The world is going crazy about crypto. Some love them, some hate them, and a large number just don’t understand them. Forget the ridiculous market cap and the volatility involved, the digital transformation brought about by cryptocurrencies and blockchain technology certainly can’t be ignored.
Over time, several new use-cases of cryptocurrencies have cropped up and experts believe this is just the beginning. Let’s take cross-border payments as an example, which has always been a tedious and expensive process. According to the World Bank, cross-border payments cost an average of 6.51 per cent in Q4 2020 worldwide. Apart from the hefty tariffs involves, most international transfers take multiple days to be processed.
However, according to Deloitte, cross-border payments on blockchain requires only 4-6 seconds to be processed and costs 40-80 per cent less, when compared to traditional cross-border transactions.
Despite the growing adoption of cryptocurrencies and their potential to significantly improve the traditional financial system, many obstacles still loom large that prevent crypto and fiat worlds from growing closer. This is where London-based Mercuryo wants to make a difference. It aims to bridge the fiat and crypto worlds.
Founded in 2018 by Alexander Vasiliev, Greg Waisman, and Petr Kozyakov, Mercuryo is a cross-border payments network that enables businesses to send and receive payments for goods and services using cryptocurrencies.
As for the banking sector, Mercuryo offers its customers fintech crypto SaaS solutions, allowing them to buy crypto via their fiat accounts while assigning digital asset management to the team. Be it virtual accounts or third-party customer wallets, the company handles most cryptocurrency-related processes for banks, so they can focus more on their core operations.
Last month, Mercuryo raised $7.5M (approx €6.3M) in its Series A round of funding led by pan-European VC firm Target Global with participation from a group of angel investors. With this round, the company has now raised a total capital of over $10M (approx €8.4M), to date.
Mercuryo believes that existing payment methods with high fees, chargeback risks, and relatively slow transaction speed will quickly become outdated once the solid blockchain-powered payment infrastructure is built.
We caught up with Petr Kozyakov, co-founder and CEO of Mercuryo and Mike Lobanov, COO & General Partner at the venture capital firm Target Global, to better understand the need for an appropriate infrastructure to be built around crypto and blockchain tech, the value-add this infrastructure offers, and the reasons why the market need such solutions.
Here are the edited excerpts:
SC: Do you think crypto can fill the lacuna in the traditional financial system? If yes, how?
Petr: At Mercuryo, we believe that cryptocurrencies hold a strategic kind of importance when it comes to revolutionising the field of finance and payments. Due to their nature crypto can make cross-border payments and settlements between parties faster, cheaper and overall easier. That is where, in our opinion, the true purpose of crypto lies, and that is the future we are working towards.
SC: Although Cryptocurrencies and blockchain technology have been the talk of the town for a long time now, what’s stopping the crypto and fiat worlds from benefiting from each other?
Mike: It is a well-known fact by now that cryptocurrencies are here to stay – they have become an asset class with a market cap of over $2 trillion to its name. This growth was primarily driven by active adoption of cryptocurrencies across the world. Yet, despite said growing adoption, the gap between crypto and fiat worlds is still far from closing.
There are two primary issues that can be highlighted here.
The first is that companies in the fiat world may know of crypto, but they have no idea how to integrate them into their services. Figuring out how to do it requires time and resources that many businesses are not yet willing to spare. And even when they do, there is no guarantee that a solution would readily appear.
A good example of how businesses, even the major and modern ones, are facing troubles in this field is Revolut. They first got the idea to introduce crypto-related services about 4 years ago. And despite dedicating several years-worth of efforts, they are still in the process of figuring it out. The company has only introduced a crypto withdrawal possibility a couple of months ago.
Another problem here is that crypto projects, on their side, have a hard time accepting payments in fiat. There are few global providers that make this possible. And there are practically no solutions that could make conducting local payments, opening bank accounts, issuing bank cards, etc., possible for such projects.
SC: Why do you think there’s a need for an appropriate infrastructure to be built around crypto and blockchain tech?
Mike: Blockchain technology is still relatively young, and yet it is already experiencing a lot of demand from companies even outside the crypto world. Dedicating the effort to building up an infrastructure that revolves around blockchain will certainly help in bringing the worlds of crypto and traditional fiat closer.
Crypto projects – DeFi projects especially – operate in a space very different from traditional finance. People who are engaged in such projects are often very tech-oriented. They seek to immerse themselves in developing something new and exciting and can’t bring themselves to work through the various nuances of fiat regulation, getting licenses, etc. As such, they do not engage with fiat directly.
And this leaves space for services like Mercuryo – that can back such crypto projects with fiat-related solutions: fiat on and off ramps, bank accounts and cards, etc. These services basically act as intermediaries – they provide the infrastructure to bridge the two worlds while shouldering most operational nuances by themselves so that neither crypto companies nor their fiat counterparts have to bother with the complicated details.
SC: How is Mercuryo helping bridge the fiat and crypto worlds?
Petr: At Mercuryo, we see two major fields where crypto and fiat should be linked.
The first is crypto projects that require fiat solutions. Here we began with the idea that was most obvious to us – fiat on ramps, the opportunity to buy crypto with a bank card. Then we made a fiat off ramp – the opportunity to sell crypto and get paid to any VISA or Mastercard card. Then we launched fiat in and fiat out products for crypto companies, so that they could accept payments via traditional debit and credit cards. And we are on our way to adding more services – like IBANs, bank cards, and more. – through our API.
The second major field is crypto for traditional fiat systems. Embedded solutions for launching crypto-related services for traditional fiat companies – banks, e-wallets, etc. A solution that allows a fintech company to provide its clients with a possibility to buy/store/withdraw crypto or, vice versa, deposit/sell it within the framework of a company’s interface.
The need for fast and efficient international payments, especially for businesses, is as great as ever. There’s no lack of companies working in this direction, but at Mercuryo we take a somewhat different approach. We’re using cryptocurrencies as a tool for putting in motion next-gen cross-border transfers. Our team has a clear plan on making crypto universally available by enabling cheap and straightforward transactions. Cryptocurrency assets can then be used to process global money transfers, conduct mass payouts, facilitate acquiring services, and much more. We’re even cooperating with banks so that their customers can start buying crypto with fiat.
One of the greatest values of our proposal lies with the fact that in order for a company to launch such a solution now, it needs to solve many problems: how to obtain licenses, onboard clients, conduct KYC processes, monitor transactions, store cryptocurrencies that it takes custody of, and so on. When working with Mercuryo, our clients can have all of this available to them in one place – by getting access to our wallet through the API. We offer a modular solution that can be used by fiat and crypto businesses alike, and they can choose to integrate only those products and services that they require.
SC: Please tell us about the story of starting up Mercuryo – coming up with the idea, meeting your cofounders, etc.
Petr: My first contact with crypto was, surely enough, due to a payment issue. I was trying to make a payment for advertising services from Asia to the US and there were no options available to do it. PayPal and other similar methods were not online. Eventually, I decided to try and make a payment in Bitcoin – the transfer was instant and it turned out to be a very positive experience.
Later, in 2017, myself, Greg and Alexander bore witness to the crypto boom and received a lot of questions from different parties. One of the most popular questions was “how to buy crypto”. Since we are experts in online payments, a lot of partners were coming to us with that sort of questions – how to buy crypto, can you provide us with a solution to do that, etc. So we decided to actually go ahead and build a solution that would help people get access to crypto with relative ease.
Following that decision, it occurred to us that, from a strategic viewpoint, this was a major opportunity to bridge fiat and crypto worlds and bring them together. That’s how we began Mercuryo as it is known today.
SC: What were some of the initial challenges that you faced while setting up Mercuryo?
Petr: Here I can share a couple of stories. First of all – back in 2017-2018 nearly no one wanted to deal with crypto. Acquiring banks, payment systems and others – they didn’t want to hear anything about crypto.
I knew the owner of a card acquiring company – we were doing a lot of business together. When I came to him with Mercuryo and suggested launching crypto payments options with us, he said that he could do so, but the percentage for the acquiring service would be around 4%. I was surprised, because he usually charged 2.5% for other projects that I came to him with. When I asked him about the reason for the difference, he explained that it was because crypto was high-risk to work with.
And in many ways, this situation remains true today as well. Even now crypto projects have a hard time finding partners to work with, because banks don’t know how to deal with crypto, even if they may be open to the idea itself.
Another thing to mention here is that from the very beginning of Mercuryo we decided that our project should always be 100% in-line with the regulation. That’s why we’ve had KYC processes for all transactions integrated on our platform. And it was a pain for us at the time, since many projects tended to do work without any KYC. But now the situation is changing, regulators around the world are turning their eyes to this industry, and the only way to move forward and achieve success is by complying with them – so this turned out to be the right decision on our side.
SC: What are the risk management techniques that Mercuryo uses to deal with cyber threats and scammers?
Petr: We knew from the start that buying crypto with a bank card would be an ideal instrument for fraud – to use stolen bank cards and data. So from the founding of Mercuryo, we started working on our own anti-fraud system, which can analyse more than 200 parameters online, including blockchain data for every transaction. By now we’ve managed to build what I would say is a state-of-the-art security system for card acquiring. And this system is the basis for all our internal monitoring – we have a dedicated monitoring team – and the foundation upon which we’re building other services.
SC: What is Mercuryo’s business model? What are your revenue generation streams?
Petr: As previously mentioned, we are a service that bridges the fiat and crypto worlds – you could say that what Mercuryo offers is a payments gateway solution for companies in both fields.
We have a number of services that we’ve developed since our founding. Fiat on and off-ramp, fiat in&out – these are our main revenue generation streams right now.
We present traditional businesses with a way to easily enter and exit the crypto world with ease. Businesses like banks, neobanks, online platforms, streaming services, etc., can take advantage of all the opportunities of blockchain and crypto to settle their payment needs, while remaining within the rules of traditional finance.
Our goal is to give partners an all-around solution based on their needs. For example, with card acquiring, businesses can accept fiat with the possibility of compensation in crypto. That is, accepting money in fiat, and receiving it to their accounts in crypto.
As a constructor, we offer solutions for each client made from our individual products. And this is where we see the market’s needs. In strategic terms, we are working on other services that could become our main sources of revenue in the future.
SC: Currently, how big is your team in total? What are your hiring plans for the future?
Petr: Our team is over 100 people at the moment. Around half of them are in the development team or connected to it.
We plan to double the number of people by the end of the year, with a focus on developing our UK office. Also, among our plans for 2022 is establishing about a dozen local offices around the world.
SC: What are your expansion plans for Mercuryo?
Petr: Although we constantly work to upgrade our existing solutions and local payment methods, our mid-term plans are to launch new solutions (IBAN solution, bank cards, crypto SAAS for banks). Strategically, we are moving towards developing new products.
We intend to continue executing our company’s vision – to become the go-to infrastructure for crypto-fiat payment solutions. Our team plans to launch a cryptocurrency debit card (spending money anywhere in the world directly from the crypto wallet’s balance) and expand to new markets, such as LATAM and APAC before the end of the year.
By the end of 2020, our company has entered the US market – in the near future we intend to expand our presence there. As well as in Africa, South America, and Southeast Asia. The plan is to connect all these regions within a unified global payments system.
SC: The environmental impact of crypto is a major concern that’s hindering its widespread adoption, especially after Elon Musk raised concerns about the environmental impact of Bitcoin mining. How can this issue be dealt with?
Petr: I agree, the usage of energy in crypto mining and the overall carbon footprint is a hotly discussed topic right. To my mind, two points are worth mentioning here.
The first is that the right move for crypto would be to move from Proof-of-Work (POW) to Proof-of-Stake (POS). A network that operates on the POW consensus requires a lot of computing power to remain efficient, which leads to major energy consumption. POS does not have this issue, since you don’t need to buy mining equipment to take part in the mining process. A participant only needs to lock a part of their assets in the network to prove their trustworthiness as a node. So switching to Proof-of-Stake seems the reasonable thing to do is you wish to solve energy consumption problems.
The second point is that, if we look at this from a different side, high demand for energy means that energy buyers are ready to pay higher prices for it. This provides a great opportunity to stimulate the advancement of green energy.
SC: What are some of the key crypto-centric innovations that we can expect in the near future?
Mike: Within the next several years we are expecting the launch of the first CBDC – China’s crypto yuan will likely be the first to achieve a full-scale launch.
Additionally, in 2022 we will likely start seeing settlements in stablecoins for large companies. For example, VISA already announced that it will support transactions in USDC stablecoin on its payments network. We are bound to see the company broaden their operations further, going forward.
Another point that we expert is the launch of the first embedded crypto solutions for fiat companies on the market. Because crypto is here to stay – there is no doubt about it. Right now, there are few projects that help crypto to be connected to fiat, but this is going to change. In fact, we think that this is going to be among the key crypto-centric innovations in the near future.
SC: According to PitchBook, venture capital investment in cryptocurrency and blockchain startups hit a record $3B in Q1 2021 across 239 deals. Can we expect this elevated investor interest in crypto startups to survive the volatility of cryptocurrencies? If yes, why? Are investors mostly interested in the underlying blockchain technology rather than the crypto?
Mike: As far as volatility is concerned – here it should be said that the true importance of cryptocurrencies does not lie with price fluctuations. Strategically, it is about using crypto (stablecoins / CBDCs) as instruments for settlements. And there are projects in this industry that work with blockchain but don’t deal with crypto in any way. Not to mention the many payment companies outside the crypto field altogether that are taking greater interest in blockchain even while remaining wary of cryptocurrencies.
So yes, I think it’s a safe bet to say that the DLT technology will see greater usage, as companies continue to learn more about it.
SC: Will this volatility of crypto impact the integration of crypto into traditional finance? How can this be resolved? Are CBDCs the answer?
Petr: It was never just about rates and volatility. Bitcoin could cost anywhere from $5 to $50 000, but the more important thing about crypto is the way it can improve the traditional financial system. Due to their nature, cryptocurrencies can greatly speed up cross-border payments, reduce their costs, and eliminate the need for third parties and intermediaries.
The main properties of cryptocurrencies that we use in our solutions are not their speculative value, but their ability to be used as an exchange tool and their nature as an asset that makes instant transactions possible. Cryptocurrencies have become a form of universal electronic money.
We believe that the existing payment methods that have plenty of downsides – high fees, slow transaction speed, etc. – will quickly become outdated once a solid blockchain-powered infrastructure for payments gets put together.