BITBOND RESEARCH REPORT Digital Assets2021 Institutional Adoptionof Bitbond July 2021 Research Report
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Institutional Adoption of Digital Assets 2021 Bitbond Research Report July 2021 RESEARCH REPORT RESEARCH BITBOND 1 Foreword Capital markets and financial services are currently going through an unprecedented level of change. While fintech companies have been reshaping consumer finance for several years, more recently, this force for change has also arrived in the institutional finance world. Foreword Corporate and investment banks, asset managers, institutional We hope you enjoy reading it and that you will be as excited investors, family offices, and other market participants are as we are when discovering that the institutional adoption becoming increasingly driven by technology. Either to gain a of digital assets is not a future promise but a reality that is competitive advantage, fight decreasing margins, or adapt to already here today. regulatory changes. We thank the entire Bitbond team for putting the hard work As part of this development, financial institutions are increas- into this research piece that it takes to create a full picture of ingly turning to digital assets to take advantage of the vast the status quo. Special thanks go to Bitbond crew members opportunities behind distributed ledger technology (DLT), Felix Stremmer and Henri Falque-Pierrotin, as well as senior blockchain, and decentralized finance (DeFi). At the time of banking analyst Sam Theodore for writing the introduction. publication, the total market capitalization of digital assets is We would equally like to thank all contributors at the around USD 1.4 trillion—a fivefold increase over one year. numerous financial institutions who were so open to sharing their insights with us. Without your input, this report would not While the absolute value may seem insignificant compared have been possible. to the total value of global public market equities and bonds (around USD 200 trillion combined), the growth of digital assets is stunning. And although cryptocurrencies drive a significant portion of this growth, digital / tokenized financial assets are playing an increasingly important role. In order to take advantage of unseen settlement efficiency, RESEARCH REPORT RESEARCH reduced costs, and near-zero settlement risk, banks and corpo- rates have started to issue tokenized debt and equity. There is a growing consensus in the institutional markets that in the medium to long-term, all financial assets will be tokenized. Once that happens, cryptocurrencies will remain important but BITBOND will be a smaller part of the total value of digital assets. 3 This report provides a comprehensive overview of digital asset activities and adoption by banks and other institutional market Radoslav Albrecht Felix Stremmer participants. Founder & CEO COO Table of Contents Foreword 2 Private Bank Initiatives 35 Table of Contents 4 Bankhaus Scheich — Germany 36 Bankhaus von der Heydt — Germany 37 Introduction 5 Interview 38 futurum bank — Germany 39 Commercial Bank Initiatives 11 Interview 40 Hauck & Aufhäuser — Germany 41 ABN AMRO — Netherlands 12 Julius Baer — Switzerland 41 BBVA — Switzerland 13 Maerki Baumann & Co — Switzerland 42 BNP Paribas — France 14 M.M. Warburg & CO — Germany 42 BNY Mellon — USA 15 Solarisbank — Germany 43 Commerzbank — Germany 16 Interview 44 Credit Suisse — Switzerland 17 DBS — Singapore 18 Exchanges, Platforms and Collaborations 45 DekaBank — Germany 19 Interview 20 Börse Stuttgart Digital Exchange — German 46 Deutsche Bank — Germany 21 firstwire — Germany 47 European Investment Bank (EIB) — Luxembourg 22 Interview 48 HSBC — UK 23 Finledger — Germany 49 Interview 24 Interview 50 JP Morgan — USA 25 Fnality — UK 51 RESEARCH REPORT RESEARCH Landesbank Baden-Württemberg (LBBW) Spunta — Italy 51 – Germany 26 Universal-Investment Group — Germany 52 Raiffeisen Bank International (RBI) — Austria 27 We.Trade — Germany 52 Interview 28 Santander — Spain 29 BITBOND Société Générale — France 30 About Bitbond 53 Standard Chartered — UK 31 4 State Street — USA 32 Sources 54 UBS — Switzerland 33 Wells Fargo — USA 34 Address / Imprint 57 Introduction EUR SAM THEODORE With over 35 years of experience analyzing and communicating views about and interacting with banks He held managing director positions at Moody‘s (seventeen years), at Scope (seven years), and worked for three years at and other financial institutions, Sam Theodore has DBRS as analytical head of financial institutions ratings for agreed to write this introduction on the adoption of digital Europe. Sam also worked six years as a senior bank regulator assets by financial institutions. (EBA, UK FSA). Introduction Banks will continue to dominate the European financial sector … It is not looming somewhere in the distance: Under the right conditions, of course, banks This is also the case in the US, where ca. a transformational advances in digital tech- can speedily adjust their business models, quarter of households are either unbanked nology have been moving faster than many cultures, systems, and cost structures. or under-banked. According to the FDIC, the banks’ capacity to cope with them. In the Which is something not all banks will be able two main reasons for households not having digital age, the image of a bank mostly to do. a bank account are (i) not having enough conjures up an icon on a phone screen or money to keep in the bank and (ii) not Against the backdrop of fast digital a website. Not a temple-like high-street trusting banks. advances opening new avenues for finance, branch. the key two drivers for fintech growth have However, in Europe, the payment system The European banking industry has made been related to (i) payments and (ii) financial goes mainly through the banking system, significant efforts to adjust to the digital age inclusion. These have been present primarily unlike many developing markets. European to cope with higher transaction speeds, meet in emerging markets, where traditional banks banks also hold a far larger market share changing customer expectations, and opti- have not played the same central role in the of loans and savings intermediation than mize operations by using cloud technology, economy as developed markets. their US counterparts (ca. 80 % vs. ca. big data management, open platforms, artifi- 30 %). Importantly, the proportion of the This has been the case in China, where the cial intelligence, and, increasingly, distributed banked population is very high—not far from fintech giants Alipay and WeChatPay (each ledger technologies. Many say that, in the 100 % in Western Europe. Therefore, lack with ca. one billion active users, mostly in RESEARCH REPORT RESEARCH race between incumbent banks and fintech, of financial inclusion is less of an issue. It large cities) have been offering savings, the former is gradually losing ground, which does remain more of a challenge in Eastern wealth management, loans, and insurance to will be increasingly difficult to regain. Europe, but there, also, it is the banks that households and SMEs. It has also been the are mostly in the driver’s seat. This, however, would be the wrong conclu- case in parts of Africa, where large fintechs BITBOND sion. The European financial sector is not like Kenya-based M-Pesa, starting with mobile To be sure, Europe is becoming a vibrant the fintech or the big tech’s to win; it is the payments and then adding more financial ground for the growth of financial tech- 6 banks’ to lose, which may differ from the products, have been adopted by a largely nology, especially in London, Berlin, dynamics in other parts of the world. The unbanked population (many more people Amsterdam, Paris, or Stockholm. At fintech/neobank challenge remains more having a smartphone than a bank account). this time, more than a third of European marginal for most European incumbent A similar situation exists in Latin America: neobanks and fintech are UK-based banks, many of which view it as a new Brazil-based Nubank is the world’s largest (Germany is coming second). opportunity. neobank, with over 33 million customers. Introduction But profitability for most of these players is It is not certain that a shift back will occur expertise or sufficient scale in these areas. not yet proven, which to an extent detracts after the pandemic ends in the financial Acquiring appropriate intellectual capital from full credibility to their business model. space. for the digital age is challenging, mostly for Seeking to become profitable, larger players many second-tier banks with more old-fash- For banks, the pandemic’s silver lining has like Revolut or N26 aim to broaden their busi- ioned business models. For some of them, improved their public image — a visible ness beyond the confines of Europe. banking in the digital age may become out of turnaround from the GFC — as they are their reach soon. This again would prove that, at present, the being counted on to actively support the European market is solidly in the hands of economies they operate in, rather than being the incumbent banking industry. Whether blamed as troublemakers. Banks, especially Digital assets: a threat or an it will stay that way is ultimately the banks’ the more prominent groups with a higher opportunity for banks? call. capacity for IT investments on a material scale, stand a better chance of going When tackling the topic of digital assets, … But only those who can where they need to be in the digital space many banks and other market participants adopt decentralizing financial without being disrupted along that path think of crypto. But not all digital assets are by neo-players. Provided they make good necessarily crypto assets, as they include technologies progress along that path. tokenized non-crypto items. RESEARCH REPORT RESEARCH Banks remain established financial interme- More to the point where banks are posi- To assess European banks‘ digital assets diaries, while the new digital world favors tioned on the road to digitalization may challenge, we need to look at cryptocur- end users, not the intermediary. emerge as a central consideration in rencies and smart contracts/decentralized Too many banks across Europe rationalize assessing their worth and viability.