Bank and fintechs must cooperate to build better products

The best digital financial products will come out of the combined efforts of banks and fintech companies.

November 28, 2023

5 mins

Corporate & investment banking

Originally published in The Business Times

The best digital financial products will come out of the combined efforts of banks and fintech companies, said Standard Chartered group chief executive Bill Winters.

Speaking in a roundtable hosted at the Singapore Fintech Festival (SFF) 2023 on Friday (Nov 17), Winters said banks can contribute great expertise in regulation and compliance, while fintechs can offer comprehensive ecosystems.

He believes that by working together, they can create innovative digital financial solutions for customers.

One promising area of cooperation is digital assets supported by blockchain technology.

Winters said that for blockchain technology to be more widely adopted, it will need to offer ways to identify the owner or owners of a digital asset for know-your-customer (KYC) or anti-money-laundering purposes.

“We can attach our certificate to a payee and that may be good enough – both for you as an intermediary, and whoever’s on the other side. That system doesn’t exist yet; we’re building it,” he said.

Jeremy Allaire, co-founder, chairman and chief executive of stablecoin operator Circle, said Winters’ proposed system for certifying asset owners would operate on a principle similar to that of certification on the Internet.

On the World Wide Web, websites are certified by designated authorities. Any site without a certificate raises red flags.

“That’s what’s coming to blockchain transactions. People who have a digital wallet will also carry with them proof of their KYC status, whether you’re a firm or an individual,” he said.

He added that this certificate would be used to prove the legitimacy of parties involved in smart contracts and other digital transactions.

Faster and cheaper

Allaire believes blockchain technology could also simplify cross-border transactions, or even nullify them altogether.

In time, he said, the idea of cross-border payments would be as absurd as the idea of a cross-border e-mail or web browsing session.

“I think users – which will be households, firms and, frankly, financial institutions – as they experience this, will say they don’t ever want to go back; this is just a better product,” he said.

Still, Winters believes traditional cross-border payment systems between banks are working well and will only improve.

They are getting faster and cheaper, he said, to be relevant for the new economy.

In the meantime, he noted moves by several central banks to develop new payment methods. 

One such example is the digital yuan – a central bank digital currency (CBDC) introduced by the Chinese central bank. It has been piloted with Hong Kong, Thailand and the United Arab Emirates.

Winters expects CBDCs will not be the only forms of alternative payment methods to emerge. Other products could also be safe mediums for value exchange, he said.

The success of such products will depend on which of them are safe, sound and convenient for the end user, he said, and whether the ecosystem is acceptable to both the buyer and seller.

Winters also sees plenty of potential in the tokenisation of assets, calling this field “extremely exciting” albeit immature.

Building an ecosystem

Standard Chartered’s fintech investment and venture arm SC Ventures on Tuesday announced Libeara, a tokenisation platform.

Libeara was born out of Standard Chartered’s participation in the Monetary Authority of Singapore’s CBDC challenge, in which the central bank asked for potential solutions to “realise the potential of a retail CBDC”.

Standard Chartered had formed a consortium – The Shareable-Liberty Consortium – with SC Ventures and tokenisation platform Shareable Assets to submit a solution for governments to issue CBDC-denominated bonds to retail investors in small amounts.

The proposal distributes CBDCs to retail investors through an app and would offer instant settlement.

Retail bond investors would be issued individual wallets on the Stellar blockchain – an open-source blockchain that allows anyone to create a currency – with each investor holding tokenised representations of CBDCs and CBDC-denominated securities.

The Shareable-Liberty Consortium’s solution was one of more than 300 submissions, and made it onto the list of 15 finalists selected by the judges of the challenge.

It now appears that Libeara will work towards operationalising that submission. It is partnering with fund platform solutions player FundBridge Capital to create a tokenised Singapore government bond fund for accredited investors.

Better payment solutions

“The tokenisation of existing securities and newly issued securities will be a really big deal because the settlement risk is dramatically lower, the cost is lower, (and) the ease of execution is better.

“This is the opportunity to take very conventional real-world assets and make them more accessible and easier once we build the ecosystem,” Winters said.

While innovators have been able to leapfrog the banking industry to provide users with better payment solutions, Winters believes banks will remain relevant as they link payments to other useful products that customers want – such as deposit accounts.

Indeed, the CBDC solution proposed by The Shareable-Liberty Consortium specifies the role of a commercial bank as incentivising investors to create a CBDC account.

The next big phase of banking innovation would then come in the form of better user experiences for conventional or even exclusive banking products, as banks catch up on the technology front.

Meanwhile, credit intermediation, which is a core feature of the banking today, will increasingly move out of the sector.

Said Winters: “Will it be obvious who’s a bank and who’s not? No, it will not.”

Source: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.