Medici Bank, a digital-only challenger bank backed by Prince Lorenzo de’ Medici — a descendant of the Renaissance-era Italian banking family, aspires to build a global network of banks connected by blockchain. The goal is to facilitate cheaper, more transparent cross-border money transfers for international businesses and affluent individuals with $1 million dollars or more in their account.

According to CEO Ed Boyle, friction in banking services for young, e-commerce businesses working in dozens of countries and currencies has largely gone unaddressed by the industry. Headquartered in San Juan, Puerto Rico, Medici Bank will focus on serving businesses in the U.S. that do business inside and outside of the U.S., as well as businesses outside the U.S. that do business with the U.S, he said.

“If you’re a massive corporation, you’re dealing with a multinational division of Citibank or HSBC, or some other money center bank,” Boyle said. “If you’re a small company that’s been in business for a couple of years and you’re selling something on the web, you’re probably going to be pushed down into the retail bank, and retail banking just isn’t set up for international banking.”

According to Boyle, fintech companies are providing a lot of the solutions for international payments right now, but customers often need to send a wire or ACH from their primary bank over to that fintech provider to make use of them. It’s a chicken-and-egg problem: Customers are jumping through hoops because banks can’t do what the fintechs are doing, but the fintechs can’t hold the money.

“We want to squish that down into one layer,” Boyle said. “Your bank should behave like a fintech, so we see ourselves as a fintech that happens to have a bank charter.”

To be clear, Medici Bank doesn’t have a U.S. banking license. It acquired a division of Belize-based Choice Financial in April and then, through that acquisition, obtained an international banking charter from Puerto Rico. The charter allows Medici Bank to operate in any non-sanctioned nation-state, including the U.S., as long as it complies with Bank Secrecy Act and anti-money laundering obligations.

With a workforce of only about 10 at this point, Boyle said he doesn’t expect the U.S. bank to grow beyond 75 people. However, the bank’s growth strategy does entail replicating the model in other major markets around the world. As examples, he noted that there could be a Medici Bank Europe, Medici Bank Asia and Medici Bank Middle East on the horizon.

“As we grow the customer base and as that customer base proves itself to be fairly international in nature, we want to be closer to the customer and be native to their local payment rails,” Boyle said. “The long-term goal between those three or four banks, plus an additional 10 to 15 banks, is to have a challenger bank network connected by blockchain that is able to process real-time, straight-through processing of cross-border, cross-currency money transfers.”

Medici Bank wouldn’t be the only bank dabbling in blockchain-powered cross-border payments. JPMorgan Chase announced last month that it would expand the use of its blockchain technology to reduce the number of global payments rejected by errors. The bank’s Interbank Information Network, originally designed to help institutions share payments data in real time, already is used by more than 220 banks around the world.

Blockchain’s business value in the financial sector, meanwhile, is expected to balloon to $462 billion by 2030, up from an estimated value of $1.9 billion in 2017, according to IHS Markit’s Blockchain in Finance Report for 2019. The report identified cross-border payments as one of the primary use cases for blockchain in the sector, especially as it can speed up, simplify and reduce the costs by cutting out traditional middlemen.

Boyle himself previously was managing director of Americas at Fidor Bank and vice president and general manager of American Express’ prepaid card business. He said he reached a point of frustration with banking about a year ago, as banks increasing had difficulty leveraging Fidor’s technology because of outdated, overworked tech stacks.

After deciding to launch his own bank, embarking on a global search and considering the purchase of a bank in Switzerland, Boyle ultimately came back to the U.S., where he met de’ Medici, who shared a similar vision for a “frictionless and invisible” bank.

Asked why Medici Bank chose Puerto Rico as its headquarters, Boyle said it’s in the U.S., first of all, and is regarded as a gateway between the U.S. and Latin America. He also cited a bilingual talent pool and a “quite open-minded” regulatory environment.

“When you look at the regulatory environment in the U.S. since the financial crisis, it’s like the music has stopped,” Boyle said. “However, Puerto Rico’s regulator takes a risk-adjusted approach to issuing de novo charters, and our original interest was to apply to get a de novo charter.”

Although the regulator in Puerto Rico falls under the oversight of the Federal Reserve Bank of New York, Boyle said the local regulator looks at applicants for charters and imposes various constraints against them based on their business plan. “For example, FDIC insurance is optional,” he said. “FDIC insurance is a fine product, but you’re subject to incremental regulatory constraints and capital requirements. In our case, where a typical customer may have a few million dollars in their bank account, having a $250,000 insurance policy is not a key factor.”

Boyle said Medici Bank currently is building out proprietary customer experience channels and APIs. It also is integrating third-party vendors for services like anti-money laundering/know-your-customer compliance and core banking. The bank is expected to launch before the end of the year.