Finder’s new crypto product a warning to banks on deposits
Nevertheless, it expects to attract customers seeking more attractive yields than the close-to-zero rates being offered by banks. Low returns on savings are the result of extraordinary monetary policy from central banks, one of drivers of demand for cryptocurrencies this year.
The offering – customers pledging fiat Australian dollars for stablecoins that are lent for crypto investment for a fee – is not defined as a financial product under Australian law, so is not directly regulated by the Australian Securities and Investments Commission.
Rather, Finder’s wallet is regulated by AUSTRAC as a digital currency exchange, which is a light-touch process.
A report last month by a Senate select committee called for a regulatory regime for crypto to be put in place to protect consumers, including Treasury getting powers to control cryptocurrency exchanges under a new category of financial markets licence, and protections for investors to be created via local custody rules.
“The regulatory scene is evolving. Finder is very involved in that discussion and will align with that,” said Angus Kidman, Finder’s editor-in-chief. “At the moment, we believe this product complies with all the relevant regulations, but we are keeping a very close eye on that, and we will make sure we have everything in place.”
Finder is pledging to pay customers the 4 per cent fee regardless of whether it makes profits or losses investing customers’ stablecoins. “We intend to deploy the capital lent to us across the blockchain ecosystem in a long-term, sustainable and risk-balanced way, but it’s important to understand this is not connected to the returns we pay you,” the company says on its website.
The unique product presents major banks with a very different competitive threat than neobanks – fintechs that compete for revenue made from the traditional “net interest margin”, generated by making loans with money provided by savers. In crypto, the spreads can be bigger.
Higher returns can be offered to customers who create stablecoins because major “decentralised finance” (DeFi) lending protocols, such as Compound or Aave, pay out interest in the range of 7 to 10 per cent to investors that provide crypto for lending. Actual returns are set by “smart contracts” based on supply and demand, and protocols lend a variety of cryptocurrencies to borrowers.
Finder started to move the first 200 customers on a 12,000-strong waitlist into the new product – called Finder Earn – on Monday. It expects to have on-boarded 1000 by the end of the week. Customers are not charged fees and can withdraw capital at any time, so long as Finder continues to operate.
Finder will work with the US-based issuer of the Australian dollar stablecoins, TrustToken, and pay all of its fees for minting the new TrueAUDs. It is one of first Australian dollar stablecoins, with a value pegged to the AUD-US dollar spot rate.
Providing users with an Australian dollar stablecoins means they don’t have to manage foreign exchange risk. Finder users will be paid daily, to provide the effects of compounding, and contributions will be capped at 10,000 TAUD.
TrustToken’s investors including Andreessen Horowitz’s a16z crypto, BlockTower Capital, Founders Fund Angel, Danhua Capital, GGV Capital, Jump Capital and Stanford StartX.
Stablecoins allow for near-instant settlement at any time of the week and don’t need to move through bank payment systems. TrueAUDs have has a small market capitalisation of $31 million; TrustToken’s US dollar stablecoin is bigger, at $1.2 billion.
Another Australian dollar stablecoin is the Australian Dollar Token (AUDT), which has a market cap of $US720 million.
The big US dollar stablecoins are USDC, Tether and TerraUSD.
The Reserve Bank of Australia said last week central banks will consider creating “central bank digital currencies” (CBDCs) to compete with private offerings.
Fintech investors said the Finder offering will appear more broadly next year, which could provide a jolt to banks by presenting a new front for competition on deposits.
“We think this space will get hyper competitive and explode to life faster than anyone thinks,” said Danny Gilligan, co-founder of Reinventure Group.
“The river of gold for banking is deposits and this is going after the banking heartland.”
Finder’s move to create a crypto saving product offering at more attractive rates than banks can offer savers comes less than three weeks after Commonwealth Bank said it would add crypto to its banking app.
Finder has been in the crypto space since 2017, when it started allowing customers to prepare crypto prices, before providing a trading for bitcoin and ether (the cryptocurrency powering the ethereum blockchain) in May this year. Finder also makes revenue from introducing customers to crypto exchanges, who pay it a referral fee.
Crypto is a key area of interest for Finder co-founder Fred Schebesta, who appeared on several occasions at Senate select committee on financial technology. Finder’s submission to the inquiry is referenced on multiple times in the committee’s reports.
Despite putting toe in the crypto trading waters, market watchers said it was unlikely CBA would follow Finder with this new product, given the risk of enticing too many customers away from its deposits, the mainstay of the bank.
At The Australian Financial Review Super & Wealth Summit on Monday, ASIC chairman Joe Longo warned consumers to approach “investing in crypto with great caution”. Finder has introduced warnings about its stablecoins, telling customers there “are not official currencies, nor are they endorsed or insured under any government guarantee program”.
Mr Kidman said Finder’s new product is not focused on experienced crypto traders but everyday people looking for “a simple experience with a known brand rather than diving off into a lot of uncertainty. We want to use Earn to make is easier for consumer to get more out of their funds.”