A new financial institution is preparing to open its doors for crypto startups in the U.S., and raising capital in an unorthodox manner.
Founded by two Russians and an American with finance backgrounds, Arival Bank (with one “r”) is waiting for an International Financial Entity (IFE) license from regulators in Puerto Rico before it can launch.
In the meantime, San Juan-based Arival is about to kick off an equity crowdfunding campaign on two platforms: SeedInvest, recently acquired by crypto exchange Circle, and Crowdcube in the U.K. The campaign is scheduled to start in early June with a goal to raise $3 million (all in fiat), SeedInvest associate Samuel Lawson told CoinDesk.
Explaining why Arival is raising money this way, CFO Jeremy Berger said:
“It’s important for us to get the public involved, not just as investors but supporters of our vision. We need their feedback to drive the way we flesh out our tech, for example. It builds a real word of mouth presence and we hope it’ll bring significant impact on customer acquisition.”
Arival plans to approach traditional VC investors for an eventual Series A round, Berger added.
Founders Slava Solodkiy, Igor Pesin and Berger came up with the idea for Arival after learning how slow and reluctant banks are to cater to startups and the independent contractors native to the gig economy.
“We want to serve clients who are getting rejected by traditional and even digital banks: crypto-related businesses (our first target audience), charity organizations, freelancers from co-working spaces, expats, refugees, residents from e-residency program in Estonia, etc.,” CEO Solodkiy said.
According to Lawson, this is part of what made Arival “a natural fit” for the investor base at SeedInvest, which vets startups before listing their equities on its platform.
“Crypto businesses and other SMBs [small and medium-sized business] are underbanked and traditional players are yet to provide this growing part of the global economy a real solution for banking,” he said. “Further, by taking a global approach and working to acquire an international banking license, the company fits well into the decentralized crypto model.”
Lawson also noted that Arival’s founders previously worked at Singapore venture capital fund Life.SREDA, which invested in a number of prominent digital banks, including Simple and Moven in the U.S., Fidor in Germany and Rocketbank in Russia.
Arival applied for the IFE license in August of last year. This license would connect the business to the U.S. Federal Reserve system but is less onerous to obtain than a U.S. bank charter, which can take a year or more.
At the same time, an IFE can serve clients globally, Arival’s chief financial officer Berger explained.
“We want to build a real borderless bank,” Solodkiy said. For clients, this means “you’ll have to be verified once, and after that open with us as many bank accounts as we could provide across different jurisdictions.”
As an IFE, Arival would join the small number of Puerto Rico-based crypto-friendly banking entities, including San Juan Mercantile Bank and Trust, recently launched by Wall Street veteran J. Robert Collins Jr.; Medici Bank, led by a descendant of the Renaissance-era Italian banking family; and Noble Bank, known for once working with the troubled (but systematically important) stablecoin issuer Tether.
However, in February, the Federal Reserve Bank of New York halted approval of new accounts for Puerto Rican offshore banks, citing concerns about expanded U.S. sanctions against Venezuela, Reuters reported.
Solodkiy and Berger told CoinDesk that Arival will only face the Fed account issue when they have their IFE license at hand, and while they are waiting for one, they hope the crackdown period will end.
Meanwhile, Arival started the application process for a banking license in Lithuania in December. It also envisions opening branches in the U.K., Singapore, Hong Kong, Japan, Dubai and Australia.
Virtual and real
Once licensed as an IFE, Arival would serve as a hub for clients to connect to a network of banks and lending marketplaces via a single app. Again, part of the value proposition is removing duplication of effort.
“You need to be verified only once by us, and do not need to provide the same package of docs and answers for each standalone service, you can see and manage everything from the same window,” Solodkiy said.
Potential clients include crypto exchanges and wallet services, ICO-backed startups, funds and over-the-counter (OTC) trading desks, Solodkiy said. Berger said Arival has nearly 700 prospective customers on its waiting list.
Arival intends to be fully accessible online, with a totally electronic document flow and no need for clients to go to a physical branch to open an account. Client companies will be able to connect to Arival via its open API.
The company will also offer services for other fintech startups to build up their compliance, Solodkiy says, calling this arrangement “compliance-as-a-service.”
Nevertheless, Arival also hopes to interact with its customers face-to-face.
Solodkiy and Pesin previously co-founded a fintech accelerator called InspiRussia, which a year later was acquired by Qiwi, an e-payment company and a blockchain pioneer in Russia, and they hope their new venture can foster a similar vibe.
“We also want to have our office as a co-working space for our clients and fintech and blockchain startups that are planning to work with us,” Solodkiy said.