Crypto exchange AltCoinTrader drags ‘bullying’ Absa to court
South African-based crypto-currency exchange AltCoinTrader has taken big four bank Absa to court for allegedly putting pressure on mobile payment, customer loyalty and rewards platform Zapper to close the exchange’s account.
This after AltCoinTrader was served with a notice from Zapper’s partner Direct Pay Online PayGate last week to inform the exchange that its QR code payment gateway service would cease to serve AltCoinTrader with immediate effect.
PayGate is a service provider to Zapper, and offers a QR code payment gateway for users to fund their AltCoinTrader accounts.
AltCoinTrader was one of the first crypto-currency exchanges established in South Africa, and specialises in trading Bitcoin and other related crypto assets.
AltCoinTrader says it has a working contract agreement that it signed two years ago with Zapper, and it uses the platform to receive credit card deposits from its customers into AltCoinTrader.
In an e-mail to ITWeb, Richard de Sousa, CEO of AltCoinTrader, says: “Absa forced Zapper to terminate our service offering without notice and caused reputational damage with the AltCoinTrader clients. No reasonable termination notice was given to allow AltCoinTrader to manage the crisis.”
De Sousa notes Absa has had no direct connection to AltcoinTrader since 28 February 2019, when the bank terminated the relationship due to its risk appetite.
He points out that AltCoinTrader integrated Zapper into its platform as an add-on service and has offered the Zapper credit card service to its client base for two years.
“Absa is a third-party in the relationship between Zapper and AltCoinTrader, and is the main banking partner for Zapper. Without their Absa bank account, Zapper would not be able to offer the services they currently do,” De Sousa says.
“The problem that Zapper has expressed is that they have come under direct pressure from Absa to terminate their service offering to AltCoinTrader and has threatened to close Zapper’s bank account.”
Established in 2014 by the Zap Group, Zapper is a fintech company that provides seamless payments, vouchering and loyalty services to a variety of businesses from across the retail, hospitality, bills, donations, fuel and convenience, and e-commerce sectors.
The company allows merchants to receive payments from customers by means of scanning a generated QR code via the Zapper mobile app. Customers can also use it to pay bills, redeem discounts and earn loyalty points.
The move by Zapper to stop dealing with AltCoinTrader makes the crypto-exchange’s QR Code deposit function unavailable.
The company then immediately approached the High Court for an interdict to overturn the cessation order.
Lack of regulation
In SA, there is currently no fintech-specific regulation for crypto assets, but crypto assets are also not prohibited.
However, the South African government is making steady progress in its efforts to regulate crypto-currencies like Bitcoin.
In April, the South African Reserve Bank announced the Intergovernmental Fintech Working Group, a group of South African financial sector regulators, had drafted a policy position paper on crypto assets.
According to the central bank, the purpose of this position paper is to provide specific recommendations for the development of a regulatory framework for crypto assets, including suggestions on the required regulatory changes to be implemented.
With the crypto space maturing rapidly, regulators around the world are accelerating efforts to either embrace or regulate crypto-currencies. The pace escalated in 2019, motivated by Facebook entering the space with its Libra project.
While there hasn’t been regulation of crypto-currencies in SA, banks have been closing down accounts linked with the digital currencies, citing the risks that they present.
For example, in November last year, First National Bank (FNB) notified South African crypto-currency dealers that it will close accounts for the crypto exchanges.
Nedbank has also told ITWeb it is in the process of assessing its position in respect of virtual currency dealers/traders.
Responding to ITWeb about the AltCoinTrader court case, Absa says: “We are unable to comment as the matter is before the court.”
However, the bank explains: “Banks such as Absa have been participating in the Intergovernmental Fintech Working Group discussions consisting of regulators, incumbents and fintech players to share the opportunities and challenges with regards to the ever-evolving technological environment.
“We participated in use cases such as Project Khokha and Digital Identity with the South African Financial Blockchain Consortium in order to proactively assess considerations related to distributed ledger technologies such as blockchain, which is the technology which gained mainstream attention with the release of Bitcoin.”
Zapper CEO Brett White also declined to comment, saying the matter is “sub judice”.
ITWeb understands that Zapper must deliver an answering affidavit by 11 September, and the application is to be placed on the semi-urgent court roll and expected to be heard later in the year.
Says De Sousa on approaching the courts: “AltCoinTrader felt that Absa’s actions can be described as a third-party interfering with our business and relationships with payment solution providers.
“Absa is playing the role of a bully and we will not stand for that. There is no reason for Absa to force Zapper to cancel our agreement, especially when Zapper wants us as a client. Absa have not even shown us the courtesy of a phone call or any correspondence but they will be forced to answer in court.
“Big banks like Absa and FNB have been bullying crypto companies for too long and it has to stop. Someone has to take a stand and AltCoinTrader is doing that,” De Sousa says.
He points out that FNB closed AltCoinTrader’s account on 29 February 2020, as well as all crypto-related companies’ accounts.
“AltCoinTrader is registered with the Financial Intelligence Centre, and we are also meeting with government regulators on a regular basis to discuss and negotiate the upcoming regulation so all we do is known to government and the regulators and it is 100% legal. There is no reason for Absa to act like this as it shows contempt for emerging technology companies,” he concludes.