Responsible opportunity

Cash management, Technology, Regulation

Responsible opportunity

September 2019

With the emerging trends of cryptobanking, the interdependencies between banks, FinTechs and BigTechs, and the data economies positioning clients as the biggest beneficiaries of innovation, Ole Matthiessen, Global Head of Cash Management at Deutsche Bank Corporate Bank opines on the role of regulation in driving banking transformation

The recent announcement that the first two Swiss “crypto banks” received provisional banking licensesi was hardly surprising for our industry. After all, crypto technology has been creeping into banks for some time. For me, however, this was not insignificant. This was yet another key piece of evidence that confirms the financial industry, and the wider economy, is on the cusp of the biggest technological shift in recent memory.

Such a technological shift is not only driven by developments in the cryptoasset market, but also through the emerging presence of FinTech and BigTech firms in the financial industry, as well as the continued evolution and growth of the data economy. Amongst all three trends, there will be one decisive factor; which direction will regulators choose to take? This question is at the core of our new report, Regulation Driving Banking Transformation.

For cryptoassets, if the issues such as investor protection, cyber threats, and others, can be solved, I can see where they have the potential to foster greater financial inclusion, particularly in emerging markets. As traditional capital-raising methods exclude many small firms, crypto-assets offer an enticing alternative to traditional asset classes for as a wider range of potential investors. Some of the largest stock exchanges have, for some time, been looking into tokenised asset opportunities. Of course, there are big-picture worries for financial stability if cryptoassets become popular payment tools. One concern is how policymakers will control the economy with worries that central banks may lose some control over monetary policy and money supply mechanisms.

I am, however, more positive that these issues will be solved. If cryptoassets do become widespread one day, it is likely that central banks themselves will issue their own version of these assets, making monetary policy easier to implement. The US, China, UK and Canada are among those countries that have already discussed this possibility. Ultimately, with the end consumer in the driving seat of treasury transformation, demanding cash-less, digital and mobile payment methods that go beyond traditional regional constraints, it seems the target state is already being defined. However, despite the potential benefits, it appears unlikely we will see a widespread uptake of cryptoassets any time soon without a marked change in regulatory direction, particularly when it comes to rule alignment across jurisdictions and market participants.

Ole Matthiessen

Ole Matthiessen

Global Head of Cash Management at Deutsche Bank Corporate Bank

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The second trend rapidly reshaping banking is the growing presence of FinTech and BigTech firms. The competition and collaboration that has been established between these firms and financial institutions for some years is now accelerating. Naturally, greater competition drives better product offerings and service to clients. However when taking a step back, it becomes clear that the lines between Fintechs/BigTechs and traditional banks will begin to blur.

As BigTechs begin to offer financial services, banks, in turn, will offer new solutions outside of the traditional financial product suite as either a complimentary service, providing an enhanced user experience, a value-add to their clients and potentially even an anchor product.

One example of this is Deutsche Bank’s Yunar app, which launched in Germany last year, and enables users to consolidate their customer loyalty cards on their mobile phone. This is a first step in providing a platform for further payment modules and banking solutions to be built upon in the future.

This exploration of solutions beyond traditional banking will not slow down the emergence and development in the FinTech / BigTech space. The further growth in FinTech and BigTech firms appears likely as they continue to reap the benefits of regulatory frameworks which allow the provision of selected financial services without a full banking license. However, such growth is mutually beneficial as it translates into a deepening of interdependencies between traditional banks and new entrants, whereby each becomes more reliant on the other’s services.

The third trend reshaping banking relates to the development of the open data economy. The rapid growth of digitally available Big Data means the data economy has the potential to allow companies to access and use data sets from multiple sources for artificial intelligence analytics, to better understand client needs and provide what is often referred to as ‘contextual banking’. However, before the data economy can evolve to this point, a few things need to happen and the direction regulators choose to take is critical. Among the most important are improvements to data sharing. Open Banking initiatives have helped, but they have limitations. For instance, they omit data stored with some private companies (such as the platform businesses of BigTech companies) which could otherwise enrich the analytics and, ultimately, the provision of banking services. Marrying the competing demands for further opening-up of data with those for data privacy requires a delicate approach.

It is difficult to predict the exact long-term effects of these three trends on the financial industry and society more broadly. What is clear is that, together, they have positioned the financial industry for its most significant technological shifts in recent memory. And while that gives financial firms plenty of opportunities to grow, the improvement in financial products as a result positions customers themselves as the biggest beneficiaries of this innovation.

The second edition of our report Regulation Driving Banking Transformation analyses the regulatory impetus needed to drive banking transformation.

Download report





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