoter score. And there are other banks as well that are really going out of their way to meet the needs of their clients and and adapting to to becoming more proactive. We believe that banks are going to have to adopt more of a partnership approach to the way in which they support clients, getting a really good understanding of what the client is

14:43aspiring to do, and support them with the product sets, even advertising, even joint ventures. All of these things are available if you have the willingness and the ear of your your bank. And the bank is is one that's really focused on being client-friendly and not just sitting there waiting for deposits to roll in. But there are innovation banks now that are doing some

15:06very exciting things, for example, around banking as a service, embedded banking, banking as a platform. That's the next big thing for our industry, and it's something that Equity Bank is is really leading with. So, we provide banking as a service to clients in over 180 countries, enabling them to provide banking to their client base in their brand. And that is where banking is

15:29going to go. We're not even going to be familiar with who we are actually banking with as more technology companies start to deliver embedded banking or banking as a service in their product sets, which is really, really exciting. And that's where we'll start to see enhanced customer satisfaction as technology groups, who tend to understand client bases a little bit

15:49better, uh are able to provide as part of their composite solution, but still maintain that really client-friendly partnership approach to to to client acquisition and and maintenance. Mhm. Wow, that's very exciting. Um and with the banking issues that we saw, you know, in the first two quarters of 2023, I know you mentioned that neo banking, digital banking has been growing over

16:14the last 4 to 5 years. But as I said, I think a lot of people they don't know what's, you know, what the issue is until it's too late. But when something happens, it it things trigger in people's mind, you know, I think a lot of those startups in uh San Francisco, you know, the next day they're they all of a sudden had a new vision towards digital banking. I'm curious on the the

16:34growth rates for 2023 for for Eky Bank and for digital banking. And did you see, you know, a a spike in like startups and and corporations that were like, "Hey, we need to start doing digital banking in offshore accounts?" Yeah, we saw two patterns of activity, which are continuing today. I think it's fair to say that um entrepreneurs and innovators uh that were previously

16:57incorporating US entities and relying on US banking are now increasingly looking at overseas options as well. Uh so, that has been a major source of ongoing business and activity for us. But the major source has been the multinationals moving large deposits in their millions, hundreds of millions, and in some instances more. And that's because those two uh those

17:18two tied uh risk factors. First of all, from a regulatory perspective, the US is is making some great strides but still has work to do about supporting our industry and the banks themselves really don't know or understand the industry as well as perhaps they thought they did. And they are trying to get up to speed whilst at the same time liaising and

17:36trying to work with the regulator on something that is sustainable. As a result of that, what we've seen is major deposits and major major business will leave some of the big traditional banks and move to digital innovation banks. Digital banks are basically just exactly the same. There's two forms of banks in the world. There are those that hold deposit taking

17:56licenses like EQ Bank and Wells Fargo and Chase. And there are those that are neo banks. And neo banks rely on somebody else's license like Revolut and N26 in certain jurisdictions. So, there is a big difference. We are a traditional bank. We hold our own licenses. We are a full deposit taking institution. But, we have product sets that other traditional banks are not

18:19providing. So, for example, ROTC for crypto enables clients to get in and out of any major crypto and have the cash in their account in around 15 minutes. And it's those services that are really also driving customer acquisition. So, people are looking for a safe institution and there's major there's a major exit of deposits in the US in that regard. But,

18:40they're also looking for an institution that can provide more services so they don't have to work with one OTC provider, then go to an escrow agent, then go to an exchange, then talk to their liquidity provider, then talk to their bank. And obviously with that level of interaction, there's always the risk one of the one of the links being weak and fracturing the chain resulting in

19:02usually delays for payment. But, that in itself is is a major disruption. So, institutions are increasingly looking at ways where they can provide banking, trading, custody, lending, card services, wealth management, and banking as a service in one institution. And those are the ones to to watch, including in that regard EQI Bank. So, we expect the outflows to continue for

19:26the remainder of this year and probably up until the end of Q2. By Q2, we're expecting some further announcements regarding Fed's position on crypto. And then from Q3, we'll certainly hopefully see a more stabilizing position in the US. But by that point, all of these other opportunities will have been made available to clients. So, clients are going to start looking more at working

19:49with banks in Europe, which is obviously offshore, ourselves, Asia, etc. Just to get a more composite solution and to allow risk mitigation. Mhm. It's a very important point about OTC and just having a bunch of different services so that you don't have different risk factors from different parties that you're dealing with and potentially more delays. And I'm curious

20:12about the OTC with EQI Bank and you know, throughout the summer of 2023 so far, we've seen at least Bitcoin in the crypto markets fairly going sideways, not a lot of price action, but a lot of people that are just checking the chart, they don't they you can't tell how much OTC transactions are happening and how many large corporations are actually buying Bitcoin off the books or

20:32other digital assets. But the OTC providers do know. I'm curious if you have any insights into the growth of the OTC sector in EQI Bank and you know, are there institutions that are buying Bitcoin at these low prices? Yeah, we've operated our OTC desk now for several years and it's it now contributes nearly 35% of our of our global revenue. It is a product that

20:56is in hot demand. So, we provide and so do a couple of other banks. We provide trading services for securities, bonds, treasuries, and crypto. Now, crypto uh, is increasingly being used by our corporate clients, but in a very interesting way. What we're seeing is that major corporates and institutional players are using stablecoins as a way to settle

21:19everything from traditional vendor invoices or client payments through to complicated structures including letters of credit. So, that is an entirely new use case for stablecoins which banks have a better picture of than perhaps anybody else because obviously the creation of letters of credit, the creation of lending facilities around particular product sets has to involve

21:42or usually involves a bank. So, we have found, uh, a a huge increase in corporates using stablecoins as an alternative rail to Swift and SEPA. Our own OTC desk is up 280% year-on-year up until the end of August and banking revenues for the digital asset community are up over 100% year-on-year. So, the demand for OTC is definitely increasing, but interestingly

22:09enough, mainly with the stable so far as we're concerned, but the use case is increasing enormously and we're really excited about supporting that. And a quick example is is probably worthy of discussion. So, if you have a couple of corporates that are requiring a letter of credit or they need to settle an invoice, they can do it through Swift and that may be T plus one, T plus two.

22:30So, it could take two days or depending on how exotic the jurisdiction is. We have clients in in Botswana, we have clients in Sierra Leone, we have clients in Singapore and Japan and the UK and Australia. But, it can be up to T plus three to T plus four depending on Swift. Now, stablecoins enable us to settle certain payments instantaneously basically and

22:49then do an OTC and have the US dollars, sterling, yen, whatever else it may be in the client's account in about 15 minutes. And we think that's going to be, uh, a trend that will that will continue and continue to be supported predominantly by by banks and that's why there is such a a deep excitement by banks in terms of central bank digital currencies, but obviously awareness and

23:11an understanding caution by major stablecoin groups across the entire world. But we believe that that that is interoperable. We believe that central bank digital currencies and stablecoins will be utilized by banks moving forward almost seamlessly and we're delighted to be at the forefront of that. Mhm. Why That's super exciting and it it it I always laugh when I hear, you know,

23:35about the delays in that a lot of these banks are using the Swift system T plus so many days when these stablecoins clearly you can settle things very quickly and if you use the OTC moving to different currencies in minutes. It is ridiculous how much better it is. So that's great to hear about the 280% growth in OTC. It sounds like these institutions are are really

23:58noticing that, you know, it's probably save them a lot of time and money. And you mentioned there about the CBDCs as well. I'm curious if you have any insights into that transition of, you know, from using fiat currency to then using stablecoins, but then also CBDCs coming to play and how will they be used in the same ways or in different ways through the digital banks as well?

24:21That is a great question. Fundamentally at the moment what clients are all wanting clients have always wanted is speed of delivery, speed of execution. To that end, Ebury Bank for example is rolling out instant settlement and it's a facility that's available in other leading banks. That enables clients to seamlessly transfer money and receive money amongst

24:43themselves 24/7, 7 days a week in less than 10 seconds. That is a service that really is massively needed and encouraged by the major uh asset entities, exchanges, OTC desks, everybody that's involved in our space. So, instant settlement is is definitely critical, and EQ Bank is really excited about our InstaClear uh program. Now, that goes hand in hand

25:10with other initiatives such as stablecoins and uh central bank digital currencies. So, having a platform that enables clients to clear instantly within EQ Bank provides that efficiency and security. But, when it comes to external payments, obviously there are several options on rails today. We can use Swift, you can use Fast GDP Pay, you can use SEPA, but you're right. Um

25:36most of them to some extent or another can be same day, but usually are next day. But again, because you're working with other institutions or the other intermediaries, you're working with the Swift network, you're working with correspondent banks, problems do occur and delays happen. Uh and it's not beyond the realm of possibility that clients can be delayed several days on

25:56payments uh when doing cross-border activity. So, uh central bank digital currencies are going to go a long way to address that issue. We're working really closely with three regulators across the world. We will be one of the first digital banks to implement uh central bank digital currencies as they become available. Um and we're very excited about the

26:15option of being able to settle with them, but not exclusively, because it's not a one-fit model. Some people enjoy the use of uh major stablecoins, and we're a big supporter. Uh some people will enjoy the the uh the flexibility and the government support of central bank digital currencies, but others will be concerned about the level of transparency and insight uh that that

26:34can be afforded through those uh facilities. They're still not quite sure what it really means. Um and obviously the existing payment rails, Swift, SEPA, the EU specifically, are really driving forward with directives to allow instantaneous or same-day settlement. So, there's great progress that's being made in in central banks across the world and it's really now about whether

26:58banks are going to catch up. Are traditional banks going to catch up to what is being presented by regulators as a way to differentiate and also become more inclusive? So, one of the major initiatives, especially around banking as a service, embedded banking, and payments is to allow other parties to come into the financial services sector and not just make it about banks

27:20and payment providers in Europe and to an extent in the US have already made some good progress and they're just trying to find the right equilibrium between working with existing banks and also giving clients that sense of satisfaction that a payment provider can do a good job. So, there is a lot of excitement but again, it's all going to be led by

27:42the innovation banks and a lot of the traditional banks are going to are going to be left behind. And especially worrying for those traditional banks are their growing cost to income ratios and we all need to get keep a very close eye on some of those traditional banks. Wow, great insights. Jason, and I appreciate what Ekky Bank and and digital banks are doing to push the

28:05innovation forward to, you know, sort of light a fire under these traditional banks because, you know, unless something like this happens then they just move along in business as usual which it really isn't providing the best support and and the best value for for their customers. And but because of digital banks, now all of a sudden they they really need to upgrade themselves.

28:25So, it's really pushing the whole financial sector forward. So, thank you so much for that and for all the insights that you've given today. For viewers that want to follow along with, you know, the updates in the banking sector and what Ekky Bank is doing and the different lines of products that you guys have, what is the best way to learn more about that?

28:42Certainly. So, our website is www.ekkybank.com and if anybody has any questions or queries, they can reach out to us at info@equibank.com and we respond the same day. And our relationship managers and private bankers are available also on WhatsApp and Telegram. So, we we really do try and be as innovation friendly as we can and more importantly available for our

29:06clients. Awesome. Thank you so much, Jason. All the best with EQUI Bank and let's follow up in the near future. Thank you, Ashton.