Like any tech industry, the crypto sector is awash with takeovers, buyouts, and M&As. When a company spots a promising startup in a strategic vertical, acquisition becomes the natural next step. Over time, the crypto market has increasingly adopted this classic playbook from traditional finance.
From Coinbase's (COIN) acquisition of Earn.com to Binance’s purchase of CoinMarketCap, the last decade has seen hundreds of industry mergers and acquisitions. If there's one strand that runs through these deals, it's a large crypto company — usually an exchange — buying a smaller crypto startup.
This trend is unlikely to let up as blockchain businesses seek to fast-track their path to dominance of emerging on-chain sectors. However, it appears poised to be supplanted by a larger trend that will see crypto exchanges shift their focus outward and begin to eye opportunities within traditional finance. And at the top of their wishlist are those companies that specialize in bridging the fiat and crypto worlds: neobanks.
Crypto Is Coming for Neobanks
Operating entirely online, usually through mobile apps, neobanks don't have physical branches. This allows them to be leaner and more innovative, without being burdened with the expense of maintaining brick-and-mortar premises. It also makes them a highly attractive target to wealthy businesses that are also accustomed to operating digitally, crypto exchanges.
It helps that many neobanks such as Revolut and Wirex are already in the business of supplying fiat-to-crypto services, forming a valuable conduit for moving funds in and out of the cryptosphere. Many crypto exchanges already offer branded debit cards, issued through payment providers such as Mastercard (MA) and Visa (V). The acquisition of a neobank allows them to go a step further and evolve into full payment companies capable of bridging the fiat and crypto worlds.
As many of these exchanges have discovered, maintaining a reliable debit card service can be challenging. Due to the ever-evolving regulatory landscape, it's not uncommon for card issuers to withdraw services, leaving exchanges scrambling to find an alternative. Neobank ownership solves this problem.
The Case for Being Your Own Bank
Some of the benefits of owning a neobank are obvious, from an exchange perspective, such as easier onboarding and off-ramping. But the advantages extend far beyond merely adding a reliable fiat pipeline. Through astutely integrating traditional banking services including savings accounts, loans, and payment processing, there's the opportunity to create a universal financial platform for users. Imagine being able to take out a mortgage using your crypto as collateral?
The cost savings on a day-to-day basis should also be significant, both for exchanges and their customers, should CEXs elect to pass these savings down. Combining neobank infrastructure with that of crypto exchanges allows for faster, cheaper fiat-to-crypto conversions and direct deposit and withdrawal options. Speaking of savings, shared infrastructure such as KYC/AML processes, customer support, and tech stacks can all be pooled, reducing operational costs and user friction. Get verified once and then do all of your banking and crypto under one roof.
The CEX-neobank amalgamation is a match just waiting to happen. So why hasn't it happened?
Why the Mood Music Now Favors Exchanges
Despite the range of potential that such an acquisition can provide, there's still a big challenge to adopt this model — regulation. Until recently, crypto businesses had to fight just to keep their own banking services, culminating in Operation Chokepoint 2.0, which saw a concerted effort by the Biden administration to squeeze them out of mainstream finance.
Crypto lender Nexo acquired a minority stake in Summit National Bank, a U.S. federally chartered bank. BitMEX announced the acquisition of German private bank Bankhaus von der Heydt, but that deal ultimately fell through. This time is different, with the mood music now favoring crypto businesses that are looking to expand into traditional finance —provided they tick all the right regulatory boxes.
The approval of the GENIUS Act has strengthened the bridges between TradFi and blockchain, mainstreaming stablecoins and further normalizing crypto. With Circle's stock riding high following its IPO at the start of June and institutional participation in web3 gathering pace, aided by a crypto-friendly U.S. administration, the scales have tilted firmly in the industry's favor.
Astute exchanges with deep pockets will seize this initiative and use it to make strategic M&As while the sun shines. More than just a diversification strategy, neobanks provide a direct path to regulatory licenses, fiat rails, banking infrastructure, and onboarding millions of new users. It's the fast-track to evolving from a cryptocurrency exchange into a full-scale financial ecosystem, capable of offering deposits, cards, lending, embedded trading, and much more.
This pathway is not without its risks, and exchanges will still need to tread carefully in terms of the neobanks they approach, the regions they target, and the regulators they engage with. The compliance costs and legal fees won't be cheap. But the upside, if they can pull it off, is an unrivaled gateway to the cryptoconomy and a business that is future-proofed, capable of generating revenue whatever the mood of the markets.
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