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How unlocking the potential of tokenised markets can help banks keep pace with the digital economy



Giulia Secco is the Strategic Partnership & Ecosystem Manager at Fnality International.


In the aftermath of the 2008 financial crisis, a person or group of people operating under the pseudonym Satoshi Nakamoto created the first cryptocurrency, Bitcoin. Unlike government-issued currencies, the creators wanted Bitcoin to be operated peer-to-peer by its users in a decentralised fashion, meaning that no central authority, middleman or group would be needed to authenticate and validate the transactions.

To make this possible, Satoshi Nakamoto created a digital ledger which could distribute the currency: the so-called blockchain, which enabled the creation of an immutable recording of ‘blocks’ of transactions, validated in a distributed way by its own network participants (nodes). In the years since, many believe that this it is this technology that could truly revolutionise the financial sector.

Crypto enthusiasts believe that the decentralised blockchain architecture will help to address many current financial inefficiencies, for example by eliminating intermediaries (i.e., banks, custodians, clearinghouses, etc) which play an essential third-party guarantor role in the current centralised system, where ledgers of records are maintained by a central authority that validates transactions. By removing intermediaries, and so, single points of failure, the system gains in resiliency, whilst associated costs can be massively reduced.

Blockchain, also known as Digital Ledger Technology (DLT) – even if the 2 terms do not mean perfectly the same thing – can indeed revolutionise the way different economic agents cooperate enabling a faster, cheaper, reliable, and more transparent capital market infrastructure, which facilitates the building of a secure and reliable P2P global financial market. This can be achieved essentially thanks to the peer-to-peer nature of DLTs, by moving from the current status where settlements require several days to complete (T+), and where one party of the trade is highly exposed to the risk of the other party not fulfilling its liability, to the near-immediate final settlement of financial transactions (T0).

Today Bitcoin is no longer the only cryptocurrency in circulation. Aside from Ethereum, which is the second-largest cryptocurrency in terms of market capitalisation, there is a specific category known as “stablecoins”. As suggested by the name itself, stablecoins have been created with the intent to mitigate the typical volatility of cryptocurrencies, by linking their value to real assets or fiat currencies. The largest stablecoins’ price is usually designed to be pegged as closely as possible to 1-to-1 to the US dollar.

The speed of market acceptance of stablecoins has been remarkably quick, not only for the promise to reduce volatility and offer a more reliable cash-asset but also for providing a quick, cheap, and programmable payment leg able to support the trade of “tokens”, digital representation of values, good and services, based on blockchain.

Differently from what crypto enthusiasts believe, in our view, the future of Finance will not witness complete disintermediation in accessing capital markets and so, certain intermediaries, such as banks and custodians, won’t be disappearing altogether, but rather their role has to change considerably (if they don’t want to perish or even worst, be replaced by innovators).

Why is this? Why can the finance system not just adopt a stablecoin to pay and transfer money globally and instantly?It is because of customer protection. Many regulators and central banks around the globe have developed a deep understanding of this new technology and the growing demand for tokenised cash and assets, and they now recognise the benefits brought about by innovative technology adoption.

Just as an example, the Bank of England announced in April 2021 the introduction of a new omnibus account model that created an opportunity for innovative financial market infrastructures to access the Bank’s RTGS system in a new way. But they are also concerned about potential threats. The main one is around financial stability: if a very large stablecoin suffers from a loss of confidence leading to a stablecoin run that can have knock-on effects on the entire financial and economic system. Another major concern comes from the anonymity that stablecoins can guarantee, making them the ideal medium to facilitate illicit and criminal activities against anti-money laundering, tax compliance, and sanctions.

While stablecoin arrangements are under regulatory scrutiny and in order to be able to bring new payment solutions at scale they will need to be regulated, their role is now also better defined: based on the latest USA President’s Working Group on Financial Markets’ report, stablecoin issuers will need to be treated as depository institutions (aka, banks).

Most payments in the wholesale financial market between banks and other larger institutions are today conducted via central banks’ RTGS systems (real-time gross settlement) due to their zero-credit risk characteristic. Stablecoins however bear credit risk as funds/assets are usually held by commercial banks or other non-central bank entities. In order to replicate such a zero-credit risk payment facility on DLT, the idea of CBDC (Central Bank Digital Currency) has been brought up where central banks themselves issue tokens backed by central bank money.

Despite several POCs, and unlike in the retail space, no wholesale CBDC has yet gone live. We expect that some CBDCs – which are essentially a digital form of a country’s fiat currency, issued and regulated by the national central bank – will serve the retail domestic financial market bringing all the benefits that we have previously discussed (efficiency, resiliency, auditability, transparency). The reason for narrowing CBDCs to domestic markets only, in our view, is due to the significant collaboration required between jurisdictions for cross-border payments, from a technical, legal, and risk perspective.

We believe that the absence of any wholesale CBDC solution yet live indicates that public sector institutions will take advantage of private-sector innovations, like the ones that Fnality Global Payments aim to offer.

We believe that the current traditional financial system could be significantly improved through the introduction of a regulated distributed financial market infrastructure (dFMI), and the introduction of a cash-on-ledger solution with the credit risk characteristics of central bank money (in each national Fnality payment system funds are “backed” 1 – 1 with real fiat currency, kept in a bankruptcy-remote central bank account).

Fnality Global Payments will offer that harmonisation between jurisdictions needed to unlock the potential of tokenised financial markets: through the introduction of such a network of interoperable payments systems, a broad range of applications and platforms will be allowed to use balances held on each system, introducing near-instant settlements, effective intraday liquidity management, and a reduction of costly and inefficient intermediaries.

In association with technology analytics company FNA, we have estimated that for banks, this approach has the potential to reduce their intraday liquidity requirements by up to 70% (a recent Oliver Wyman report has suggested a potential annual saving of up to $75m per bank with an intraday liquidity reduction of just 25%. If the top 105 Tier 1 banks reduced their intraday liquidity requirements by this 25%, they could realise potential industry savings of $8 billion).

Such an approach will empower financial market participants to manage the entirety of their cash and collateral portfolio from a “single pool of liquidity”, solving today’s problems around the fragmentation of liquidity.

With tokenised assets and new exchanges being introduced at an increasing rate, the safe, effective, and regulated cash-on-ledger solution represents the third essential ingredient for this infrastructure. It cannot succeed without it.

The introduction of this on-chain payments leg will mean the full benefits of a tokenised marketplace can be realised. Without it, the cost of dealing with an inefficient legacy payment infrastructure simply doesn’t outweigh the benefits of a new approach.

But with it, traditional finance actors and the broader global economy can truly unlock the full potential of tokenised markets.


Will ‘Britcoin’ change the way we bank?




The Treasury and Bank of England recently announced a state-backed digital pound is likely to be launched in the UK later this decade, following the popularity of cryptocurrencies. However, the ‘Britcoin’ will be backed by the central bank, ensuring the digital pound will be much less volatile than its sister, cryptocurrency. Could a digital pound backed by the central bank be the answer to utilising technological developments in the finance system for the better?

Ross Thompson, Accountancy and Finance Lecturer at Arden University, considers what we can expect from ‘Britcoin’, how this will impact consumers, businesses, and the economy, and whether ‘Britcoin’ could be the revolution to restore our confidence in the banking system.

Trust in our financial system hit an all-time low post the 2008 financial crash. Even ten years on from the collapse of Lehman Brothers, a survey found 66% of adults in Britain still don’t trust banks to work in the best interests of society.

This means there remains to be apprehension for people to sign up to and use a bank to help manage their money. The UK doesn’t seem to struggle too much in this arena, however, as according to the Financial Conduct Authority (FCA), most UK consumers (96%) have a current account from a bank or building society. Regardless, there is still a significant number of adults who do not have a bank account or are what is known as ‘unbanked’.

The lack of trust plays a big part here. More people want better control over their money and to cut out the middleman, hence why cryptocurrencies and blockchain became a tempting option, as it can potentially remove the need for banks for any transactions. However, the volatility of these currencies has been a cause for concern for many investors and regulators.

Blockchain and cryptocurrency are gaining more traction and are becoming more of a viable option for businesses, especially due to talks of regulations coming into fruition. This is especially true with cryptocurrency, with the government announcing crypto assets will be subject to FCA rules in line with the same high standards that other financial promotions such as stocks, shares, and insurance products are held to.

The “Britcoin” aims to solve the issues traditional Bitcoin presents. It would be backed by the central bank, which would ensure its stability and reduce its volatility, making it a more attractive option for investors and providing greater confidence in the stability of the financial system. Britcoin will be as stable as the inherent stability of the British economy and political system. It would also provide an opportunity for the UK to stay at the forefront of technological developments in the finance system – a system in which it can sometimes be slow to react.

One of the key benefits of a digital pound is that it would be much faster and more efficient than traditional banking systems. Transactions could be completed almost instantly, regardless of where the parties involved are located. This would make cross-border transactions much easier and could even help to boost international trade.

The Bank of England’s Governor, Andrew Bailey, stated: “a digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability”, pointing toward the other advantage of a digital pound. It would offer more security as transactions would be recorded on a distributed ledger, which would make it much more difficult for hackers to tamper with the system. It would also provide greater transparency, as all transactions would be recorded on the ledger and could be easily traced if needed.

However, there are also some potential drawbacks. One concern is that it could lead to a reduction in the use of cash, which could have implications for those who do not have access to digital technologies or who prefer to use cash for privacy reasons. There are also concerns that a digital pound could be used for illicit activities, such as money laundering or terrorism financing. On top of this, more details are required in relation to the levels of personal account privacy; the potential to usher in ‘big brother’ banking systems is a growing a concern regarding state digital currencies.

Around 85 central banks are currently engaged in projects to create digital currencies, according to figures from the Bank for International Settlements. But as it stands, many feel there is probably little need for a digital pound; with a growing amount of people using their debit cards, phones and watches to fulfil the same function, a digital pound is deemed unnecessary. On top of this, many of the public fear that a government digital currency could potentially infringe on their privacy – despite the BoE stating the currency would be subject to rigorous standards of privacy and data protection.

And in countries where a digital currency has already been established, there has been little uptake – widely due to the lack of trust between central banks and citizens. It seems gaining users’ confidence should be the Bank’s first priority. The House of Lords economic affairs committee stated last year that a digital pound would pose “significant risks” such as state surveillance, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny and could be exploited by hostile states and criminals; it is safe to say that the nation’s ‘Britcoin’ will need to be very well thought out.

It has the potential to revolutionize the finance system, however, and could provide significant benefits to investors and consumers alike. However, the potential risks and drawbacks must be carefully considered before any decision is made to launch such a currency. Having said that, if it is implemented correctly, a digital pound could be a powerful tool for utilising technological developments in the finance system for the better.

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Why the future is phygital




By Eric Megret-Dorne, Head of Card Issuance Services and Service Operations at Giesecke + Devrient


Digital banking has become increasingly ingrained in people’s everyday lives. Today, 73% of people globally use online banking at least once a month. Traditional bricks-and-mortar banks, which have long relied on the in-person experience with customers, are now having to step up their offering. With new ways of working blurring the work-home boundary, banks must ensure a fast, seamless connection between face-to-face processes and virtual customer experiences.

However, this does not mean that physical and digital banking are in competition with each other. In fact, many continue to use physical bank cards, with 1.12 billion in circulation in 2021, which provides the basis for digital payments and offerings. As a result, the benefits of digitalisation should converge with the comfort of physical touchpoints to create a holistic, “phygital” experience.

The path to phygital

Banks are accelerating their digital transformation strategies to keep up with the fast pace of fintech innovations. To meet the changing needs and preferences of customers, the payment world is leveraging new technologies to create personalised experiences through a range of different channels.

While the digitalisation of banking has been underway for quite some time – particularly for younger generations – events such as the Covid-19 crisis forced banks and customers of all ages to use digital tools and processes to compensate for branch, office, and call centre closures. With branches worldwide typically operating at reduced capacity due to social distancing requirements, consumers embraced online banking to avoid both the virus and potentially long queues.

However, some consumers still enjoy physical touchpoints, meaning a digital-only approach won’t suit everyone.

Striking a balance

It’s all about options – consumers now want to freely switch between traditional and digital channels without being forced into one. But how can banks achieve this phygital balance? One way is to equip physical channels with digital capabilities, so that online tools can augment the physical experience. For example, personalised bank cards with a bespoke design can be activated digitally, offering customers an extra layer of convenience. Having to wait for a new PIN to arrive in the mail is a common bugbear for consumers, so bringing card activation processes into the digital ecosystem will ensure a more seamless experience.

Greater automation in the card issuance and activation process enables the benefits of digital to be integrated into the physical banking experience without being intrusive. For instance, self-service kiosks empower customers to print their own cards, reducing the time between acquisition and card issuance, while still allowing for in-branch expertise if needed.

The personal touch

Phygital strategies also give banks a range of valuable data insights that can help them better serve their customers. This includes data on purchasing behaviours and habits, which can then be utilised to improve banks’ offerings and unify the physical and digital brand experience. Using omnichannel data helps to build a hyperpersonalisation strategy to provide real-time services.

In this way, digital solutions help banks maximise their user experience. Whenever a consumer interact with a bank, it creates data and behaviours. With fragmented databases, legacy systems and real-time data created by interactions with third-party partners through Application Programming Interfaces (APIs), it is not always easy for banks to streamline this data from different sources. By understanding patterns in that data and behaviours, banks can tailor and personalise unique experiences for each and every user.

Where security meets innovation

With big data opportunities abound, banks should be mindful of their consumers’ security concerns. Customers are now demanding much more transparency when it comes to how information is stored and collected. At the same time, they still desire greater personalisation via digital methods. Therefore, any successful phygital strategy requires a robust digital security to ensure customers have the same peace of mind as when they complete physical transactions.

To close the gap between innovation and security, banks should utilise tokenised infrastructure, which ensures the safe provision of payment credentials and securing of customer payments across all touchpoints. This is particularly important as regulations such as PSD2 and SCA demand strong authentication requirements.

The use of a token greatly enhances the consumer experience. For example, it allows for card details to be automatically updated for subscription services upon the expiry of an existing one, avoiding any service disruption.  Multi-factor authentication can also ensure an additional layer of security, as it combines a password with verifiable human biometrics such as fingerprints or facial recognition.

Best of both worlds

Every consumer has unique preferences when it comes to banking. Therefore, banks must evolve by bringing both physical and virtual touchpoints into a ‘phygital’ world. Only a phygital approach can meet the needs of all end users – whether they favour an in-person experience, an online one, or a blend of the two. The holistic data insights, personalisation opportunities, and optimised security ensured at every touchpoint are also critical in building future-ready banks.

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