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Using Bitcoins and Blockchain to Revolutionize Traditional Banking

Quick and secure money transfers ― Bitwala is using cryptocurrencies to challenge the way banks do business. What’s the philosophy behind the fintech startup's approach?

17 Feb. 2017
Bitwala hopes to use Bitcoins and Blockchain to compete with the established banking system.

The Snail's Pace of Bank Transactions

Wire transfers are typically slow and, especially when headed overseas, expensive. In fact, when speed is of the essence, the German banking system fares poorly in an international comparison. Many consumers find themselves annoyed by its droopy performance. A fintech firm called Bitwala hopes to bring banking into the digital age, using Blockchain and Bitcoins. In an interview, founder and CEO Jörg von Minckwitz reveals his vision of how it can work.

Fintech is one of the favorite branches for startups. Jörg, how does Bitwala intend to stand out from the pack?

We want to use modern technology to digitize the classic bank account. The old, familiar wire transfer system is slow, antiquated and clumsy – a huge step down from other aspects of our globalized world, where information is swapped in milliseconds. That's precisely where we step in: Our transactions work with cryptocurrencies such as Bitcoin, allowing for real-time money transfers in Germany and abroad ― and, thanks to Blockchain, all completely secure as well. Our services are especially attractive for small and mid-sized firms, as international bank accounts are expensive and frequently a drain on company finances.

Bank transfers using cryptocurrencies ― sounds complicated. Exactly how does it work?

In terms of technology, our business is based on Bitcoins and the like. The principle is simple enough: For a transaction from Germany to the USA, for example, Bitcoins are acquired for a certain value in euros, sent to the USA and then sold again for a corresponding value in dollars. This usually occurs in real time, with at most a brief delay in the destination country. This system allows us to more or less circumvent making a transfer via the banking system, saving the customer wait times without any tangible changes to the process the customer is accustomed with. This was important to us, because while Bitcoins have come to be established in the digital world, they remain somewhat opaque and confusing for the broader masses. We designed the system with the technology in the background, where the customer doesn't need to worry about it, or even be aware of it.

So your concept is intended to make banking quicker, more secure and truly digital. Does the trend toward mobile banking feed into this?

Absolutely! A majority of people not only have their smartphones with them at all times, but usually even have them right in their hands, so we were aiming to offer a truly digital service. This is what made N26 successful as well: They were able to produce a good, intuitive smartphone app and scored a big breakthrough. Usability is unbelievably important for all things digital. My goal from the start was for someone like my mother to be able to use the app and all its functions without experiencing any difficulties. This is why the dissemination of mobile Internet is so important for us: Internet is available almost everywhere, and people all over the world make massive use of online services. Our customers can take care of their finances from anywhere, and thus also expect that they can manage everything quickly and easily.

At one point or another, most people have been dissatisfied with slow bank performance, but few have been driven by that, alone, to try and build a new model for banking transactions. What inspired you?

We were exposed to the concept of Bitcoins back in our university days. The question of the future of payment was tossed out in a lecture, and we found ourselves captivated by it. We simply couldn't ignore the disruptive potential of Bitcoins. That's what drove us to establish a consulting firm and later an eCommerce shop based on Bitcoins, deepening our expertise in the field along the way. As we found that payment streams from the shop became more and more difficult to manage, we thought to ourselves: Why not take advantage of the speed that Bitcoins can bring to payment transactions? That gave rise to the concept of Blockchain banking that we've implemented with Bitwala.

Cryptocurrencies remain a point of suspicion outside the IT scene. Did that present any problems as you worked through the startup phase?

No, it actually was more of an aid in identifying the right investors more quickly. We got to know two types of venture capitalists: those who had no knowledge or interest in cryptocurrencies whatsoever, and others who were very interested in exploring new terrain with us. The biggest challenge for us was the legal aspects Until recently, there were no regulations for financial transactions with cryptocurrencies, although we as an aspirational banking institution needed them. We thus worked in partnership with the German Federal Financial Supervisory Authority (BaFin) on a fundamental legal framework for Bitcoins. This involved a lot of hard plowing, but it was highly constructive ― and we're very pleased to be launching as a proper financial institution in March.

At CeBIT this March, you’ll be using the SCALE11 showcase to unveil your new approach to banking to a wide audience of professionals. What are your expectations towards your tradeshow involvement?

SCALE11 is a great platform for startups looking to get in touch with industry players and investors. CeBIT is among the world's largest IT fairs, and its dedicated showcase for start-ups offers a tremendous opportunity for us to present ourselves to the sector. We know they'll be plenty of industry insiders there interested in Bitcoin and Blockchain as well. We'll gather direct feedback on our new concept from visitors from around the world.

What’s in the pipeline for 2017?

We'll be launching into the international market in March as a full-fledged banking institution, using the feedback from SCALE11 for an initial round of fine tuning. We'll then be expanding our service in stages and branching out from our niche onto the mainstream market. SCALE11 will thus serve as a bit of a dress rehearsal.

More on SCALE11 and Bitwala