Hello and welcome to Protocol Fintech. This Wednesday: Weaponization of wire transfers, Satish Kumbhani disappears and Hillary weighs in on crypto.
out of the chain
Crypto dominated the headlines, and understandably so, given the novelty of the first crypto war. But it is a little early to write off fiat money, which will play a much more decisive role in this conflict. That’s why I asked Tomio to examine how the traditional money transfer business responds to sanctions and other disruptions. Read on to find out more.
—Owen Thomas (E-mail | Twitter)
Arm the wires
Emphasis has been placed on the role of crypto in the Russia-Ukraine war, both as a means of circumventing sanctions against Russia and potentially aiding Ukraine. Lost in this discussion is how the conflict affects the much larger and, frankly, larger flows of fiat money.
Western sanctions haven’t generally banned sending money to ordinary Russian citizens, but the sanctions don’t make it any easier. The United States and other countries have imposed various restrictions on the Russian financial sector and said they will shut down SWIFT messaging for some Russian banks. All of this complicates the operation of the financial machinery to execute a transfer.
Some companies act to stop the flow of money to Russia. It’s not always clear why.
- Money transfer companies Wise and Remitly have stopped money transfers to Russia. Zepz and TransferGo have also blocked their services in the country.
- Revolut still seems to support transfers in its app, as does PayPal’s Xoom. Revolution Noted it was operating in accordance with the UK’s FCA and other jurisdictions, and would ‘take further action if necessary’.
- There are other ways to send money, such as prepaid cards, that may still be viable, said Melody Brue, senior analyst at Moor Insights and Strategy. But the options are limited.
Some companies cited compliance with sanctions. Personal ties and corporate obligations may also have influenced some companies’ responses.
- Visa and Mastercard said their networks were blocking Russian financial institutions following sanctions.
- “As far as Russia is concerned, following and in accordance with ongoing sanctions, we have suspended service to RUB,” a Wise spokesperson said.
- Wise grew up in the shadow of Russia. The company was founded by two Estonians, one of its oldest offices is in Cherkasy and many employees are from Ukraine.
- Revolut CEO Nik Storonsky is Russian with a Ukrainian father. Its co-founder, CTO Vlad Yatsenko, is Ukrainian and has cursed Putin as a “shameless liar”. The company has customers and employees in Russia and Ukraine.
Transferring money is also not easy in Ukraine. With people trying to get out and others sending funds for aid, there are a host of complications.
- Wise and Revolut have both waived money transfer fees to Ukraine. Citing the difficulty of transferring money to Ukraine, Wise capped in-country transfers at $2,500.
- Revolut also enabled instant, free donations to the Red Cross for Ukrainian relief efforts.
- Central Bank of Ukraine suspended digital money transfers and revoked local banking licenses of two Russian banks operating in the country. All of these disruptions will certainly make transfers slower and more difficult.
- But the government is also working to make it easier to accept donations. You may have heard of Ukraine Bitcoin Wallet, but did you know that it also accepts donations through Google Pay?
Expect more attention on these financial flows. Sanctions and various other measures are just beginning to be put in place, which will affect businesses as well as individuals.
- Beyond the long lines at ATMs and the collapse of the currency, many will feel the side effects of the sanctions, such as Russians working abroad sending money to relatives, Brue said.
- Remittances were Less than 1% of Russia’s GDP as recently as 2020, but could become more important – and controversial – as the economy crumbles under the weight of sanctions and other restrictions.
Effects like these help explain some of the early hesitation around sanctions: Western governments wanted to target sanctions on Putin and his inner circle, not ordinary Russian citizens. As the crisis worsens, it is inevitable that these small daily transactions will also experience disruption. “It has such a huge ripple effect,” Brue said.
— Tomio Geron (E-mail | Twitter)
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on the money
On protocol: Mastercard and Visa have announced that they have blocked several Russian financial institutions from the US sanctions list. The list includes the Central Bank of Russia, Sberbank and VTB Bank.
Electric Capital raised $1 billion. The venture capital firm plans to fund crypto networks, Web3 protocols, and blockchain-enabled businesses, and will continue to invest between $1 million and $20 million in stocks and tokens in Web3 zones.
The European Parliament has removed the bitcoin ban from a crypto regulation bill. In an effort to expedite passage of the crypto-asset markets bill, lawmakers waived part of the invoice which banned crypto services from trading coins based on proof of work over environmental impact concerns. This measure would have essentially banned bitcoin and ether.
BitConnect founder Satish Kumbhani is missing. After being charged by the SEC with allegedly defrauding US investors of over $2.4 billion, Kumbhani disappeared from his native India. Efforts by the authorities to locate him were unsuccessful.
A DebtHammer survey found that “buy now, pay later” plans have increased debt burdens. According to the survey, 32% of BNPL users had to avoid paying an essential bill to make their payments. Even after skipping a bill, 30% still struggle to make BNPL payments.
Chris Lehane, director of strategy KRH Partners and old Airbnb political leader, thinks Web3 is the future of democracy. “We see how the rapid deployment of technology in the defense of freedom can enable anyone, anywhere to contribute to a 21st century version of the arsenal of democracy from World War II” , he written in a Twitter thread.
Jake Chervinsky, policy officer at Blockchain Associationdoesn’t think crypto can save Russia and explained why in a lengthy Twitter thread. “Leaving aside valid privacy concerns, transparency of public records + analytical capabilities of US forensics firms = crypto is useless to evade sanctions,” he tweeted.
hillary clintonhowever, still thinks crypto exchanges need to put economic pressure on Russia, and she’s not happy with the response so far. “I was disappointed to see that some of the so-called crypto exchanges, not all of them, but some of them refuse to end transactions with Russia for a philosophy of libertarianism or whatever,” she says in an interview.
Just a question with Chris Harmes, co-founder of BVNK
Harmse, who describes himself as having “fallen down the crypto rabbit hole” on Twitter and LinkedIn, is chief executive and co-founder of BVNK, a digital asset financial services company.
Which fintech trend are you most concerned about?
I wouldn’t say we’re concerned about that, but we’re watching the regulatory developments closely. When new technologies emerge and authorities seek to regulate them, they try to integrate them into existing frameworks. In the United States, we find that this approach leads several authorities with different remit to advocate for the regulation of the crypto industry. This piecemeal approach is unnecessary.
The situation in Europe is simpler with a pan-European approach. The EU may not be able to match the entrepreneurial energy of the US, but its consistent approach is positive for the sector.
A MESSAGE FROM NOVOPAYMENT
The future of the digital economy is in our hands. That’s why NovoPayment partners with fintechs to turn their visions into reality. NovoPayment’s API-based platform provides digital banking, payment and card solutions that adapt, scale and evolve alongside your business. Our modular approach lets you innovate your way.
Thanks for reading – see you tomorrow!