Many current trends in financial services can be viewed as an enabler of or response to forces of disintermediation and decentralised finance (DeFi). The most tangible example of this is blockchain technology, which offers a more efficient way of facilitating payments, or processing information for completing title transfers associated with trade and investment, that removes the need for verification from third parties or financial intermediaries.
Blockchain reduces processing times to sanction payment or value transfers and can also distribute the validation and guarantee of title transfers associated with consumption, commercial transactions or investments. It illustrates that we can connect financial systems, infrastructure, and forms of value while ensuring seamless, global interoperability, offering more decentralised and distributed networks as real alternatives to the heavy reliance on hub-and-spoke networks of intermediaries that characterise today’s financial services landscape.
Of many business lines that have and will be impacted, we see three in particular where material disruption is happening.
The first is investment services and custody. Blockchain technology has enabled the emergence of tokenised and crypto assets as new investment asset classes and allows for further improvement of efficiency and settlement certainty without necessarily requiring central clearing houses.
The second area is payments and monetary arrangements. Blockchain is and will continue to disrupt the traditional hub-and-spoke model for cross-border payments and enable greater transparency of payment status, potentially resulting in more efficient pre-processing and compliance validation.
The third area is trade and merchant services. Automating real-time information exchange contained in trade instruments or commercial instruments by merchants via blockchain, risk management will be improved via reduced lags and information asymmetry.
We are at the forefront of harnessing the power of blockchain to build, scale and commercialise the digital solutions landscape.
Traditionally, many financial intermediaries have built solid revenue models by being “score keepers” of economic activities, tracking financial transactions and the activities of economic agents on centralised ledgers, thus creating the environment for consumption, commerce and investments. While financial intermediaries play a useful societal role, with blockchain technology and smart contracts, we can address major inefficiencies in traditional offerings by financial services intermediaries’ “score keeping” of economic activity, by establishing instantaneous information exchanges and proofs within decentralised or distributed networks, thus potentially limiting the role of intermediaries.
In the context of permissioned networks and open peer-to-peer networks, there is now a broader range of commercial entities – for example technology platform orchestrators – that seek to offer a range of financial services or facilitate consumption, commerce or investments, without being directly involved in managing transactions or maintaining centralised ledgers.
The current arrangements in global payments as well as cross-border commerce and investment often result in delays. Confirmations from various intermediaries using sequential information transmission procedures are required before a settlement is treated as final, creating inefficiencies in the final settlement for payments or transfer of titles for trade or investments.
Threats to traditional incumbent financial intermediaries come from fintechs leveraging blockchain technology to develop products and services that broadly map to the key business lines mentioned above. Blockchain could also significantly disrupt bank-based loan businesses and credit intermediation as DeFi protocols currently used to support secured lending are applied to unsecured lending complemented by decentralised approaches – perhaps based on algorithms – of generating credit scores or other indicators of creditworthiness.
Instead of fighting the inevitable forces of the market or choosing not to partake, we firmly believe that traditional financial services firms should prioritise initiatives that can be developed, scaled and monetised, and (perhaps most importantly) solve real problems associated with frictions in performing financial transactions. As adoption of blockchain technology and smart contracts broaden, users of financial services will still value sound advice as well as simplification of journeys associated with completing transactions. We firmly believe that there will still be a viable role in the future for financial intermediaries, even though they may have to operate under different business models.
Having undergone our own digital transformation journey over the past decade, we understand that digitalisation is more than just technology. It is about solving business problems by identifying customer needs and pain points and applying appropriate technology.
One of the game changers that we see is the application of blockchain in payments since it allows for atomic settlement (in other words, the synchronised transfer of assets) at any time of the day.
In a joint venture with Temasek and J.P. Morgan, we launched an open industry platform to reimagine and accelerate value movements for payments, trade and foreign exchange settlement in a new digital era.
Partior – the name of the joint venture – recognises the need for more efficient digital clearing and settlement solutions across the banking industry and addresses these challenges through the use of blockchain technology to enable next generation, programmable value transfer for participating banks and their clients in real-time across a common and open platform.
Benefitting from technology such as blockchain requires a widespread change in mind-set and practice throughout the human networks in transaction banks from employees to clients to end users, and enhancing processes where applicable to reduce cost, manage the transition and create value.
We are at the forefront of harnessing the power of blockchain to build, scale and commercialise the digital solutions landscape. At the same time, we are canvassing our peers and partners in the transaction banking industry to evolve the existing networks and to harness the power of Blockchain to better enable payments, cross-border commerce and investments. Instead of waiting to be disintermediated by fintech and forces of markets, we are constantly reimagining transaction banking to create an integrated ecosystem for our clients by exploiting the power of technology while staying intimately connected to our clients’ journeys.