Bybit’s Ambitious Neobank Plans Test Crypto Exchanges’ Critical Push Into Traditional Banking

Singapore, February 2025 – Bybit’s announcement of its upcoming neobank launch represents a pivotal moment in cryptocurrency’s ongoing convergence with traditional finance. The exchange’s partnership with Tether-backed Pave Bank highlights both the ambitious expansion strategies of crypto platforms and the significant regulatory challenges they must navigate. This move tests the boundaries of how far cryptocurrency exchanges can push into banking services while maintaining compliance across multiple jurisdictions.

Bybit’s Neobank Strategy and Regulatory Landscape

Bybit CEO Ben Zhou revealed the exchange’s retail banking initiative on Thursday, with MyBank scheduled for February launch. This development marks one of the most significant attempts by a major cryptocurrency exchange to offer comprehensive bank-like services directly to retail users. The announcement comes amid increasing intersection between cryptocurrency platforms and traditional financial systems worldwide.

Gal Arad Cohen, a blockchain lawyer at S.Horowitz & Co, emphasized the complexity of this transition. “The concept of a crypto exchange expanding into banking services appears feasible theoretically,” Cohen explained. “However, the practical implementation involves navigating extremely complex regulatory frameworks across different jurisdictions.”

Currently, no major global cryptocurrency exchange operates as a fully licensed traditional bank offering deposit-taking services under its own banking charter. This regulatory gap presents both challenges and opportunities for platforms seeking to expand their service offerings.

The Banking Partnership Model

Bybit confirmed its partnership with Pave Bank, a licensed lender based in Georgia that received its digital banking license from the National Bank of Georgia in 2023. This partnership model represents a strategic approach to regulatory compliance, allowing cryptocurrency exchanges to offer banking services without pursuing full banking licenses themselves.

Pave Bank positions itself as a programmable bank for businesses, combining cryptocurrency and fiat services within a regulated framework. The bank raised $39 million in Series A funding during 2025 from major industry players, including Tether Investments. This financial backing provides significant resources for the neobank initiative.

Industry Perspectives on Crypto-Banking Convergence

The cryptocurrency industry exhibits mixed reactions to exchanges pursuing banking services. Ryne Saxe, co-founder and CEO of blockchain company Eco, noted the substantial structural requirements for operating in regulated markets. “If Bybit seeks a US banking charter, which would surprise me but remains possible, they’ll need extensive structural planning,” Saxe commented.

Several exchanges have experimented with bank-like features previously:

• Binance introduced fiat on-ramps and payment accounts
• Coinbase developed card services and banking integrations
• Kraken established institutional banking relationships

However, operating as a full-service bank involves substantially different requirements and responsibilities. Yuriy Brisov, a lawyer at Digital & Analogue Partners, explained the distinction. “It’s logical that cryptocurrency firms will compete more directly with traditional banks between 2026 and 2027,” Brisov stated. “Nevertheless, as platforms approach full-service banking, they inherit traditional banking burdens.”

These burdens include:

• Capital and liquidity requirements
• Sanctions enforcement obligations
• Operational resilience standards
• Incident liability frameworks

The Embedded Finance Evolution

Petr Kozyakov, co-founder and CEO of payment platform Mercuryo, framed Bybit’s move within broader industry trends. “Cryptocurrency platforms increasingly make inroads into traditional finance,” Kozyakov observed. “Simultaneously, traditional financial services explore cryptocurrency integration.”

Megan Knab, CEO of Franklin, described this development as part of the “embedded finance” evolution. This concept involves abstracting users from cumbersome money movement processes while enabling borderless, near-instant payments as standard practice.

User Experience Implications and Trade-offs

Bybit’s banking initiative could simplify fiat-to-cryptocurrency transactions for retail users. However, industry experts caution about potential trade-offs, particularly regarding user onboarding experiences.

Nick Denisenko, co-founder of digital finance platform Brighty, expressed concerns about user experience impacts. “This banking push might create more problems than benefits,” Denisenko suggested. “Heavier Know Your Customer procedures will likely accompany banking services.”

Many cryptocurrency users specifically choose exchanges for their streamlined onboarding processes. Asian exchanges particularly maintain relatively light KYC requirements compared to traditional banks. Denisenko highlighted this consideration. “If Bybit pursues this banking route seriously, it would represent the first major exchange attempting this approach,” he noted. “I’m uncertain whether most retail users currently demand these services.”

The tension between regulatory compliance and user experience represents a central challenge for cryptocurrency exchanges expanding into banking services. Platforms must balance enhanced security requirements with maintaining accessible user interfaces.

Global Regulatory Considerations

Cryptocurrency exchanges face diverse regulatory environments across different jurisdictions. Banking regulations vary significantly between regions, creating complex compliance landscapes for global platforms.

Recent surveys indicate increasing regulatory scrutiny. UK banks reportedly block or delay approximately 40% of cryptocurrency exchange transfers, reflecting cautious approaches from traditional financial institutions. These challenges underscore the importance of strategic banking partnerships for cryptocurrency platforms.

Bybit declined to provide additional details about its neobank initiative’s specific scope and geographic reach. This limited information reflects the sensitive nature of regulatory discussions surrounding cryptocurrency banking services.

Market Context and Competitive Landscape

The cryptocurrency banking trend emerges alongside traditional financial institutions exploring digital asset services. Major banks increasingly develop cryptocurrency custody solutions and trading desks, creating competitive pressure on cryptocurrency-native platforms.

Banks’ exposure to cryptocurrency assets has evolved significantly from Q4 2021 through Q4 2024. This growing institutional involvement creates both competition and potential partnership opportunities for cryptocurrency exchanges expanding into banking services.

Revolut recently abandoned takeover plans while pursuing a US banking license, indicating continued interest in banking-charter acquisition among fintech companies. These parallel developments highlight the broader financial technology sector’s convergence trends.

Technical and Operational Considerations

Implementing banking services requires substantial technical infrastructure beyond typical exchange operations. Payment processing systems, compliance monitoring tools, and customer support frameworks must meet banking industry standards.

Programmable banking capabilities, like those offered by Pave Bank, enable innovative service combinations. These technical foundations support cryptocurrency exchanges seeking to integrate traditional financial services with digital asset platforms.

Security considerations become increasingly critical as platforms handle both cryptocurrency and traditional banking services. Multi-layered security protocols must protect against diverse threat vectors while maintaining regulatory compliance.

Conclusion

Bybit’s neobank plans through Tether-backed Pave Bank represent a significant test case for cryptocurrency exchanges expanding into traditional banking services. The initiative highlights both the ambitious growth strategies within the cryptocurrency sector and the substantial regulatory challenges facing these expansions. As cryptocurrency and traditional finance continue converging, strategic partnerships with licensed banking entities may provide pathways for compliant service expansion. However, user experience trade-offs and regulatory complexities will likely shape how cryptocurrency exchanges navigate their banking ambitions in coming years. The success or challenges facing Bybit’s neobank initiative will provide valuable insights for the broader cryptocurrency industry’s relationship with traditional financial systems.

FAQs

Q1: What is Bybit’s neobank initiative?
Bybit’s neobank initiative involves launching retail banking services called MyBank through a partnership with licensed bank Pave Bank, aiming to offer traditional banking services to cryptocurrency exchange users.

Q2: Why are cryptocurrency exchanges pursuing banking services?
Cryptocurrency exchanges pursue banking services to expand their offerings, simplify fiat-crypto transactions, and participate in the broader convergence between digital assets and traditional financial systems.

Q3: What regulatory challenges do crypto exchanges face in banking?
Crypto exchanges face challenges including obtaining banking licenses, meeting capital requirements, implementing compliance systems, and navigating diverse regulatory frameworks across different jurisdictions.

Q4: How does the partnership with Pave Bank help Bybit?
The partnership with licensed Pave Bank allows Bybit to offer banking services without pursuing its own banking license, leveraging Pave Bank’s existing regulatory approvals and banking infrastructure.

Q5: What are potential user experience impacts of crypto banking services?
Users might experience simplified fiat transactions but potentially face heavier KYC requirements, longer onboarding processes, and different interface designs compared to traditional crypto exchange experiences.