Since Raagulan Pathy officially joined KAST as co-founder in July, the Singapore-based startup has attracted enough interest from venture capitalists that it plans to announce its first funding round to the tune of around $10 million in September.
Pathy teamed up with Daniel Bertoli, himself a fintech VC at Quona Capital, who had been building KAST since April, working with a small team of developers on its app. It aims to allow users to access bank-like services based on US dollar-denominated stablecoins.
Pathy says the investor community is showing interest despite a difficult fund-raising environment for startups. “The VCs have dry powder and we have a big TAM [total addressable market],” he told DigFin.
He says another helpful factor is the combination of Bertoli’s experience with fintech businesses and Pathy’s familiarity with digital assets, having run Circle’s Asia-Pacific business for three years.
“The hard part isn’t getting the money,” Pathy said. “It’s making the cap table help us achieve something audacious.” He says the VCs coming aboard are large firms from Asia and the US, along with angel investors.
Like a neobank
The idea is to build a stablecoin app that allows users to access US dollar-denominated stablecoins and use them in ways that resemble the services of a bank.
For now, KAST isn’t seeking a banking license, although that could come later. Instead it is building a global network of fintech and card-issuing partners to replicate services similar to a savings account and personal finance management.
Pathy says the internet has enabled people around the world to trade goods and services, but moving money remains difficult. He calls his TAM the 2 billion or more people who want to operate in dollars but can’t because of problems in their local financial system, depreciating local currencies, or frictions in cross-border payments.
There are already many fintechs working on this, including by using stablecoins. Pathy says KAST’s second objective is what differentiates it: helping people use stablecoins with the user experience of a neobank. “The experience feels like a Revolut or a Wise, but the underlying [would be] stablecoins, not cash,” Pathy said.
Carpe diem
He believes the time is ripe to launch such a product, now that the key components exist onchain: stablecoins (such as Circle’s USDC and Tether’s USDT), yield-bearing Treasury-backed instruments (which can double as a savings account), card issuers such as Visa and Mastercard enabling spending with stablecoins, and a host of fintechs that provide fiat-to-stablecoin conversions in markets around the world.
On top of this the macro environment is more favorable to Bertoli and Pathy’s venture. Interest rates are higher, inflation is on the rise in many markets, users in the Global South need to operate in dollars but can’t get access, and regulators are more open to digital assets.
There are many players, from banks to crypto companies, vying to dominate this new world. Why a startup?
Pathy argues that crypto-native companies don’t understand regulation and licensing, or working with traditional institutions. TradFi players don’t understand the users.
UX
Pathy, whose own career has been to serve other businesses, is now getting a taste of B2C, calling up potential customers of KAST as it’s been testing its app in markets around Latin America, Africa and the Middle East.
For example, he cited a conversation with someone in Argentina who is a developer for US tech companies. The US companies only want to pay in dollars, and the developer can’t open a US bank account. The tech firm then has to use traditional banking rails to wire the money to Argentina, where after fees, the developer receives it in pesos. Given the fraught state of the Argentine currency, there’s not much he can do with pesos for any international activity.
KAST’s idea is to have a partner fintech in the US convert the payment to stablecoins. The developer has some options. He can have KAST’s Argentine fintech partner convert it to pesos, and the developer now gets paid in minutes instead of days, presumably at a lower fee.
Or he can park his money in stablecoins with KAST, where he can access yield-bearing stablecoins (such as from issuers like Ondo). Or if he’s eligible, he can receive a Visa credit card from KAST that allows him to spend those stablecoins on, say, US e-commerce sites; or carry it with him to spend if he travels overseas.
Networking
That’s the pitch. To build and operate this involves a lot of complexity. KAST will need on- and offramp fintech partners around the world, so it can cover many markets. That alone is a huge operational lift. It will also need more card or other product partners.
The key necessity with this budding network is that each partner is already licensed to conduct stablecoin-related business in their respective market. KAST is also looking at obtaining its own licenses – so far it as a virtual asset service provider license in Europe – but it has to start by leveraging the licenses of others.
In this respect it’s similar to how Revolut and Wise got their start. Revolut, after years of trying, finally received a banking license in Europe. But those relationships are a huge drain on time and resources, and KAST is just barely out of the gates with a small team.
KAST is raising capital to pay for sourcing and managing this network, as well as continue building its app. But Pathy notes, “Yes, it’s operationally complex. But that’s the moat.”
He believes the time to build this network is now, and fears that starting later would mean losing the first-mover advantage.
Of course, other players could try to build something similar. Revolut has enabled crypto capabilities, and it is a neobank, so why reinvent the wheel? Pathy argues Revolut’s main businesses are in Europe, whereas KAST is aimed at emerging markets. Crypto businesses build lousy, clunky apps.
Also, he notes that KAST is not going to allow buying of crypto on its platform. “We’re not going to be an exchange or a venue for speculative assets,” he said.
Becoming a bank?
KAST intends to make money from credit card interchange, by charging users a subscription to access the service, and charging transaction fees for fiat-to-stablecoin transactions. More products will create more ways to charge users.
Looking into the next several years, Pathy says a bank license is a possibility. “We don’t handle cash, only stablecoins,” he said, arguing that KAST is not a bank in its present form. But, like Revolut, at some point it may decide that ‘feeling’ like a neobank isn’t as good as being one.
The question is where to get such a license? Pathy says he’s already in dialogue with various banking regulators, noting that the United Arab Emirates is one jurisdiction keen to understand digital assets. Singapore and Hong Kong, as well as the nimbler countries in Europe, are other possibilities.
But Pathy wonders if KAST should go for a traditional or digital banking license. Maybe, in time, regulators will adopt hybrid licenses for banks that are built around digital assets. It could be possible within three to five years. “We could see the next evolution in stablecoin regulation by then,” Pathy said.
