The Great Crypto Re-Banking Has Begun

For crypto firms, the vibe-shift is a blessing. Although they have comparatively few problems accessing overseas bank accounts—often in the Cayman Islands or Switzerland—in lieu of a US bank account, they are often unable to earn yield on deposits or transact seamlessly with US-based counterparties, and sometimes incur high account fees. Neither do they benefit from deposit insurance under the US Federal Deposit Insurance Corporation, which guarantees up to $250,000 per account holder.

Though some of the big-name banks, like JP Morgan, are trialing crypto technologies for internal use, many remain reluctant to supply accounts to crypto businesses, sources say. “The banks that John Doe has heard of have nothing to do with crypto,” claims David McIntyre, COO at DoubleZero, a startup developing networking infrastructure specific to crypto networks.

But that has created an opening for smaller fintechs to expand their deposit bases by scooping up clients in the crypto industry. “Basically, founders these days are going with a Mercury or Meow,” claims Khan. “Meow has been super aggressive in terms of reaching out to founders anytime they see a fundraising announcement.”

These fintechs tend to market themselves as crypto-forward—providing integrated services like stablecoin transfers—and far less stuffy than their traditional counterparts; Meow’s roughly 30-year-old CEO, Brandon Arvanaghi, runs his LinkedIn profile a bit like a TikTok account, complete with video skits.

“These American fintechs have much better technology than random bank X in the Cayman Islands or Switzerland. They have better platforms, better support—better everything,” says McIntyre.

Mercury declined an interview for this article. Meow and Brex did not respond to interview requests.

In practice, these fintechs act as a software layer on top of a traditional bank that holds a US license; they handle the user interface and customer acquisition, while the partner bank manages the deposits. Meow partners with Grasshopper Bank; Brex and Mercury partner with several banks. This model was adopted widely in the US during the COVID-19 pandemic, which forced banks to find ways to reach customers digitally.

“In its best form, it’s a way for banks to get access to better technology,” says Craig Timm, senior director of anti-money laundering at ACAMS, which runs finance-related certification programs. Timm worked previously as a financial crime specialist at Bank of America and the US Department of Justice. “For the fintechs, it lets them focus on the things they’re good at—building, marketing, reaching new customers—without having to get a banking license, which can be difficult and expensive.”

But the arrangement also typically requires the fintech to follow ground rules set by the partner bank, including parameters around the types of client they are allowed to serve. Mercury, for instance, is unable to provide accounts to crypto companies that take custody of customer funds, including exchanges, a spokesperson told WIRED.

“They’re putting a skin on top of someone else’s bank,” says McIntyre, who previously worked at Brex. “They have to abide by the bank’s underwriting requirements, regulations, and determination about what customers to accept.”