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An Australian trade association has called for banks to scrap their restrictions on payments to crypto exchanges, calling the measures an overreach in the country’s fight against fraud and scams.
In the past month two of Australia’s Big Four banks have begun blocking certain payments to crypto exchanges, as part of a new strategy designed to protect customers from fraud and scams.
This month, Commonwealth Bank of Australia (CBA) introduced a new payment verification system that can decline or hold certain payments to crypto exchanges for 24 hours.
In addition, CBA will introduce a monthly limit of AUD10,000 ($6,500) per customer on transfers to crypto exchanges.
James Roberts, general manager of group fraud management at CBA, said the scheme is mainly targeted at scammers who pose as investment vehicles or act as mules to divert money to crypto exchanges.
“With the incidences of scams increasing and customers suffering significant losses, the introduction of 24-hour holds, declines and limits will help reduce both the number of scams and the amount of money lost by customers,” he said.
In May, Westpac launched a trial of a similar system that is designed to prevent customer losses to crypto scams.
According to Westpac’s latest data, investment scams account for about half of all scam losses, and a third of all scam payments are transferred directly to a crypto exchange.
Scott Collary, group executive of customer services and technology at Westpac, said the bank estimates that blocking certain payments to crypto exchanges could save customers “millions” of dollars.
“Digital exchanges have a legitimate role to play in the financial ecosystem, but since the rise of digital currency, we’ve noticed that scammers are increasingly using overseas exchanges,” he said.
“Often our customers only discover they’ve been scammed after the money has left the country, making recovery extremely difficult.”
Blockchain Association responds
This week, Blockchain Australia — the country’s largest blockchain industry association — spoke out against the trend towards banks restricting payments to crypto exchanges.
“Blockchain Australia considers that blanket restrictions have very costly side effects, not only limiting consumer’s use of their own money, but also shifting the behaviour of those at risk of scams or fraud into another type of scam or fraud, which may be harder to detect,” it said.
“In our view, it may be more effective for banks to provide opt-in protection and education to users, or provide targeted approaches to specific categories of at-risk customers with appropriate education and notification.”
Other Blockchain Australia members, such as Jackson Zeng, CEO of crypto brokerage Caleb and Brown, pointed out that such restrictions on payments undermine Australia’s existing regulations.
He said that all crypto exchanges that operate in Australia have to be registered with AUSTRAC, the national anti-money laundering (AML) regulator, and must invest considerable sums in compliance to do so.
“The recent decision by banking institutions to restrict millions of their customers from making payments to cryptocurrency exchanges represents a profound curtailment of economic freedom in Australia,” he said.
“Every individual has the inherent right to the economic freedom to make decisions on how and where to use their finances or allocate their investments — the principal role of banks is to facilitate these decisions, not to impose restrictions upon them.”
In addition, Zeng suggested that if compliance with AUSTRAC’s AML regime is insufficient for banks to process payments to crypto exchanges, this underscores the need for further regulation.
“The Australian digital currency industry has been diligent in its pursuit of tailored, fit-for-purpose regulation,” he said, “which can assist the public in discerning those operations that adhere to the highest standards and best practices.”
Later this month, Blockchain Australia will host an industry roundtable to “drive collaboration” between regulators and the blockchain, banking and finance industries.
Attending the event will be Stephen Jones, assistant treasurer and minister for financial services, and representatives of the Australian Securities and Investment Commission (ASIC), Australian Competition and Consumer Commission (ACCC) and the Australian Bankers’ Association (ABA).
In the meantime, Blockchain Australia has also launched a consumer education programme entitled "Crypto isn’t bad, scammers are bad", which is designed to help consumers identify scams.
Can crypto win back the trust of banks and FIs?
Brad Kelly, managing director of Australia’s Payment Service consultancy, said the retreat of banks from crypto merchants is to be expected, given the level of fraud and scams associated with the sector.
Speaking to VIXIO, he said he expects more banks to follow in the footsteps of Westpac and CBA, as well as payment aggregators such as Cuscal.
Previously, Cuscal was the banking partner of Binance Australia. As part of this relationship, Cuscal sponsored Zepto, a smaller payments firm, to facilitate instant payments from bank customers to Binance.
According to Kelly, Westpac was the first of the Big Four banks to question Cuscal’s relationship with Binance, due partly to the “gut full” of fraud issues its customers have experienced stemming from the crypto sector.
Since last month, following the loss of Cuscal, Binance’s Australian customers are now unable to make deposits or withdrawals using Australian dollars.
At the time of Cuscal’s announcement, Binance said it would find a replacement for Cuscal, but that replacement is still forthcoming.
Similarly, Binance customers in the UK are facing the same situation. Towards the end of last month, Binance’s UK banking partner Skrill stopped handling payments for Binance, leaving Binance’s UK customers with no way to make deposits or withdrawals using British pounds.
In the Australian context, Kelly said that smaller crypto firms will likely face the same payments lockout that Binance has faced in the near future, due to the growing risk aversion of the major banks and aggregators such as Cuscal.
Ultimately, he predicts that Cuscal will stop onboarding crypto merchants altogether, which will have a major impact on smaller fintechs that partner with Cuscal to serve the crypto sector, such as Zepto, Monoova, PayPa Plane and Azupay.
