The small group of banks providing blockchain-enabled payments are increasingly looking to leverage the technology to support transactions in areas not related to digital assets.
For instance, Tassat Group Inc.'s payment network TassatPay was launched in 2019 to support Signature Bank's Signet, which settles cryptocurrency trading transactions in U.S. dollars. Since then, TassatPay has expanded into traditional financial services functions for logistics, mortgage warehousing, commercial construction, private equity capital calls and broader working capital applications.
"Throughout the last 13 months, the fastest growing area for us, by far is the non-crypto applications, and that accelerated in January," Tassat Executive Chairman and CEO Kevin Greene said in an interview.
TassatPay's accelerated growth in non-crypto segments comes as the volatility in digital assets has pushed many banks with significant cryptocurrency exposure to search for ways to diversify their customer bases.
As of Feb. 8, TassatPay has processed over $1 trillion in transactions since inception, including $150 billion in January. It has six bank customers: Western Alliance Bank, Signature Bank, Customers Bank, Axos Bank, Byline Bank and Cogent Bank.
In addition to Signature Bank's Signet, TassatPay supports Customers Bank's CBIT network in the digital asset space. Both banks have expanded the use cases of their blockchain payment network beyond digital assets.
Cryptocurrency still a big block
Digital assets transactions are still prominent on the blockchain networks. The dollar amount of crypto-related payments was the highest on Signet as of the fourth quarter of 2022. However, payments volumes for companies in the cargo shipping industry recorded the highest number of transactions on Signet, Signature Bank's CEO Joseph DePaolo said on the latest earnings call Jan. 17. Signature Bank has also secured more payroll companies to use Signet, he added.
"So the key for us is that we find these other ecosystems because we put a payment platform together 24 hours, 365 days a year," DePaolo said on the call.
Although Signature was exiting some of the digital asset relationships in late 2022, volumes on Signet were still the highest in the fourth quarter since launch, Signature's COO Eric Howell said on the call. Signature Bank has decided to trim deposits from digital asset customers and suspend making loans using bitcoin as collateral.
Customers Bank also has the vision to deploy CBIT on broader transaction banking.
"CBIT was step one in serving a narrow digital asset industry, but we're looking to broaden that to all commercial and corporate clients," Customers Bank President and CEO Sam Sidhu said on an investor call in July 2022. Sidhu reiterated in January that the bank's commercial customers are actively using CBIT.
As the banks also use other payment rails, payments handled by TassatPay still account for a relatively small portion of the six banks' total payment volumes, which indicates large growth potential, Greene said.
Compliance a key
The banks providing blockchain-enabled payments have seen their compliance to know-your-customer and anti-money laundering protocols come under the scope in the wake of the misconduct of the digital asset companies they bank.
On Feb. 7, Signature Bank was sued by an investment firm for allegedly allowing suspicious transfers made by its customer FTX Trading via Signet. FTX filed for bankruptcy in November 2022 and its founder is facing criminal charges by federal prosecutors for fraudulence.
Greene declined to comment on the lawsuit against Signature. While Tassat Group as a technology vendor is subject to scrutiny and oversight by the banks, it does not have any role or influence in Signature Bank's operations, and all of its bank partners are responsible for their own know-your-customer and anti-money laundering compliance, he noted.
Greene argued that using blockchain in payments does not pose extra compliance risks to banks, because transaction records are immutable and instantly available. The technology also helps reduce the amount of manual work for regulatory compliance purposes.
"Everything we do is with heavily regulated entities and on private permission blockchain, visible only to the banks and their customers, and if they wish — to regulators," Greene said.
In the Jan. 3 joint statement, bank regulators noted heightened risks associated with using open and public blockchain systems in financial services. Greene echoed the conclusion because permission-based blockchain systems provides privacy, security and customization.
"We were touting private permissioned blockchain when it was not cool to do so, but it's what we've been doing from the beginning," Greene said.