According to a survey by Sopra Steria, one in three banking decision makers in Germany expect cryptocurrencies to become more important as an asset class in banking. In the wake of this development, investments in blockchains are also increasing. Bankers see great potential for blockchain and distributed ledger (DLT) technologies and smart contracts, especially in the enterprise segment.
FBlockchain technology is attractive to banks for various reasons – not just as a basis for cryptocurrencies such as Bitcoin, Ethereum and others. Digital payment transactions and business transactions can be documented in a decentralized and secure manner using cryptographic processes, which makes manipulation more difficult. Another aspect is the tokenization of, for example, real estate, organic farms and wind farms. This area also includes trading in digital valuables, known as non-fungible tokens (NFTs), which are attracting more and more attention. One possible application is for businesses that can, for example, use a public blockchain to create digital assets that are instantly delivered to a crypto wallet.
Investments in DLT & Co. at all levels
Banks around the world have started tapping into this market, which promises new business opportunities. According to the study, 31% of the institutes surveyed in Germany have practical experience with blockchain applications. 29% are planning to introduce the technology, 22% are considering use cases, according to some of the study results “Branchenkompass Banking 2021” from Sopra Steria (€75).
Analysts at the consulting and technology firm note that some banks have backed away from their reluctance to use cryptocurrencies — at least to some extent — in recent months. In Germany, for example, Union Investment plans to add crypto investments to individual funds in the future. The savings banks are also working on a project that will allow the trading of digital currencies such as Bitcoin or Ethereum in the future (details here).
The possible ban on energy-intensive proof-of-work concepts under European crypto asset regulations (IT-Finanzmagazin reported) may have affected those plans. However, the current version of the MiCA (Markets in Crypto Assets) regulation is no longer based on prohibitions, but on market control within the framework of the taxonomy.
Look closely at new technologies
According to one of the results of the study. The institutes do not rely on a single technology, and blockchains are not used “willingly or forcefully”. A priori, the investments are worthwhile when the technology really makes the difference, underlines Mustafa Cavus, blockchain expert at Sopra Steria. For him, blockchain solutions are above all complements to existing technical approaches.
A blockchain solution always makes sense when a centralized solution would be needed but cannot be produced for various reasons. This applies, for example, to a lack of trust and technical or financial limitations.
Mustafa Cavus, Sopra Steria
Blockchain Use Cases in the Enterprise Client Sector
Banks in Germany and Europe are developing blockchain use cases for corporate banking rather than retail banking. Corresponding approaches can be seen, for example, in risk and collateral management, where complex financial transactions with companies and other participants are greatly simplified by DLT.
Sopra Steria cites an unusual example from Italy: the banking group Credem provides the cheesemaker Latteria Soresina with a 20 million euro pledge loan, which provides the wheels of cheese as collateral. Bank and corporate customers can monitor the exchange value in real time. This is ensured by a blockchain-based shared database system connected to the Milan Chamber of Commerce.
Similar efficiencies can be achieved in the corporate securities industry, where banks often need two days to adjust a securities portfolio. Cavus argues that there is a great need for faster processes here, especially when management is used to fast communication and automated coordination processes. Blockchain technology can help ensure that risks are verified faster, that documents and approvals are available in a traceable manner, or that necessary work steps in business relationships are automated and documented using smart contracts.
About the study
The Industry Compass Banking 2021 shows where German banks are in the process of change, how they are tackling challenges and which strategies they want to address and implement by 2023. In July and August 2021, the institute of market studies moweb research conducted an online survey of 100 specialists and managers of banks with a total balance sheet of more than 500 million euros on behalf of Sopra Steria and the FAZ Institute.
You can get the industry compass for 75 euros here To download.hj