If we want to do direct-to-account operations where we actually connect the crypto world with the fiat world, we have to be in compliance with the regulatory authorities that we and our users fall under. We, as a firm, have to be compliant with the Singapore laws as our parent company is based in Singapore. We have to be compliant with the American laws if our users are from the U.S.
Similarly, if our users are from the EU, we have to be compliant with the EU laws. Not only do we have to comply with the Singapore laws, we have to be compliant with the users’ underlying jurisdiction laws.
For us to be compliant on both these fronts and actually facilitate transfers (borrowing and lending at the moment, but it can be extrapolated towards payments), we need to have access to a licensed banking authority. Access can mean us going out and acquiring these licenses, or it can mean us partnering with someone who has these licenses.
Keeping in mind that having access to these licenses is extremely important, we have two options:
1. Buying a license
If we’re buying a license, the typical process of filing for it would not be too long but it would certainly work out to be expensive. A money payments license can cost anywhere between 150,000 USD to 200,000 USD for all the 50 states in the U.S.
A money lender’s license would amount to a little more than that of a money payments license.
Maintaining and filing for these licenses are an additional ongoing expense, and that’s just for one country. The nature of the crypto space is that it is not geographically specific or that it is geography agnostic. Since it is geography agnostic, ensuring that we acquire our licenses for all the jurisdictions at the same time isn’t feasible for a company in the stage that we are at.
We would like to go about acquiring these licenses one at a time, but they can take anywhere between a few months and a couple hundred thousand dollars, to a year and tens of millions of dollars. That is the entire spectrum that we’re looking at, from a country to country basis.
2. Using somebody else’s license
When we’re focusing on creating value for the customer, they don’t care whether you own the license or that somebody else owns the license as long as you’re making their lives a little better - as long as you’re creating value for them. Staying true to that is why partnering with someone who owns a license is definitely the lowest hanging fruit.
What we intend to do over time is to acquire the revenues, bank balances, and the legal backing to go about acquiring these licenses ourselves. If you look at typical startups like Uber or AirBnB - they didn’t go about acquiring these licenses before capturing the market.
This strategy, of course, has a significant backlash associated with it. Take the fight between the New York Medallion owners and Uber in NYC, or the fight between everyone in Silicon Valley and the e-scooter market in San Francisco. What they did was, because of the nature of the market where there was no regulation, they decided to acquire the market and have conversations about regulation parallely. This can work out to be extremely good for them, or this can result in them getting banned from certain regions altogether.
In the process, billion dollar companies are created and even if they get banned from one or two regions, they’re still billion dollar companies. And that’s the approach we’re taking.
It’s not like we’re not going to be compliant, but we want to be ready for the market and that’s why we’re not going out and acquiring all the licenses at the same time. Essentially we’re going to go out and partner with people who have the licenses. They can be money-payment providers (not necessarily banks) and money lenders based on the products/services that we intend to offer. Now those products/services, at the moment, are restricted to borrowing and lending against crypto. We’ll soon be moving towards current accounts and payments so we’ll need to have access to someone who has a payment license as well.
So that’s the reason as to why we’re seeking partners with licenses as opposed to acquiring our own license.