Debanking Threatens the Creator Economy

Debanking is a growing concern for creators and small businesses, who rely on online platforms to earn a living. Many platforms are shutting down or restricting access to their services.

This has a ripple effect, impacting not just the creators, but also the people who support them through donations, tips, and purchases. For example, some platforms have a 50% or more drop in revenue due to debanking.

The consequences are severe, with many creators facing financial instability and even bankruptcy. The loss of these platforms can be devastating for those who depend on them.

Debanking is a complex issue with multiple causes and effects. The government's actions are often justified as a way to prevent payment processor fraud and money laundering, but these reasons are more accurately described as de-risking, a practice that involves terminating business relationships with clients without analyzing their individual risk.

De-risking can be used as a partisan tool to kill legal businesses for political reasons. This has led to government overreach, where legitimate businesses are targeted without due process.

The government's actions can have unintended consequences, such as impeding consumer choice and having a chilling effect on commerce. A 2023 report from the Department of Treasury highlights the issue, stating that debanking can drive financial activity out of the regulated system.

Debanking can also hamper remittances and delay the transfer of international development funds and humanitarian/disaster relief. This affects low- and middle-income segments of the population, as well as other underserved communities, who struggle to access the financial system efficiently.

Using debanking as a tactic can punish legitimate businesses and people merely by association. For example, someone's previously approved mortgage can be revoked because they work for an open source foundation in the crypto industry.

The practice of debanking has been described as "un-American" and "anti-innovation" when indiscriminately aimed at emerging technologies.

Debanking refers to the removal of a business or individual's access to financial services, essentially shutting them down. This can include being unable to open bank accounts, process transactions, or access direct deposit.

The government's role in debanking is a matter of concern, as seen in Operation Choke Point, a 2013 initiative that targeted businesses deemed "high-risk" or "politically disfavored." The program was shut down in 2014 due to backlash, but its legacy lives on in the form of "Operation Choke Point 2.0", which involves debanking "political enemies and disfavored tech startups."

Debanking affects not just individuals, but also entire industries, like the creator economy, which is projected to reach half a trillion dollars by 2027.

Banks often rely on flawed due diligence, which is based on information from the internet and database reports that may not be accurate or up-to-date.

These databases scrape publicly available online sources and use that information to create reports, which can be problematic.

Frequently, banks don't make allowances for the inaccuracies they find, partly because they lack the knowledge to do so.

We've seen firsthand that banks don't always have the knowledge to critically evaluate the information they find.

If you're concerned about being on a database, you can take action to have your information corrected or removed.

Financial reputation is an invisible asset that's often disregarded until it's too late. For HNWIs, a damaged reputation can lead to reduced access to competitive financial products and reluctance from investors.

A single misstep can spiral a highly regarded individual into a whirlwind of questions and declining public opinion. This was evident in Farage's predicament, where a loss of financial reputation had severe consequences.

Personal wealth and professional reputation are inextricably linked, making it essential to manage both effectively. Failures in ethical and transparent financial management can result in a catastrophic loss of personal and professional esteem.

To insulate themselves against a similar fate, HNWIs can follow three interconnected steps: prevention, maintenance, and strengthening their financial reputation.

Here are the three steps in more detail:

The creator economy is the next wave of consumer economic growth, with Goldman Sachs predicting it could approach half a trillion dollars by 2027.

This industry is already generating significant revenue, with OnlyFans announcing a record-breaking 2023 with $6.6 billion in revenue, and Kajabi hitting over $8 billion in total payouts to its creators.

Banks are being pressured to debank companies in the creator economy, effectively cutting them off from participating in the real economy.

Several members of Congress have sponsored the Fair Access to Banking Act, which would force card networks and financial services companies to do business with any person who is in compliance with the law.

Companies like Stripe, which has paid $25 billion in creator earnings through 50 different sites, are being impacted by these debanking efforts.

Venture capitalists are also taking note of the creator economy, with Slow Ventures announcing they were setting aside $20 million to invest in individual creators.

The U.S. government isn't the only one involved in debanking. Canada has also used this tactic, and the U.K. has had to investigate complaints of government-led debanking.

Several U.S. government agencies are involved in debanking, including the Federal Deposit Insurance Corporation (FDIC), the Department of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB).

Here are some of the agencies involved in debanking in the U.S.:

The Federal Reserve Board (FRB) is also involved in debanking, as it is the U.S. central banker.

In Canada, the government's involvement in banking practices has been quite notable. At least 76 bank accounts linked to the 2022 convoy protest were frozen under the Emergencies Act, with a total of CA$3.2 million in assets affected.

This move was a response to the protests, which were a significant event in Canadian history. The Emergencies Act was invoked to address the situation, leading to the freezing of these bank accounts.

The government's actions in this case demonstrate its ability to intervene in banking practices, at least in situations deemed to be emergencies. This has implications for Canadians and their financial security.

The freezing of these accounts was a direct result of the government's decision to invoke the Emergencies Act, highlighting the power of the government to influence banking practices.

The United States has seen a significant shift in government involvement, particularly with regards to cryptocurrency. The term "crypto winter" has gained traction after being discussed on a November 2024 The Joe Rogan Experience podcast with investor Marc Andreessen.

Coinbase, a prominent cryptocurrency exchange, has released statements asking financial institutions to pause all crypto asset-related activity. This move is in response to litigation with the Federal Deposit Insurance Corporation (FDIC).

Multiple instances of U.S. banks reportedly dropping Muslim clients on questionable grounds have been covered in the media, raising concerns about bias and discrimination in the financial sector.

The Federal Deposit Insurance Corporation (FDIC) was instructed by a court filing to pause all crypto asset-related activity in a letter dated March 11, 2022.

The FDIC posted redacted pause letters on its site on January 3, 2025.

The FDIC's Vice Chairman gave a speech titled "Charting a New Course: Preliminary Thoughts on FDIC Policy Issues" on January 10, 2025.

Some of the agencies involved in government involvement include the FDIC, Department of Justice (DOJ), and Office of the Comptroller of the Currency (OCC).

The U.S. government isn't alone in debanking; other governments like Canada have used the tactic.

Here are some of the agencies mentioned in the article:

The government's involvement in debanking is a complex issue, and it's natural to wonder why they would do this. One reason cited is to tackle payment processor fraud and prevent risky businesses from doing business.

The government claims this is necessary to prevent money laundering, but some argue this is just a euphemism for "de-risking." De-risking is the practice of financial institutions terminating or restricting business relationships with broad categories of clients, rather than analyzing and managing the risk of clients in a targeted manner.

This approach can have unintended consequences, such as impeding consumer choice and having a chilling effect on commerce overall. The government's own report on de-risking notes that it can drive financial activity out of the regulated financial system.

The government may also be using debanking as a partisan tool to kill legal businesses for political reasons alone. This is a serious issue, as it undermines the rule of law and the principles of due process.

At least 30 instances of debanking have been witnessed by venture capitalists in the crypto industry over the last four years, affecting their portfolio companies and founders. Many entrepreneurs and small businesses are hesitant to come forward due to fear of further repercussions or lack of resources to fight the issue.

Debanking has a chilling effect on commerce overall, impeding consumer choice and driving financial activity out of the regulated financial system. This undermines the U.S. government's own policy objectives, as observed in a report from The Department of Treasury in 2023.

The issue isn't just about legitimate businesses being unfairly targeted; it's also about the lack of due process and the ability to curtail government actions that often take place behind closed doors. The consequences of debanking are far-reaching, including:

It matters because we already have rules in place to prevent discrimination in banking, but there's no limit on denying or revoking someone's banking services without due process.

Debanking can be used as a tool to target private individuals or industries without explanation, investigation, notification, or recourse, just like denying electricity based on politics or arbitrary reasons.

The government doesn't have the power to simply cut off services like electricity without following certain procedures, but banks and regulators can do it to people's bank accounts with little to no oversight.

Imagine being cut off from your bank account without any explanation or chance to appeal, it's a scary thought and it's happening to people.

Banks and regulators can wield debanking as a weapon against certain groups or individuals without having to justify their actions, it's a worrying trend that needs to be addressed.

The problem of debanking is a complex issue that affects many individuals and businesses. At least 30 instances of debanking have been reported by a VC in the crypto industry over the last four years.

Banks are often pressured by regulatory authorities to drop clients in certain industries or with political affiliations that don't align with those authorities. This can lead to the closure of bank accounts without any specific reasons being given.

The issue is not limited to one industry, but has been reported in the crypto industry, with at least 30 instances of debanking occurring with portfolio companies and founders. Coinbase has also publicly shared 20 examples of the FDIC telling banks to pause or refrain from providing crypto-banking services.

The reasons cited for debanking range from "we aren't banking crypto" to "compliance-related issues." However, the companies are often not given any specifics on which compliance issue, and are not allowed to remedy the issue if there really is one.

Here are some examples of debanking reasons reported by companies:

The issue of debanking is not new, but has its roots in government initiatives such as Operation Choke Point, which aimed to pressure banks to stop servicing high-risk industries. This program was designed to cut off access to banking services for certain industries deemed "high-risk", such as legal marijuana businesses and firearm dealers.