VersaBank Inc., a tiny Canadian lender led by a tech-savvy CEO with a penchant for planes and classic motorcycles, is building a virtual safety deposit box for cryptocurrencies and other digital assets.
The firm is taking the lead in a global banking industry that’s been reluctant to venture into most things crypto. The London, Ontario-based bank plans to have its digital vault ready by June and offer the service to global customers.
“We’re using what banks are all about — safety and security — only what we’re doing now is saying that physical box in the basement is getting obsolete,” David Taylor, chief executive officer of Canada’s smallest bank by assets, said in interview at Bloomberg’s Toronto office. “Most people’s really valuable assets are contained in some sort of digital format, whether it be a deed or a contract or a cryptocurrency.”
The move underscores a paradox of Canada’s financial system, which is dominated by six large lenders. While its banks are regularly regarded as among the world’s soundest, it’s also home to a boisterous junior stock market where new trends from blockchain to marijuana can quickly captivate investors.
VersaBank hired cybersecurity expert Gurpreet Sahota from BlackBerry Ltd. — the former smartphone maker long viewed as a world leader in security and encryption — to lead software engineers in designing its “VersaVault.” It’ll securely store digital assets on computer servers around the world. Like a safety deposit box, the bank won’t know what’s inside. What’s different, though, is VersaBank can’t access the contents.
“Our differentiator in this market is to be secure and super private,” said Taylor, 65, said. “The bank wouldn’t have any kind of back door to open up the vault, we’re just providing the facility that folks could put their digital keys in.”
Numerous high-profile heists including last month’s theft of more than US$500 million from Japanese cryptocurrency exchange Coincheck Inc. illustrate the need for security. Hackers typically steal money from crypto exchanges by gaining access to their internet-connected wallet that stores customer funds.
Large funds are showing interest in storing their assets in VersaVault since the company announced the plan last month, Taylor said. Pricing hasn’t been set, though it’ll be expensive, he said.
VersaBank is building its vault as Bitcoin plunged below US$7,000 on Monday for the first time since November, pulling down other digital tokens, as several U.S. banks said they’re halting cryptocurrency purchases on credit cards, with some citing risk aversion and a desire to protect customers.
VersaBank is an early mover among traditional banks. South Korea’s Shinhan Bank said in November it planned to start a bitcoin vault by mid year. Outside banking, Palo Alto, California-based Xapo Inc. has offered clients secure storage for Bitcoin for about four years, while Goldmoney Inc., a Toronto-based firm that lets clients buy, sell and store precious metals in vaults in seven countries, started offering Bitcoin storage in September.
The bank wouldn’t have any kind of back door to open up the vault, we’re just providing the facility that folks could put their digital keys in
Taylor is no stranger to innovation. He introduced a branchless bank to Canada in 1993, four years before ING Groep NV arrived in the country to offer telephone banking as ING Direct. VersaBank, which has its roots as a trust in Saskatchewan in 1979, still operates on a branchless electronic model, gathering deposits through a nationwide network of brokers and buying loan and lease receivables from non-bank financial firms while working with partners to offer behind-the-scenes financing for retail and small businesses.
“We’re a digital bank that has very little human interface and serves as a warehouse for assets and liabilities, and makes a good spread in the middle,” Taylor said. “That’s banking in its essence.”
Taylor is an avid pilot and collects motorcycles — his 1969 Triumph Bonneville is his favourite. He lives 190 kilometres (120 miles) west of Toronto — Canada’s financial capital — in London. His 100-acre farm has a 2,000-foot landing strip used for his three prop planes, including a Cessna 337 he retrofitted with a Corvette car engine and called Skyvette. He often flies into Toronto for meetings.
Taylor’s banking career began in 1977, when he applied for a job at Bank of Montreal “as a lark” because he couldn’t find summer work in biology after getting his undergraduate science degree. He previously held a part-time job as a prison guard.
VersaBank, with a market value of about $158 million (US$126 million), 80 employees and $1.73 billion in assets, has outperformed Canada’s big banks, with shares soaring 24 per cent this year versus the 2.9 per cent decline of the eight-company S&P/TSX Commercial Banks Index. Last year VersaBank rose 19 per cent compared to the 11 per cent gain of the banks index. Taylor is now eyeing a bit more growth while staying the course.
“I’m happy to be a niche player, but can probably double the size we are in assets,” he said. “I think $3 billion is kind of a nice number.”