Banxa CEO Explores Crypto’s Regulatory Landscape and Expansion into Web3 and Gaming in CNA Interview

Banxa is a globally operating, publicly listed company that provides payment infrastructure and regulatory compliance solutions for digital asset and cryptocurrency businesses. The global crypto payment gateway market is a rapidly growing sector with significant projections for expansion. In this interview, Melbourne based Banxa co-founder and CEO Holger Arians spoke to Crypto News Australia about the differences in running a crypto business in Australia compared to overseas and of course the hot topic on everyone’s mind – regulation.

Crypto News Australia: Can you explain what Banxa is doing and what problems you’re trying to solve?

Holger Arians: We started the business 10 years ago here in Melbourne, Australia, together with my co-founder and initially just did Bitcoin mining to really get our hands dirty, understand the space, the technology, the industry participants. That was exciting and then we said, well, what do we do with these Bitcoins that we’ve mined? We started selling them to Australians and we acquired a domain, bitcoin.com.au which quickly became the go-to website for Australians to buy Bitcoin. And all the time just sort of learned what our position in the market is, which was really the onboarding. So, getting people into the space in a safe way, getting the payment in. We had to do KYC, the whole ID verification project and then send them the crypto, Bitcoin, and other coins over time as well. 

And then we did a big pivot in 2019 where we sort of packaged that all up this payment knowledge, compliance knowledge, the whole fraud and KYC packaged that up. We went to the big exchanges globally, Binance, and so on, and said ‘Hey we do onboarding in Australia, but we also have an entity and payment rails in the UK, in Canada.’ And by that time, we also were able to process credit cards. We basically integrated with these major centralised exchanges back then and allowed their users to buy crypto. 

Because if you were a Binance back then you wouldn’t have the local licences in Australia for example or in the UK. The moment you touch fiat you always need to have some sort of compliance program, you need to do reporting to the authorities and all that sort of stuff. Our partners back then were mostly just crypto-to-crypto exchanges, largely unregulated, so they needed someone locally on the ground that had the infrastructure to onboard their users from fiat to crypto because everyone starts in fiat. So, we were just doing this whole gateway in and out of crypto. And that has become a very big business. 

CNA: In one of your reports recently it mentions that you have a focus on Web3 and also gaming. Can you just lay out a bit of a road map, maybe what you’ve planned?

HA: Over time, the market has shifted and crypto as a whole has matured a lot. We’ve seen centralised exchanges back in the day dominating the market. That’s where users would get into the space. But over time, especially with NFTs and Ethereum becoming more dominant, people were just building many more applications on top of the technology. And what that still means is that people always start with fiat currency with the money that they have in their bank account. And they need to get on board with whatever that application is, whatever the use case is. 

Think about an NFT marketplace, think about a Web3 game or anything really that is in Web3 that has a digital asset or a token that you want to sell. You do need the on-ramp. You need to somehow facilitate that transaction for your users to buy this digital asset and that’s where you plug in Banxa. We’re really agnostic of your centralised exchange, non-custodial wallet which obviously has gotten a lot of traction after FTX and all that last year. And then the Web3 gaming space and NFT marketplaces we’re seeing so many new use cases coming live. That’s really exciting and we’re basically just a gateway. We’re just the bridge in and out of whatever that ecosystem is. We do our bit, which is the conversion of fiat currency to cryptocurrency in a compliant way in many, many countries.

CNA: Last year there were quite a bit of staff redundancies in the industry. How were things going for Banxa in that regard and how are things going right now?

HA: Very much in line with everything else that happened in the industry because crypto unfortunately still goes in cycles and the swings there are quite extreme. We’ve obviously seen very high adoption during 2020 and 2021 and the market is heating up very quickly. Many people who think they can benefit from it financially in a short amount of time are joining. And that’s never the case, maybe some people get lucky. But there was a combination of just excitement and potential greed from a number of people and we’ve seen the fallout last year with platforms such as Celsius, Voyager, and FTX collapsing. And also, people running away with customer funds, that always sort of resets the whole market. There is a correction and I think that a correction like that is required. It’s necessary although it’s for the wrong reasons because people just take advantage of others. 

Banxa obviously has ramped up resources just like many other companies in this space. And that was not isolated to crypto, it was the pandemic – lots of money available. The whole e-commerce space has exploded, streaming platforms, and so on. They all sort of had to make corrections in line with the market downturn over the last 18 months and so has Banxa because we certainly had less order volume. People were more standing on the sidelines again and counting their losses and waiting for the next thing to happen. Which I believe is coming in the next 12 to 24 months. I definitely believe that there’s enough substance again for a much better market outlook and we’ve adjusted. 

We were over 200 people, we’re now back to 140. We probably have the most licences around the world, of any other Australian player. Most of our revenue comes from Europe and the US. But we certainly did the right thing in terms of getting compliant everywhere and getting licences. We are a public company as well, which puts extra scrutiny on everything. We’re getting audited, so a lot of transparency. And then when these bad actors are doing what they do, that just puts a dark shadow over the whole industry and the good players as well, that’s just frustrating, but that’s just what it is. 

CNA: You’ve hinted at the next 12 to 24 months. Do you think we are in a bull market already? Because there is some discussion about this if we are in a bull market or not. We are trending obviously up but some say it’s still early and everybody seems to have an opinion on that.

HA: (Laughs) My opinion, especially after what I’ve seen over the years, the cycles, is just to hold on and put your head down and continue working. If we are already in a bull market, that’s great. But to be honest, I think we need to do more work. It’s definitely going to happen in the next 12 months for sure. I see it being very much at the beginning of 2020 when it was starting to warm up. But even in a bull market, you need to take advantage of the bull market. 

You need to position yourself right to get the maximum value because it’s too easy to think that you’re doing good in a bull market. But it’s just everyone’s floating up, we’re doing everything right. But it’s really to work out what is that sweet spot where the product or market fits. That’s why our team is just heads down focusing on the execution. And this time around we’re much smarter because we’ve learned the hard way what it is to make these costly painful mistakes of ramping up too quickly and then having to let people go. I think we’ve just learned the hard way and we’ve got to be much smarter in the next bull market.

CNA: You’ve teamed up with Trust Wallet just recently. Can you tell us a little bit about that? 

HA: Trust Wallet, is obviously the biggest wallet out there with 60 million downloads. We’ve been very excited to launch this finally. We’ve worked very closely with them for a number of months to integrate Banxa there. They already have a number of other on-ramps, competitors of ours integrated. For us, it was really important to get that trust and really show them that it’s actually worth integrating Banxa. We have a lot of value that others might not be able to provide. And what that means for us is we are often on the ground. We have subsidiaries around the world where we get access to the local payment methods. In Australia, its ‘PayID’ in Germany would be ‘Sofort’ or ‘SEPA.’ In the UK it’s ‘Faster Payment.’ Having that local payment method just ensures that the user gets the best on-ramping option. It’s mostly free for that on-ramping payment gateway. If you compare it to a credit card, credit cards are always expensive. 

The approval or authorisation rate is quite low because we’re still in a high-risk merchant category with crypto. If you do a bank-to-bank transfer, that payment always goes through. You have a much higher conversion rate, cheaper, you can push more money through it and it also allows the user now to off-ramp. If you want to get back into Fiat from the crypto holdings you can do that as well and we push the money to your bank account. That is a massive advantage that we have being on the ground physically in many different countries in the world and offering these local payments which are just performing better than just credit cards. So it has been a really good partnership with Trust and we see a lot of traction.

CNA: You wrote an article recently in the Traders Magazine about the journey to being a publicly listed company in crypto. Can you tell us a bit about that, the challenges of that, especially in crypto?

HA: We are in a very early-stage industry where the whole market and more importantly the regulation hasn’t really been established yet in a very fluid situation. We did list on the Toronto Stock Exchange because they were very open to crypto companies. They have a fast track to NASDAQ as well which was always our goal. But it’s been really challenging because the regulators, after all these experiences last year plus these collapses of large, initially trusted platforms, FTX, Voyager Digital, and so on, that has just put extra scrutiny on companies like us. A practical example is an audit. We are obviously required to do an audit as a public company. The auditors themselves are under a lot of scrutiny by their regulators and by the public accountability in Canada. And that has just been a lot of back and forth because the accounting rules change sort of halfway through. 

The auditors are extra cautious. We are as a business in a very volatile industry and still also finding our feet. So put all that together, it’s been a perfect storm. And we got into a trading halt even last year because of this perfect storm and we’ve worked through it. There was obviously nothing wrong with Banxa. We’ve done all the right things, but it’s just about every sort of participant in this ecosystem from the Stock Exchange, the auditors, the regulators of this space, ask the market players just finding sort of the right place and balance and everyone being sort of comfortable with it and it’s just in the public space just an extra layer of complexity. That’s what we’ve been under but for the future, we’ve also learned a ton, gotten the house much more in order. And getting out of this stronger, but I’m certainly not looking back and don’t need that again.

CNA: You mentioned NASDAQ because of that exposure, Australia would probably be a difficult choice if you want to position yourself more globally. So, you said most of your business now is not in Australia, right?

HA: But also we did have conversations with the Australian Stock Exchange and they were just anti-crypto, like there was just no way to move forward. And in hindsight, I’m very glad that this was their response because you go to the US or North America and there’s much more bigger thinking, more vision. We should have done that earlier because in the last 10 years, we’ve tried to raise money in Australia and only a few really visionary investors backed us. Australia is very small compared to the US and the risk capital you get there. The move to Canada, the move out of Australia was for us, definitely the right one.

CNA: Staying in Australia, has Banxa responded to the Treasury proposal?

HA: Indirectly. We’re actually a founding board member of previously the Australian Digital Currency Association, now Blockchain Australia, so we’ve always been involved. On board level initially, more recently just as one of the industry players because Australia again is a good market for us, but not a major market, it just happened that we are here. We’re still a member of Blockchain Australia and advising and helping. But there are far bigger players here in Australia where the Australian market is much more relevant to them, the Independent Reserve, BTC Markets, Swyftx, and so on. We’ve taken a backseat in this whole discussion.

CNA: North America is a difficult market. Brad Garlinghouse, the Ripple CEO said if anyone asks him if they should set up in the US, he always says no, get out of North America because it’s just too hard. Maybe go to Dubai or somewhere. Do you look at those markets like Singapore, and Dubai? Or how do you deal with the climate currently in North America with all those challenges?

HA: That’s a good question, the US gets regulated by enforcement. Especially earlier this year and that just makes it very, very uncertain territory for crypto companies. We have almost done the opposite, we started a year earlier by setting up an office in the US. We’ve acquired our money transmitter licences and we always like to go through the front door and really work with regulators and we believe that eventually, this space is getting more welcoming for entrepreneurs in this space. 

We believe that you just cannot ignore the market anymore. There are 50 million crypto users in the US, twice Australia’s population. Is too big to ignore. You do have to regulate and there’s nothing more that the industry wants than clear rules and guidelines. And not enforcement action; that needs to stop. It just shows there’s a lot of confusion going on, not just in crypto. In the US we have an election coming up and you just cannot ignore that message from other people because they’ll be your voters. 

Overall, I believe there’s going to be more clarity. There’s also been a lot of internal pushback in the US for this whole enforcement action and the lack of clarity on regulation. As a business, we’ve set up in several countries around the world. The US remains a very, very important country. We see the light at the end of the tunnel in the US. We’re just going to push through. 

CNA: Is there anything exciting in the pipeline for Banxa that you want to share with us? 

HA: Now for us we’re really preparing for another bull cycle which we believe is definitely going to unfold over the next 12 to 24 months. Banxa is really well-positioned in the market right now. Compared to 2020/21, we had around 100 partners, today we have over 300 partners and access to hundreds of millions of users through our partners. Again, like Trust Wallet, and Metamask, they have 10s of millions of users. 

They all see Banxa when they want to buy crypto. That’s super exciting for us and what we want to do is just to remove more friction because getting into crypto is still not the ideal experience. It is still more web2, Amazon-like checkout experience. And it’s still going to take a lot of time. Regulation is part of that, right? We are required to do very, very high entry barriers into this space from a KYC point of view, from a fraud detection point of view as well, because this space is still very prone to fraud. We want to remove as many barriers as possible so that we can get mass adoption. We’re super excited about all the new use cases we’re seeing which attract more audiences from different parts of life and NFTs have really paved the way for that. As I mentioned earlier, we will embed ourselves much deeper into our partners to a degree where you don’t necessarily feel Banxa anymore. 

Again, removing friction, not having several steps along the way, you go from Trust to Banxa and back and all that. It should just be a very smooth experience through that journey and also not cost you too much. That’s what we’re excited about embedding ourselves much, much deeper into our partners who are working very closely with the big ones, we have pretty much 90% off the market. And then once the market picks up as well, yeah, it’s going to be much more fun again than the last 18 months. 

CNA: What do you believe is going to drive the next bull run? Is it going to be NFTs, tokenisation or DePin? What do you think is the next big thing?

HA: I believe it’s more NFTs, but different use cases, tokenisation of assets, web3 gaming certainly taking off and we’ve already seen some great game developers jumping in, gaming infrastructure being built out. So there’s a lot of excitement around that and again that’s why Banxa seamlessly plugs in, doesn’t really matter what’s on the other side, you still need to have that on and off-ramp. 

I believe that will be definitely driving the next bull market, this whole extension of more use cases in these familiar areas that we know from gaming in the traditional world but now supercharged on web3. And we’ve already been in this for 15 years, the whole industry is going to take another five years until this field’s more normal and we’re really transitioning into more day-to-day use cases. And we’ve been speaking with the Western Unions of the world. And this is just a massive industry where you immediately see the benefits of crypto –  faster, cheaper, maybe more trusted, 24/7, not necessarily censored. But even Western Union is running on this technology. There are massive benefits just coming out of that for that particular industry which is huge. So that is something we’re going to see much more as well.