Coinbase Halts Support for Signature Bank’s Signet: What Does It Mean for Digital Payments?

On March 21, Coinbase said that it had stopped supporting Signature Bank’s digital payment platform, Signet, more than a week after the US regulatory authority took over Signature Bank.

Coinbase stops supporting Signet, a digital payment platform for signing banks

In March 2021, Coinbase, one of the largest cryptocurrency exchanges in the US, announced that it would no longer support Signature Bank’s digital payment platform, Signet. The decision came just over a week after the US regulatory authority took over Signature Bank. This move has raised several questions about the future of digital payments and the role of regulatory authorities in policing them. In this article, we’ll take a closer look at what happened with Coinbase and Signet and why it matters for the wider landscape of digital payments.

The Coinbase-Signet Partnership

Before we dive into the details of the split between Coinbase and Signet, it’s worth taking a step back to understand what the two companies were working on together. Coinbase is a digital asset exchange that allows users to buy, sell, and trade cryptocurrencies like Bitcoin, Ethereum, and Litecoin. Signet, on the other hand, is a digital payment platform that enables instant, borderless transfers of money between businesses. It uses blockchain technology to ensure secure and efficient transactions.
In 2019, Coinbase partnered with Signature Bank to integrate Signet into its platform. This meant that Coinbase customers could make instant and free USD transfers to other Coinbase users who also had Signet accounts. This partnership was seen as a significant step forward for both Coinbase and Signet, as it allowed them to offer a more seamless and efficient payment experience to their users.

The Regulatory Takeover of Signature Bank

Fast forward to March 2021, and things took a dramatic turn for Signet. The New York State Department of Financial Services (NYDFS) announced that it had taken over Signature Bank, citing concerns about the bank’s compliance with anti-money laundering (AML) laws. The NYDFS claimed that Signature Bank had “failed to properly implement and maintain an effective and compliant program to combat money laundering, terrorist financing, and other illicit financial transactions.”
This news sent shockwaves through the digital payments industry, as Signature Bank is one of the few banks in the US that has embraced blockchain technology and digital payments. While the NYDFS did not indicate that anything was wrong with Signet specifically, the fact that the platform was closely associated with the bank raised concerns among its partners and users.

Why Did Coinbase End Its Support for Signet?

Against this backdrop, Coinbase announced on March 21 that it would no longer support Signet. The company did not give a specific reason for why it was ending the partnership, but it cited “recent developments” as the cause. Some analysts have suggested that Coinbase’s decision was related to the NYDFS takeover of Signature Bank, as the exchange may have felt uncomfortable being associated with a bank that was under regulatory scrutiny.
Whatever the reason, Coinbase’s decision to end its support for Signet has significant implications for the digital payments industry. For one, it raises questions about the stability and long-term viability of blockchain-based payment platforms. If even a major player like Coinbase can suddenly cut ties with a key partner like Signet, what does that imply for the wider ecosystem?

The Future of Digital Payments in the Wake of Coinbase-Signet Split

In the short term, the split between Coinbase and Signet is likely to have little impact on the average user of digital payment platforms. Both companies will continue to operate independently, and Coinbase users will still be able to transfer USD to other users without Signet. However, the longer-term implications of the split are more significant.
For one, it highlights the fact that digital payments are still a relatively nascent industry. While there has been a lot of hype around blockchain-based payment platforms and the potential benefits they offer, the reality is that the regulatory environment around them is still uncertain. This makes it a risky proposition for companies like Coinbase and Signet to bet heavily on these platforms.
At the same time, the split between Coinbase and Signet could be an opportunity for other digital payment platforms to emerge. With Coinbase’s support no longer tied up with Signet, the exchange may be more open to working with other partners in the future. Similarly, other digital payment platforms may be able to use this moment to differentiate themselves from Signet and pick up some of its users.

Conclusion

The split between Coinbase and Signet is a reminder that the digital payments industry is still evolving rapidly. While there are certainly benefits to using blockchain-based payment platforms like Signet, there are also risks involved, particularly when it comes to regulatory compliance. As the industry continues to mature, it is likely that we will see more companies like Coinbase reassess their partnerships and relationships with payment platforms like Signet.

FAQs

1. What is Signet, and how does it work?
Signet is a digital payment platform developed by Signature Bank that enables instant, borderless transfers of money between businesses. It uses blockchain technology to ensure secure and efficient transactions.
2. Why did the NYDFS take over Signature Bank?
The NYDFS claimed that Signature Bank had “failed to properly implement and maintain an effective and compliant program to combat money laundering, terrorist financing, and other illicit financial transactions.”
3. What does Coinbase’s decision to end its support for Signet mean for the digital payments industry?
The split between Coinbase and Signet highlights the risks and uncertainties associated with blockchain-based payment platforms. However, it may also create opportunities for other payment platforms to emerge and differentiate themselves.