Tokenization is coming to banking and with it permissioned DeFi as banks go digital or die trying! Not even Visa and Mastercard are safe!

Artwork of the day: The Stairway, Fernand Léger, 1913

In 1911, Fernand Léger was one of a handful of artists who were responsible for revealing Cubism to the general public for the first time in an organized show.

Léger was fascinated by the all-encompassing technological transformations wrought by modernity. The world of the machine became the focus of his work, a world in which even human beings appear as mechanical constructions.

His designs, composed of cones and cylinders striped in red-white or blue-white, mutate into mechanical robotic creatures.

Fernand Léger’s fascination with technological transformations would serve him well in today’s world! I wonder how he would paint the concept of digital.

Tokenization is the evolution of banking, can they evolve fast enough?

Inside The Competion For Big Money, 1.02MB ? PDF file, Download

??TAKEAWAYS

Tokenization will give rise to four potential futures for bank high-value transfers all of them will reduce costs and some of them will reduce banks’ pivotal role.

FOUR POSSIBLE FUTURES With my vote as to likelihood ?? or ??

1. TradFi Evolves ?? Most likely!

TradFi evolves successfully by embracing DLT, such as blockchain. The problem is that this requires a radical change in how banks, exchanges, and other financial institutions operate their middle and back offices, but it wouldn't involve a significant change in market structure.

2. Rise of Digital Intermediaries ?? Will happen whether banks like it or not.

A new class of intermediaries evolves unencumbered by legacy technology, which can provide investors and borrowers connectivity across emerging networks. Candidates include stablecoins, tokenized money market funds, and tokenized government securities.

3. Universal Networks ?? Complicated is anything universal anymore?

New open networks that use interoperable standards and protocols allow the deployment of institutional-grade decentralized finance (DeFi) to permit competition among various money issuers and digital solutions. Such models are already being tested.

4. Sovereign Expansion ?? Regulators are in banks pockets, no way no how.

While most governments and central banks that are studying or experimenting with central bank digital currencies (CBDCs) aren’t looking to fundamentally change their roles, crisis or politics may demand that change.

??STRAIGHT TALK??

Let’s dive in and see why I think that banks will evolve, though they will no longer own the market completely!

Banks are evolving; fear works

Tradfi is already evolving. They see the digital handwriting on the wall (a QR code?) and are already working on building tokenized deposit transfer systems.

The most famous example is from JP Morgan, which is handling $1 billion a day. This is tiny compared to JP’s $6 trillion in daily transfers, but it it shows that they are aware of the need to change. Citibank also recently launched a similar network for wholesale clients.

Let’s be clear about these banks’ motivations. No bank has any great love for tokenization. They are doing it because of the massive disruption they wish to stave off from CBDCs and non-bank intermediaries. Fear works!

So, I give banks credit they are evolving because they wish to maintain their role, even if it is at a slightly diminished capacity due to competition.

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Permissioned DeFi for cross-border transfers is coming, but wholesale CBDC and Deposit Tokens will be first to market.

Permissioned DeFi is fabulous tech, its adoption will depend on who runs the blockchain network. The full article from BCG can be viewed: here

??TAKEAWAYS

• BCG and Fireblocks estimate that the average transaction cost in the new model will be 60%–80% cheaper than the cost incurred by traditional models.
• Estimated operational and IT costs per transaction range between $0.05 and $0.09—far less than the $6.40 estimate for traditional payments.
• A permissioned DeFi model offers better Know Your Customer (KYC) verification, providing more payment control.
• Unlike SWIFT, AML/KYC is embedded in the smart contract, NOT on the system!
• Benefits include nearly instant settlement, traceability, and users interacting directly. B2B transfers!
• Who runs the system will be CRITICAL.
• Large institutions like JP Morgan or a bank consortium will want to run the blockchain network and charge fees for access.
• Many banks will reject this model! (see Straight Talk below for an example.)
• This only works when creating a non-bank, supranational, or non-affiliated entity that controls access and whose fees do not benefit competitor banks.
• Set-up is lengthy, and wholesale CBDC and deposit tokens will beat it to market.
• First to market isn’t everything, and I love this solution!

Banks MUST Go Digital or Die Trying as they Face-Down Fierce Competition from Payment Companies and Big Tech!

This is a great survey of bank digital tech sponsored by temenos and written by Economist Impact. While temenos focuses on the North American market, which it states clearly is lagging in the digital space, I think that the most interesting part is how the different regions view their competition!

Read the full article: here

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Visa and Mastercard move over, in SE Asia cross border payments are going mobile!

This is a big story but the WEF misses half of it! Let’s see what they left out.

??TAKEAWAYS:

• Asia is leading the world in payments, and cross-border payments over mobile is another example of its prowess.
• The DNA of payments in Asia and SE Asia is different from the West’s, relying on mobile payments rather than credit cards.
• Asia copied the tremendous success of WeChat and Alipay in China throughout the region to bring payments to populations that were NEVER serviced by cards.
• Asia’s mobile payment systems use QR codes and are instant. These networks are called either “Retail Real Time Gross Settlements” or simply “Fast Payment Systems” (FPS).
• These FPS systems are now united across borders thanks to critical research called “Project Nexus” conducted by the Bank for International Settlements (BIS).
• One example of connectivity is SIngapore’s PayNow connecting with Thailand’s PromptPay.
• Other national pairs with Singapore’s PayNow include India’s UPI and Malaysia’s DuitNow. More are coming, including Europe’s “target TIPS” system.
• WHAT THE WEF IS MISSING
• The WEF left out Alipay+ as a connector for Asia’s mobile payment networks.
• Alipay+ allows cross-border QR code payments and is a real contender in this market.
• Alipay+ offers the advantage of easier implementation for payment providers at the cost of razor-thin additional margins on transfer prices.
• Alipay+’s advantage is that it acts as the bridge between nations and there is no need to “hard-wire” national FPS systems one pair at a time. This is big!

Erosion of trust is a crisis of the digital age.

Network Readiness Index shows which nations are winning the digital race.

There is no fintech, GenAI, embedded finance, CBDC or any other of the buzzwords in our digital world without trust. Trust is the glue of our new digital world, and its continued erosion is a serious problem.

??TAKEAWAYS

1. Trust is the glue for our interconnected worldOver the past few decades, trust has progressively eroded. Mis-trust, once directed mostly at content like fake news, propaganda, and advertising claims, has morphed into systemic mistrust.
2. .......Read more: here ! And while you're there subscribe!

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