Is embedded crypto the next big thing in banking?

Published: November 30, -0001

According to German tech company Solarisbank, crypto-as-a-service could usher in a huge range of use cases and applications. 

In recent years, more and more companies have started to embrace embedded finance when they incorporate financial services into their digital products, and despite not being banks themselves. Take the ride-sharing app Uber, or the takeaway app Deliveroo. Customers have the option to pay for their orders without leaving the app. This is thanks to the seamless integration of banking services into these non-bank products. 

Berlin-based tech company Solarisbank is one of the startups at the forefront of the Banking as a Service (BaaS) revolution. The company provides financial services, packaged in an application programming interface (API), which other companies can build into their own apps. These services might include digital banking, branded cards, and regulatory necessities like know-your-customer (KYC) compliance services. Since Solarisbank has its own banking license, its partners don’t need to acquire one. 

 

Embedded crypto

Recently, Solarisbank has moved into a new area of embedded finance: embedded crypto, or crypto as a service. With the crypto market booming, entrepreneurs are trying to get their foot in the door, and banks are trying to tease out the implications. What role should embedded finance play in the larger crypto ecosystem, and what are the possibilities further down the line?

This was the topic discussed on the webinar ‘Crypto: A booming market beyond finance’, which held on 22 March. Hosted by Julian Grigo, managing director digital assets, and Alan Kennedy, sales manager digital assets at Solarisbank, the discussion explored a number of use cases that are already up and running, and put forward the possibility of some more speculative examples. 

“We thought OK, we have embedded finance – a highly secured, regulated, commoditised product. Why not offer crypto with the same features?” said Grigo. “There are so many similarities between finance and crypto, we can also embed crypto into our products and offer it in the same B2B2X model.” 

Starting with an explanation and overview of embedded finance itself, the conversation turned to an overview of Solarisbank’s ‘B2B2X’ business model where rather than offering its products directly to businesses or clients, as per a B2B or B2C model, the firm works with partners (usually corporates or fintechs) to provide these services to end customers.  

“We are not the entrepreneurs. We are not the innovators. We have the commoditised products, but you decide what to build,” said Grigo. “We provide an API, we have all the licenses, so you don’t have to worry about that. You can build a unique and innovative use case.”

On top of its regular digital banking services, Solaris provides three main crypto-related services. These are crypto custody (securely storing the customers’ digital assets); crypto brokerage (enabling the customers to buy and sell crypto); and crypto collaterised loans (enabling customers to borrow cash using their crypto as collateral). These services can be combined in different ways to create a diverse array of applications. 

While Bitcoin and Etherium may be the cryptocurrencies that command the most attention, Solarisbank supports any cryptos that are demanded by its partners. As new use cases get onboarded, the company is seeing a huge demand for new coins. It plans to include at least 15-20 new coins over the course of the coming year. 

 

Nuri, Vivid, Trade Republic, Coinbase

Kennedy went on to describe some of the use cases that have gone live. Nuri, a crypto-enabled neobank, allows customers to buy crypto directly from their salary account. Vivid, a full feature neobank, offers cards, payments and loyalty programmes, along with the ability to invest in crypto CFDs and stocks. Trade Republic, a neobroker for stocks and equities, now offers crypto broking too. Finally, Coinbase, the market-leading crypto exchange, has partnered with Solarisbank to augment its KYC and customer identification processes.  

“It’s really cool to see what our partners were able to achieve leveraging our commodity products. It exemplifies the innovative nature not only of crypto but the partners that we work with,” said Kennedy. 

Cases that are currently under development, including a regulated secondary marketplace for non-fungible tokens (NFTs) and a DeFi (decentralised finance) enabled savings bank, according to Kennedy, who finished by talking about the ‘crazy use cases’, which are the innovations Solarisbank thinks are possible, but that they still haven’t yet helped bring to fruition. 

“One of the use cases is around play-to-earn gaming – a new form of gaming enabled by tokenisation and NFTs,” said Kennedy. “Last but not least, one of the topics you see in the news all the time is the Metaverse, which arose from innovations in NFTs, gaming and the Web 3.0. What we’re seeing here is that you can be a first mover in the Metaverse by choosing a combination of our crypto services to launch a new product.” 

The promise, then, is that crypto-related services will soon become far more accessible to anyone who wishes to provide them. With firms like Solarisbank taking responsibility for the complex regulatory side, while allowing their partner entrepreneurs and established fintechs alike, for example, focused on innovation. Through mixing and matching these kinds of features, they will be able to carve a niche in the fast-evolving crypto marketplace.