Exploring Lesser-Known Crypto Exchanger Business Models

May 28, 2024
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The Need for Diversification and Adaptation

In the ever-evolving world of cryptocurrency, exchanger business models are constantly adapting to keep pace with regulatory changes and shifting consumer interests. As traditional methods of buying and selling digital assets face increasing scrutiny, lesser-known models are emerging to fill the gaps and provide users with alternative ways to access the crypto market. In this article, we’ll explore some of these innovative approaches and discuss their advantages, challenges, and potential for growth.

Tablets in Third-Party Retail Shops 

One emerging model involves the use of tablets inside brick-and-mortar retail stores, where customers can purchase cryptocurrencies with the assistance of a store employee or clerk. This approach aims to make crypto more accessible to less tech-savvy individuals by providing a friendly, in-person experience inside a popular retail location.

How the Model Works

Customers visit a participating and partnering store, where they are greeted by a clerk equipped with a tablet. The clerk guides the customer through the process of setting up an account and purchasing their desired cryptocurrency. The tablet serves as the interface for the transaction, with the clerk providing assistance and answering any questions along the way on behalf of the crypto exchanger company .

Advantages of This Model

The tablet-in-store model offers several benefits, particularly for those who may be new to crypto or less comfortable with technology. By providing personal assistance and guidance from knowledgeable store clerks, this approach can help demystify the process of buying digital assets and make it feel more approachable. Additionally, the in-person nature of the transaction can provide a sense of security and trust for customers who may be wary of online exchanges or other fully automated onramps for the purchase of crypto.

Potential Challenges and Considerations

However, this model also presents some challenges. Ensuring that store clerks are properly trained and educated about cryptocurrencies, and AML compliance of course, is essential to providing a positive customer experience, and avoiding potential misinformation. It’s vitally important that store clerks participating in the transaction understand the fundamentals of crypto and AML red flags applicable to the service. AML compliance training should be mandatory for all, and must necessarily cover, among other relevant topics, KYC, ID verification, social engineering, and structuring, just to name a few.

App Purchases via GreenDot

Another lesser-known model involves the integration of crypto exchanger apps with the GreenDot prepaid system, which allow customers to purchase digital assets through a cashier at participating chain store locations.

Explanation of the GreenDot Prepaid System

GreenDot, the world’s largest prepaid debit card system, enables users to load funds onto a prepaid card or software app for various purchases. 

By partnering with GreenDot, crypto exchanger apps can leverage existing infrastructure to facilitate the buying and selling of digital assets.

Integration with Crypto Exchangers

Under this model, crypto exchanger customers interested in purchasing crypto visit a participating, partnering retailer location. There, the cashier at the register will scan the customer’s barcode and collect the cash the consumer wishes to load onto their crypto exchanger account, along with any applicable reload fees. The retailer’s terminal is connected to Green Dot’s data processing center, where Green Dot can see the transaction in real-time, allowing the crypto exchanger to automatically credit loaded funds to the customer’s account.

Benefits of This Model

The GreenDot integration model offers several advantages. For customers already familiar with the GreenDot system, purchasing crypto through this method can feel more convenient and accessible. Additionally, by partnering with well-known chain stores, crypto exchangers can increase their exposure and reach a wider audience that would otherwise be limited to branding and marketing online.

Potential Drawbacks and Risks

This model, however, also comes with some potential drawbacks and risks. Crypto exchangers must rely on the stability and reputation of the GreenDot system, as any issues or disruptions could impact their ability to process transactions. Furthermore, compliance with regulations governing prepaid financial products can add an additional layer of complexity for exchangers operating under this model.

Remote Retail OTC Exchanges

Remote retail OTC (Over-the-Counter) exchanges provide another alternative avenue for customers to purchase cryptocurrencies.

Direct Connect OTC Exchanges

Some OTC exchanges operate through direct connections, where customers can negotiate larger purchases with liquidity providers. These exchanges often cater to high-volume traders and institutional investors, offering advantages such as more competitive pricing and faster settlement times.

Simple Website Interface OTC Exchanges

Other OTC exchanges provide a more user-friendly platform for retail investors, allowing them to purchase crypto through a simple website interface. While these exchanges may have lower entry barriers compared to traditional OTC desks, they still typically facilitate larger transactions than standard retail exchanges.

Compliance Considerations for Remote Retail OTC Exchanges

Regardless of the specific model, remote retail OTC exchanges must navigate a complex landscape of compliance requirements. These include adhering to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, as well as maintaining proper recordkeeping and reporting practices.

Remote Trading Desks

In addition to OTC exchanges, remote trading desks have emerged as another option for retail customers looking to purchase crypto without the need for a traditional exchange.

These desks often operate through simple website interfaces, providing a user-friendly platform for retail investors. By facilitating remote purchases, these desks can offer lower entry barriers compared to traditional OTC desks, making crypto more accessible to a wider range of customers.

The Impact of Regulatory Targeting on BTM Operators

As regulators increasingly focus on Bitcoin ATM (BTM) operators, the need for alternative businesses to diversify their existing product and service suite has become more pressing.

Increased Regulatory Requirements for BTMs

In recent years, BTM operators have faced aggressive, targeted, and prescriptive state legislation, such as California’s SB 401, which have introduced stricter compliance requirements for those operating BTMs in contrast to other crypto exchanger business models. These include daily customer transaction limits, fee caps, mandatory disclosure language, and other prescriptive measures. 

The Need for BTM Operators to Diversify Their Business Models

In light of these regulatory pressures, as well as concerns around declining transactions, BTM operators are recognizing the importance of diversifying their business models. By exploring alternative methods of facilitating crypto purchases, such as remote trading desks or tablet-in-store models, these businesses can adapt to changing market conditions and consumer preferences.

Conclusion: Embracing Innovation and Collaboration

As the crypto landscape continues to evolve, lesser-known exchanger business models are playing an increasingly important role in providing users with alternative ways to access digital assets. By embracing innovation and adaptability in the face of regulatory challenges and market changes, these models have the potential to contribute to the growth and accessibility of the crypto ecosystem.

However, navigating this complex landscape requires ongoing education and collaboration among industry stakeholders. By working together to ensure compliance with best practices and regulatory requirements, crypto exchangers can build trust with both customers and regulators, paving the way for a more sustainable and inclusive future for digital assets.

As your trusted partner in crypto compliance, BitAML is here to help you stay ahead of the curve. Our team of experts can provide guidance and support as you explore new business models and navigate the ever-changing regulatory and compliance landscape. Together, we can work towards a future where crypto is accessible, secure, and compliant for all. Set up a free consultation today.

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