While the appetite for cryptocurrency appears to be waning in territories such as the US and the UK where there are few compelling use cases, in other territories digital currencies such as stablecoins and Bitcoin are becoming a necessary financial tool for preserving wealth amid financial instability. Panama-based Towerbank is a fifty-four-year-old family-run institution serving […]
While the appetite for cryptocurrency appears to be waning in territories such as the US and the UK where there are few compelling use cases, in other territories digital currencies such as stablecoins and Bitcoin are becoming a necessary financial tool for preserving wealth amid financial instability.
Panama-based Towerbank is a fifty-four-year-old family-run institution serving a largely Latin American customer base in a region that is experiencing a higher than average inflation rate.
It’s a conservative organisation, according to Gabriel Campa – the commercial bank’s head of digital assets – and one that prides itself in being free of money laundering scandals.
Nonetheless, Towerbank’s president and CEO recognised that the bank needed to reboot its business model: all banks were offering the same products and services, and it was getting harder to compete with bigger players.
During an analysis of customer activity was carried out as part of the bank’s next ten-year plan, Campa noticed that more were buying cryptocurrency on their credit cards.
“Initially this was a risk for us, because we had no idea where the money was coming from,” he recalls. “We want to serve our customers – but we needed transparency.”
Gabriel Campa, head of digital assets at Panama-based Towerbank
So, Tower started asking its clients what they were doing with the crypto and how the bank could help. It transpired that most uses were similar to regular bank services. Customers were using crypto to buy, to sell, for custody (secure storage), loans and overdrafts – ”All the normal standard banking products, but in the crypto space,” Campa observes.
While this might not seem like a radical use of crypto, in Latin American markets where inflation is still high (Venezuela’s inflation rate hit nearly 190% last year; Argentina’s hit 287% this March), people are turning to cryptocurrencies to protect their economic security.
To investigate further how the bank could help its customers who were buying crypto, Campa invited forty of them into the bank to find out more about what their clients needed.
The vision
Following its initial research, Tower kept the proposal simple to begin with, but broadly crypto friendly. If customers were transparent about their uses of crypto and its origins, it was willing to accept fiat currency that had initially come from crypto, so long as the crypto wallet it came from could be verified by [blockchain data platform] Chainanalysis.
At this point, the bank also got the regulators involved as well as other banks and informed them of its intentions to work with crypto. For Campa, this was about building trust.
“They know we are going to do things right. We are going to report what we find. That trust has allowed us to work behind the scenes without making much noise,” he says.
The next step was to enable crypto-to-fiat transfers. Campa says that one of the first transfers Towerbank received in crypto was from a client who had funds in the ill-fated cryptocurrency exchange FTX – just at the point where it was collapsing.
“He had to make payments in Panama. He called us and said, ‘I have $10K I need to make payments I have no way of sending my money’. We had the basic model in place by this point. So, we’d receive $10K in fiat currency and we’d ask them to show us the crypto wallet where that $10K came from. Which was verified by Chainanalysis.
“We gave him a deposit address he sent us his money in crypto we exchanged it into fiat in four hours,” Campa recalls.
While it was possible to handle this new service for 40 or so clients, it was still a time-consuming process. To scale, the bank needed to create an app-controlled crypto wallet that operates as a bank account, and to automate as much of this process as possible.
Campa’s vision was for this app to do all the things a bank offers – ACH transfer, SWIFT payments etc, but one which also handle clients’ crypto so that they can buy and sell in one place.
“The only policy we’ve established in the bank is that we don’t buy or sell or take custody of crypto,” Campa adds. “ We are not an exchange, and we don’t believe that banks should have crypto on the books. That’s too risky.”
To separate digital from fiat the bank set up its own trust to handle its clients’ crypto. Campa explains: “That way if something were to happen to the bank the crypto is safe. Or let’s say crypto goes to zero – it’s the client’s crypto. We don’t put our any of our customers’ funds at risk.”
The bank plans to make its money on conversion fees rather than charging for the bank account. In terms of the type of crypto, Tower will accept Bitcoin, ether (ETH) and US dollar backed stablecoins Tether (USDT)and USD Coin (USDC). The plan is to allow more over time, Campa adds.
The tech
To achieve Campa’s vision of offering a hybrid banking service “that acts as the bridge between the fiat and the crypto ecosystem” Towerbank needed to build a scalable and flexible model. And one that was capable of handling two entirely different worlds – the crypto users who view traditional banks as “way too complicated” (in Campa’s words) and the traditional banking community.
Initially, Tower started building a model in AWS Cloud, but soon realised it needed a more robust solution. After attending Amazon’s re:Invent conference in Las Vegas, he was introduced to low-code no-code platform Appian.
Campa explains that this platform has enabled the bank to automate many of the process (96% in total, he claims) that were taking its team hours to do manually.
“Appian runs our entire onboarding process. It opens a bank account and a crypto account at the same time all in one shop. Before it would take our team around seven hours per client: one hour with the client and then six in the background doing paperwork. Now it’s 10 minutes with the client, and an hour and a half of paperwork. We are feeling the impact immediately,” he says.
Appian also handles the crypto backend – as well as the transfers and execution of ACH and SWIFT, debit card processing and due diligence and compliance.
To begin with the bank is accepting Bitcoin and two stablecoins, with plans to expand
Campa adds that another advantage of using the process management system, is its ability to connect the bank’s other partners via APIs, which include its cloud banking platform provider Mambu; payment gateway provider, Frame Banking and verification tool Chainanalysis.
In the background the Appian system also collates data and sends it to the bank’s data lake to enable deeper analytics in the future, to create more products and services to support these clients.
Another key tech provider was the crypto wallet, ikigii, which claims to be the only crypto wallet that is also a US dollar bank account.
Campa enthuses: “There’s nothing like it. It’s the only wallet where you can put both currencies into one place to allow payments for conversion to send and received; for P2P; custody and digital finance space loan and overdraft. International wires and payments.”
The results
According to Campa, the bank has already managed to on board around 700 clients with this system – and that’s before the app‘s official launch, which is scheduled for next month.
He estimates that the bank handled about US$30m in transactions from crypto clients last year: “We might have US$2m to US$3m in deposits. We have around 2,000 new clients with around 200 to 300 of these constantly transferring fiat to crypto, crypto to fiat.”
Campa maintains that if clients send over their crypto today, they will receive the cash in their accounts “within 50 seconds”. The bank is forecasting 2x growth this year and is hoping to enhance its hybrid platform with blockchain and generative AI technology, launching new products that include asset tokenisation and e-commerce with crypto.
While there are other means of converting crypto, Campa concludes that, even in the decentralised world of crypto and blockchain, banks can have a key role in acting as a trusted intermediary. This is especially true, he adds, in territories where crypto scams are so common that many banks won’t touch the currencies – leading to a great vulnerability among users and investors and a rise in Peer-to-Peer (P2P) crypto scams.
“There are lots of P2P scams that involve the seller accepting crypto and then ringing up the buyer’s bank and trying to get the money back. With a transparent relationship at the bank, a relationship with the regulators and corresponding banks, Tower can verify transactions and push back against refunds knowing that it was a legitimate transaction.
“We’ve got to this point because our clients trust us and are willing to tell us they are using crypto,” says Campa.
