Sibos 2021: a new form of trust

Banks build their reputations around trust, and have done so for hundreds of years. But over the past decade, new technologies such as blockchain, cryptography and tokenisation have combined to demand a new form of trust from our financial-services providers.

One of those new kinds of trust comes in an immutable digital record - a digital tokenised asset or currency. And it’s sure to again be a topic of heavy discussion at the upcoming Sibos financial services conference starting October 11.

To discuss digital assets and more, ANZ Institutional’s Head of eFICC Markets, Luke Marriott sat down with Richard Schroder, Head of Digital Asset Services; Nigel Dobson, Banking Services Lead; and Hari Janakiraman, Head of Industry an Innovation, Transaction Banking at ANZ. Below is part one of an edited version of that discussion.

They started by addressing the next horizon for change in banking. 

ND: The way I like to think about this topic is to look back 25 years to what the birth of the internet did for not only financial services, but industry in general.

With those changes in technology, the fundamental operating models for business changed. And as a result of that, many new business models followed. And ANZ is, I think, a significant beneficiary of that change, as a financial services provider.

Now, we deliver many services online in a digitised form. Very low cost, very secure. But we remain highly regulated, which is where that trust and security comes from, as well as our own expertise around securing and delivering our services.

When we think about the next horizon of change, we look forward to a new set of protocols impacting the operating model of our business. If we look at decentralised financial markets, what we're seeing is an unregulated set of venues demonstrating marketplace-like activity: buyers and sellers, borrowers and lenders. Which is classical financial services, right?

My thesis is the business model is not so much going to change. Rather, it's the financial-market infrastructure which is going to change - and the protocols that drive that financial market infrastructure, and therefore our operating model.

How do we deliver services under these new rules and expectations? That's what's about to change.

HJ: One of the most topical discussions we are having in the space is around central bank digital currencies (CBDCs).

To give you some sort idea of how prevalent it is, in a recent survey by the Bank of International Settlements of around 60 banks, roughly two thirds of them said they are studying the impact of stable coins on monetary and financial stability, and many are experimenting on central bank digital currencies, including at a proof-of-concept stage. So it’s something that’s really in front of mind of many commercial and central banks, and something which we need to take note of.

When people talk about central bank digital currencies, what do they mean? It is a form of digital money, that’s denominated in a national currency.

As a form of payment, CBDCs are different from existing instruments we use today. Because those payment systems are a liability of a commercial bank, or other direct financial institutions. CBDCs have a direct link to a central bank. So there’s a fundamental difference, and a difference again from bitcoin or any other private token.

The other growing application of CBDCs is the wholesale one. In my view that’s getting a bit more traction than the retail one. And these can be used between financial institutions, as central bank reserve, or for settling accounts between central banks. 

LM: How do you see the maturity of digital assets shaping the relationship that banks like have with our customers, and opportunities for our customers?

HJ: I think it’s clearly evident that in terms of growth, the way some of our customers are looking at it is moving on from “I'm looking at it because I’m curious” to “I want do some of it, and then on to “I'm actually part of it now”.

Again, the BIS survey showed high levels of financial services groups either investing in digital assets, or having a plan to invest in digital assets. For banks like ANZ, what that means is we need to enable our customers to do that.

Not only because you’ll be disintermediated if you don’t. But if traditional banks lose customers on these services they’ll start to lose them on auxiliary services as well.

As traditional lenders, we need to start thinking about what we need to service this demand, and the products we can provide to our customers based on digital currencies, digital assets and the like.

As a final point, if you see some of the models experimenting with CBDCs, on many of these you don’t necessarily need a bank account. So you can distribute the CBDC from the central bank to a consumer, without necessarily going through a commercial bank.

As a big bank, we need to think, what does that mean for products? And if our role is not going to be the traditional holder of accounts, can it be something like the provision of wallets, which have smart-contract capability?

Where can we add value that we can’t today in the fiat currency world? As incumbent banks, we have the capability to provide those kind services, and those are the things we need to think about. How we bring that to life for customers.

My view has always been: what is the customer problem we are solving? All the new technology is not really even about technology It’s not about the new platforms. It’s about solving problems. How is it going to make our customer’s businesses better? And we need to answer that question.

Luke Marriott is Head of eFICC Markets at ANZ Institutional