The invisible engine of banking’s future

The rise of digital assets has helped reshape the financial system in recent years. But application of the underlying blockchain technology is yet to reach its full potential - one which could see it serve as the “invisible engine” driving all financial services.

That’s the view of ANZ Manager Industry and Innovation Cindy He, who told ANZ Institutional on podcast she thinks the technology has the potential to improve efficiency in the financial services industry in a way end users may not fully appreciate – or even notice.

“While customers may be using blockchain in the future, they may not even realise it from the front-end experience,” she said. “But in the back end, blockchain is very likely to become the invisible engine that will [power] all those well-known efficiencies of 24/7, on-demand, real-time settlements.”

Speaking alongside ANZ Banking Services Lead Nigel Dobson, Cindy He said the tokenisation of global illiquid assets had the potential to unlock trillions of dollars in value.

“Real-world assets that previously couldn’t be traded – if you tokenise them, represent them on blockchain so they can be easily exchanged on a global basis, you can unlock so much value,” she said.

“New lines of collateral. New lines of revenue. New business models. It’s really interesting to see what may come up in the next couple of years in terms of new use cases, new applications, [and the] different industries and sectors that could really leverage this.”

You can listen to an edited version of the conversation on podcast below.

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Maturity

Dobson said the maturity of the digital asset market was growing as more action in the sector moved from theory to practice.

“I think the sophistication of the market has increased,” Dobson said.

“We’re seeing more collaboration between banks, but also between central banks and banks, and other related parties.”

“The sophistication of conversations we’re having, particularly with regulators now, has gone up almost exponentially.”

Cindy He agreed, noting a rise in “collaborative research and testing and learning” between the public and private sectors around distributed ledger technology.

This collaboration is “an extremely important way of learning where the gaps are and what plugs we need to fill in,” she said.

In Australia, the Reserve Bank of Australia, along with the Digital Finance Cooperative Research Centre, ran a pilot program in 2023 which focussed on the innovative potential of digital assets, specifically around central bank digital currencies.

Dobson said the pilot RBA project showed the potential for digital assets to provide real, practical improvement in financial services.

“Not only are we talking about possible and conceptual regulation and concepts and pilots, but rather actually doing real, live transactions - in albeit a controlled environment,” he said.

Same

Amid that collaboration, businesses who step into the space are already seeing the advantages provided by digital-asset transactions, Dobson said.

The benefits being realised “from a blockchain-based, tokenisation-based transaction versus a more traditional clearing and settlement transaction is really important”, he said.

“What we're saying now is that we can put a payment and an asset transaction on exactly the same [type of] infrastructure,” Dobson said. "They can be both tokenised… and they can clear and settle instantaneously.”

Dobson said ANZ’s work in the space has made it clear the operational efficiency tokenised transactions provide.

“And we're getting many more customers who are going, ‘wow, I'd like to do that with my supply chain, or my assets or… some of the problems I'm looking to solve,” he said.

Dobson said the tokenisation of nature-based assets was a growing area of interest – and opportunity – for market participants.

“The emerging asset class of nature-based assets, including carbon credits, biodiversity, [and] in Australia, reef credits, are becoming really important,” he said.

“Those types of assets are gaining traction. But the financial market infrastructure that supports them today is [inefficient].”

Banks like ANZ have an opportunity to “transform that customer experience” in that area, Dobson said, giving their customers “visibility, in terms of the provenance of the projects that generate these credits”.

“And then we can tokenise that and put all those credentials on a token. We really think that's a huge space for us to explore going forward.”

Trust

Trust in the security of the technology among participants is critical to its success, according to Cindy He, which is something large banks like ANZ are uniquely equipped to ensure.

“It's really important for our customers to know when they're entering this space, they can trust the provider who is giving them that access into this world,” she said.

“I think ANZ being proactive in this space, building the [services] that can allow entry into the digital assets economy, is highly valued by our customers”.

Dobson said ANZ had gone through operational risk assessments around the tokenisation of assets.

“We've got our risk function fully on board with the types of transactions that we're doing,” he said.

The experts also addressed common barriers to digital asset adoption. Listen to the podcast above to find out more.

Shane White is Editor at ANZ Institutional Insights

This note reflects the edited version of the conversation as it appears on the podcast.