Banking has long been a challenge that has stifled the expansion of many crypto-related projects.
In fact, it is even a challenge for suppliers of hardware to the crypto industry to open US bank accounts. I’ve written before about the struggles of companies like Lamassu, a Bitcoin ATM manufacturer. It was shut out of the US banking system for 15 months until its founders packed up and moved to Switzerland.
But crypto-related businesses are not the only ones struggling to have access to the US banking system.
Due to increased pressure from international and US regulators, gaining access to US banking solutions has become more difficult for companies across all industries and countries.
Luckily, there’s a solution…
Recently, Horizen Labs has teamed up with a leading international digital invoicing provider to find a workaround for its clients through blockchain.
Read on in today’s post to discover the substantial challenges unbanked companies face internationally and how those companies have started to use crypto as a solution.
The Latin American Unbanked Crisis
At the end of every month, businesses around the world send and receive invoices for their goods and services.
Smaller businesses do this in house, while bigger businesses use third-party services to take care of their payroll and invoicing.
It’s a simple task that keeps things ticking for most companies.
But it gets far more complicated as soon as that invoicing crosses international borders or involves different currencies. Because nearly every international transaction is denominated in US dollars, it must go through a US-based correspondent bank.
Essentially the way things stand now, if you don’t have access to the US banking system, you can’t do international business. At least not efficiently.
One of Latin America’s largest digital invoicing service providers, is struggling to deal with this very problem.
The company provides an online platform used for electronic billing by tens of thousands of companies in Latin America. Locally, its service works well. The invoicing company sends out invoices and receives payments within its system and there aren’t any hiccups when the deals are denominated in the local currency.
But making deals denominated in US dollars? That’s what nightmares are made of.
Given the amount of international business transactions, many of these Latin American companies accept US dollar payments. But thanks to increasing regulatory pressure, US banks have become increasingly reluctant to provide financial services to Latin America-based companies.
Any slip-ups in a bank’s KYC/AML compliance can mean serious fines and the loss of its correspondent banking licenses. So to stay safe, many of these banks have completely turned their backs on Latin American companies.
Bank or no bank, Latin American businesses continue to make transactions in US dollars-through cash or other means of processing payments.
Unable to make these transactions through the digital invoicing company’s online platform, the businesses pay invoices offline. Once the receiver is paid, the businesses inform the invoicing company that they’ve got their money so it can be manually recorded.
It’s a headache for everyone involved. And at the end of the day, they might as well not use the digital invoicing system at all.
The stablecoin solution
Though there are endless potential use cases for blockchain, today the technology is best known to facilitate financial transactions through cryptocurrency. Through this medium, people can make instantaneous transactions to anyone in the world outside of the traditional banking system.
We hope that in the future, all transactions in the world might be done through crypto. But we’re not there yet.
For now, the use of crypto is not sufficiently widespread and the values of most cryptocurrencies are too volatile to be a viable solution for most businesses.
However, a new class of cryptocurrency is emerging that stands to remedy that: the stablecoin.
Stablecoins are cryptocurrencies pegged to a specific fiat currency or a commodity like gold or other precious metals. These can be transferred in the same way as any other cryptocurrency, directly from one wallet to another. And thanks to their pegged exchange rate, they are easily exchangeable for fiat currency.
It’s the best of both worlds. With stablecoins, you can take advantage of the benefits of cryptocurrency-based transactions and be shielded from the price volatility of traditional cryptocurrencies.
Now, this is precisely what Horizen Labs is creating for the digital invoicing provider. With a stablecoin pegged to the US dollar, the invoicing company will be able to process payments on behalf of its clients instantly and easily within its online platform and effectively eliminate their dependency on the US banking system altogether.
What does this mean for Crypto Insiders?
Insiders should see the trend is clear. US regulators are freezing out a huge portion of the world’s economy from the US banking system due to ridiculous KYC/AML and its correspondent banking mafia.
Given the extreme barriers to entry to the US banking system, more companies are turning to crypto as a solution. And now we’re starting to see large multinational service providers incorporate crypto into their platforms as well.
The harder the US banking system becomes to work with, the faster companies around the world will turn to alternatives to replace it. The irony is that if the US had a more inclusive banking system there wouldn’t be a need for many of these people to turn to crypto.
It’s like a good Greek tragedy, we’re taking action to avoid a prophecy is exactly what makes it a reality.
Dean Steinbeck, Managing Director of Crypto Law Insider, is the leading authority on legal issues related to cryptocurrency and blockchain technologies. Learn more