Blockchain is coming to banks and cross-border transfers! The Future of Money Finance and Banking; The Digital Euro: Hit me with your best shot!

The future is coming to finance faster than you think!

1. Blockchain is coming to banks and cross-border transfers!

2. The Future of Money Finance and Banking

3. The Digital Euro: Hit me with your best shot

Today’s art: Title unknown, found in Sienna. Emanuele Giannelli is an Italian viscerally provocative artist, where provocative means "provocateur of emotions". Giannelli is a lover of contemporaneity and dual human nature: innovative and potentially capable of doing anything it wants on the one hand, deeply self-destructive on the other. His works are a perfect balance between figurative and conceptual arts, thanks to which the artist immortalises all the chaos of contemporaneity without judging but remaining a spectator, suspended among doubts and possibilities.

Personal note: I am writing from Italy, which is why today’s newsletter will be uncharacteristically short! I finally returned after 3.5 years away due to covid travel restrictions. Landing at Florence airport a few days back was emotional for me, and we were seated and eating at a great local restaurant within 2 hours of landing! Does it get any better than that?

For those who don’t know me, I grew up with families in both the US and Italy so both are home. I will be reunited with my family next week. Please expect shorter posts than normal for then next ten days or so. Please expect shorter editions and poor editing for then next few weeks! I am going home in 2 days!

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1. Blockchain is coming to banks and cross-border transfers!

Blockchain is coming to banks and will disrupt cross-border transfers first!

The OMFIF think tank joined with CCBU (China Construction Bank University NYC branch) to examine the use of blockchain in banks. The results were a bit surprising:

“Blockchain offers the greatest promise for cross-border payments in terms of return on investment, efficiency gains, and the mitigation of pain points. That is the use case banks will prioritise in their blockchain strategies over the next five years.”

Why no digital ID and a breakthrough

The report looks to other use cases, but in what I view as a critical error, it downplays Digital Identity (DID). DID is a prerequisite to cross-border transfers and should be up there with cross-border transfers.

One breakthrough in the report is the realization that banks can’t go it alone and need to form consortia to move blockchain projects forward. Conceptually this is a huge change as blockchain is now seen as a shared utility that requires network effects to make it profitable.

Here’s what large global banks need to do to employ DLT:

–Building a business case

Prior to building a proof of concept or an implementation strategy, banks must consider the appropriateness of blockchain for their specific use case. Incumbents cannot afford a ‘wait and see’ approach delaying their decisions to invest in digital transformation.

–Joining a consortium

Most major banks focused on enterprise blockchain development are participating in consortia to follow the three tenets of ecosystem building, integration and industry advocation.

–Appropriate underlying technology and implementation

The challenge remains for the bank and technology provider(s) to construct a convincing permissioned payments system that can be properly benchmarked, in terms of speed, scalability, security and resilience, against existing systems and meets high standards for security, robustness, efficiency and speed.

–Growing the ecosystem requires ‘co-opetition’

Consortia offer various benefits. Through its network effects, an ecosystem has a greater opportunity to grow and become more dominant in the long run. Therefore, the incentives are geared towards ‘co-opetition’ rather than competition.

Thoughts?

Takeaways:

—Cross-border transfers are the “Holy Grail” of bank blockchain adoption, can they beat CBDC to the punch?

—No longer is blockchain seen as a solitary endeavor but one that requires a consortium.

—There are a million blockchain protocols out there but finding one that ticks all the boxes for bank use is still problematic.

—Digital identity needs to be moved up to a No 1 priority for ALL banks!

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2. The Future of Money Finance and Banking

The Future of Money Finance and Banking?

Barclay’s Innovation team looks to the future and sees a “seismic shift” in financial services. Its innovation team breaks it down into three fundamental areas: how we pay, personalization and technology.

This is a great read and the section on payments is particularly strong. That said, at the risk of repeating myself, Barclays makes a strategic error by not focusing on digital ID. Digital ID is the glue that will hold together personalization and payments yet Barclays passes on this critical capability. This is ironic because banks are well positioned to be the gatekeepers for digital ID.

1️⃣ The future of money: Payments 2.0, digital money and beyond

“We see a tremendous growth opportunity in developing new online payment solutions that better suit B2B payment use cases and unique SME needs. New payment methods and business models can meet these needs when they are built on top of Open Banking and alternative data to deploy at scale for business payments.”

2️⃣ The future of finance: Personalised and embedded

“Financial products are increasingly transitioning out of one-size-fits-all standards, which taps into previously underserved consumer groups and business segments that have more specific needs. Thanks to maturing technologies, large-scale data availability, and new business models, they could be served at scale, with commercially viable offers and attractive unit economics.”

3️⃣ The future of banking: Harnessing technology to build the bank of the future

“Going forward, technologies like low-code development and AI/ML engines will be key to the institution's journey towards faster go-to-market, more personalisation and new product innovation.”

Thoughts?

Takeaways:

—Barclay’s view of banking’s future based on payment, personalization and tech is well founded.

—How exactly banks can attain personalization is still left a bit grey. Most banks are still poor users of data can we expect them to change?

—Digital ID, anyone? Why don’t banks see this as a product?

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3. The Digital Euro: Hit me with your best shot

The Digital Euro inconvenient due to payment limits? Is that the biggest complaint you've got?

In this report by the European Parliament, the digital euro takes a few punches from skeptics but blocks far more than it receives. My take is that if that’s the best punch the European Parliament can muster, the digital euro is in good shape!

This report does a fine job of showing that the digital euro’s impact on banks will likely be minimal. Then in what can only be described as a shocking lack of logic, claims that digital euro limits will be inconvenient. Does your credit/debit card have a limit?

–The reports Pro digital euro stance:

“It is socially desirable to have a digital euro.”

“The main role of banks, that is investing in the economy should therefore be separated to the largest extent possible from their role in facilitating payments.

In that respect, a digital euro would be a game changer. It would provide a natural means to pay, encouraging banks to reduce their reliance on deposits. This would reduce the need to bail them out in times of market turmoil."

–Impact to banks is minimal, don’t believe banks when they say it will crash the banking system:

“The long-term effects on banks would be limited. They can adapt their business model to accommodate to that new environment. While this could be costly for banks in the short-term, the long-term social benefits of a more resilient banking system and a more efficient payment system would likely be large.”

–Shockingly, the report singles out “limits” and “remuneration” as the biggest impact to “convenience:”

“However, the digital euro should be made attractive to users. While limits could be imposed when it is first introduced, the ECB should be open to removing these limits as soon as possible. Also, remunerating digital euro holdings would make it more attractive and would force banks to redistribute some surplus to depositors.”

–As to limits, how many of you think that retail digital euro users should be able to transfer Euro 1 million with CBDC?

We can’t do that today with a credit card, and the expectation that retail users should have unlimited transfers is frankly nuts.

Transfer limits also protect the banking system, so in my view are prudent. Also protective of the banking system is not paying interest on CBDC holdings. Both are required for banks to buy into the digital euro.

Thoughts?

Takeaways:

—The European parliament's take on the digital euro shows more pros than cons.

—The report shows the limited impact of the digital euro on banks

—Claiming that limits are "inconvenient" seems odd given that they exist on debit and credit cards.

SPECIAL NOTE:

— The report bases digital euro pricing off of Visa and Mastercard prices but fails to mention Mastercard made $9.9 billion and Visa $15.1 in 2022. I think its fair to say that the ECB can do payments for far less than the card companies!

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Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is number 4 on Onalytica's prestigious Top 50 Fintech Influencer list and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.

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