Preface
Against the backdrop of global economic slowdown and fragmentation of the economic landscape, the banking industry is facing new challenges. Higher deposit costs, lower policy interest rates, and somewhat restricted lending potential are weakening the ability of banks to generate strong net interest margins that they have long relied on in the past. Priority will be given to the growth of non-interest income-related businesses to make up for the shortfall in net interest income.
Technology-driven innovative businesses represented by crypto-assets are becoming an important area of concern for the global banking industry. Although encrypted assets are slightly deficient in many aspects compared with traditional financial assets, with the surge in demand from institutional customers and the improvement of the encryption regulatory environment, the encryption market is accelerating and is expected to provide new business growth points for the banking industry. According to incomplete statistics from Ouke Cloud Chain Research Institute, as of October 2023, more than 70 banks around the world have participated in exploring encryption business. Especially in the past two years, more and more large banking institutions have begun to participate in the crypto market in a more active and in-depth manner, becoming an important connection between the crypto world and the traditional financial world.
What is the crypto landscape of the global banking industry today? What routes can banks take to enter the crypto market? How to deal with the risks and challenges that crypto assets may bring? Ouke Cloud Chain Research Institute will take you to find out by dismantling the encryption layout of more than 70 banks.
TL; DR
- The continued growth of interest from institutional investors is the direct reason for banks and other financial institutions to take crypto assets seriously.
- As of October 2023, there are more than 70 banks around the world participating in and exploring the crypto asset market from different paths, of which more than 70% are concentrated in Europe and North America. Banks in Asia and the Middle East are becoming more competitive in the crypto-asset space.
- Providing banking services to encryption companies is currently the most common and basic encryption layout method in the banking industry - among the more than 70 banks surveyed, 87.32% are providing banking services to encryption companies.
- Cryptocurrency custody services are becoming a battleground for the banking industry when deploying the crypto market - according to statistics from the Ouke Cloud Chain Research Institute, more than 40% of all banks exploring the crypto market have already launched or plan to launch crypto asset custody services.
- It will become the norm for banks to cooperate with third-party companies to expand encryption business and acquire incremental customers. Currently, nearly 70% of bank crypto asset custody products and services are the result of cooperation between banks and native crypto custody companies and other financial technology companies.
- Banking giants are trying to participate more thoroughly and deeply in crypto innovation through payment stablecoins, tokenized assets such as tokenized deposits, and institutional-grade DeFi pilots.
- At least 9 of the top 20 banks in the World Bank have participated in or plan to conduct crypto deployments. More banks are waiting for more governments and mainstream institutions to adopt digital assets as a signal to fully develop or expand their crypto businesses.
- The improvement of blockchain data capabilities and the integration of on-chain and off-chain data are key factors that determine the success rate and development limit of bank encryption business.
- Based on data integration and combining the technical advantages of traditional compliance technology and blockchain analysis technology service providers, the banking industry can use more effective technological solutions to monitor and track crypto asset transactions and improve the security and compliance of crypto businesses. to protect investors and gain customer trust.
1. Global banking industry encryption landscape
Cryptoassets are moving from the fringes of the global financial services industry to the center. Although the size of the crypto asset market is still small compared to traditional asset classes, the time to explore crypto asset businesses appears to be maturing. There are many factors driving mainstream institutions to accelerate the adoption of crypto-assets and related technologies, including but not limited to clearer regulatory regulations related to crypto-assets, the gradual improvement of the business ecosystem centered on crypto-assets, and the continued increase in interest from institutional investors. The growing interest of institutional investors is the direct reason that pushes banks and other financial institutions to take crypto assets seriously. With advantages in transaction convenience and transparency, the adoption rate of crypto-assets continues to increase among retail and institutional investors, and is considered to have the potential to solve some of the most difficult problems in the existing financial ecosystem. issues, raising the level of openness and trust in the financial system, as well as the size of the customer base covered, to unprecedented levels. According to a survey conducted by Laser Digital, the crypto venture capital arm of Japan's Nomura Securities, covering more than 300 institutional investors in 21 countries, 96% of the investors surveyed recognized crypto assets value and believes that digital assets represent an investment diversification plan that is comparable to traditional asset classes such as fixed income, cash, stocks and commodities. However, due to regulatory compliance and other risk factors, the number of banks directly participating in the crypto asset market is still in the minority at this stage. Especially after the bankruptcy of Silvergate and Signature Bank, some crypto-friendly banks have entered the market Due to the dual pressure of volatility and tightening regulations, they have temporarily left the market. However, as an important channel for deposits and withdrawals and the main carrier used by institutions, the encryption layout of the banking industry still attracts attention at all times. According to incomplete statistics from Ouke Cloud Chain Research Institute, as of October 2023, there are at least more than 70 banks around the world participating in and exploring the crypto asset market from different paths. Judging from this sample, more than 70% of the banks participating in and exploring the crypto market are concentrated in Europe and North America. Among them:(1) With the entry into force of MiCA regulations, European banks are further increasing their leadership in the field of crypto-assets. Because the MiCA regulations establish a coherent regulatory system for the European encryption market, it will help more banks and financial institutions participate in encryption innovation and make it easier to accept encryption companies from other countries and regions.
(2) Due to deviations from EU crypto legislation and alertness to crypto risks, crypto companies now have difficulty obtaining banking services in the UK despite having several crypto-friendly banks, and the few banks still working with the crypto industry have Encryption companies are required to provide more detailed documents and information.
(3) The United States still occupies an important position in the global encryption landscape, but the banking industry is no longer leading in the encryption field. Due to the bankruptcies of Silvergate and Signature banks, the Federal Reserve, the Federal Deposit Insurance Corporation, and the U.S. Office of Currency Control have warned banks to stay away from crypto assets this year. Banks such as Metropolitan Commercial Bank and BankProv have chosen to give up or gradually phase out crypto assets after considering factors such as regulatory and market risks. Exit the crypto market.
(4) Banks in Asia and the Middle East are becoming more competitive in the field of crypto assets. Although the absolute number of banks investing in the crypto market is not large at this stage, as interest in crypto assets and blockchain technology surges in these regions, more and more banks are paying attention and trying to Enter crypto.
Participate and explore banking distribution of crypto assets
2. The banking industry’s path selection for deploying the crypto market
By dismantling the layout of more than 70 banks, there are currently three main ways for the banking industry to directly participate in the encryption market: (1) Provide traditional banks for encryption companies Services; (2) Provide customers with crypto-asset trading, custody and other services; (3) Directly participate in crypto-asset-related business innovations. (Note: Participating in the encryption market layout through investment and equity participation is not considered.)
The path for the banking industry to directly participate in the encryption market
(1) Providing banking services to encryption companies is currently the most common and basic encryption layout method in the banking industry. ——Of the more than 70 banks surveyed, 87.32% are providing banking services to crypto companies, nearly half of which are located in Europe.
In addition to large banks such as JP Morgan, Citibank, and Bank of New York Mellon, other small and medium-sized banks in the United States have intervened in the crypto market by providing basic banking services to crypto companies.
But from a global perspective, it is still difficult for crypto companies to seek traditional banking services. In addition to regulatory factors, for banks, any customer wishing to open an account must adhere to strict anti-money laundering (AML), know your customer (KYC) and counter-terrorist financing (CTF) policies, as well as undergo complete due diligence , ensuring that there are no violations of any financial sanctions. Although the crypto market is accelerating compliance, it still lacks in the above aspects. Coupled with objective factors such as the volatility and security risks of crypto assets themselves, banks usually need to use a large amount of financial resources and manpower to deal with complex and underdeveloped crypto assets. Customer management system.
Distribution of banks that provide banking services to crypto companies
(2) More banks are providing financial services directly related to crypto assets such as crypto asset trading and custody. Services enter the crypto market—Among the samples in this survey, 53.52% of banks have already launched or are about to launch related products and services.
For banks looking to reach crypto-asset customers, providing custody services may be their first step in deepening their presence in the crypto market. Although retail investors are still a force that cannot be ignored in the crypto market, more institutional clients are entering and seeking to store and use crypto assets in a more secure and controllable way. Traditional banks are well-positioned to meet these needs from institutional clients because they have extensive experience protecting a variety of other assets. More importantly, providing custody services is the basis for banks to provide institutional customers with other financial products and services such as crypto asset trading, clearing and settlement, exchange, lending, and investment management. According to statistics from Ouke Cloud Chain Research Institute, more than 40% of all banks participating in the exploration of the encryption market have already launched or plan to launch encryption asset custody services.
Distribution of banks providing crypto-asset-related financial services
Banks can lead crypto business innovation by forming internal business units aimed at exploring and building new models. This solution allows banks to understand encryption market information more directly, but it may hinder business innovation that has a disruptive impact on traditional banking business, and the cost is also huge.
The relationship between banks and crypto companies is heating up quickly.
As industry integration continues to deepen, cooperation between the banking industry and crypto technology and product companies has become commonplace - nearly 70% of bank crypto custody services are between banks and native crypto custody companies and other financial technology companies The result of collaboration
, only a few have launched crypto custody services from scratch through independent research and development.
Cooperating with technology companies to expand encryption business and acquire incremental customers may become the norm in the future.
How banks provide crypto asset custody services
(3) McKinsey once pointed out in the "Banking Industry Annual Report" that in order to avoid the threat of financial technology companies, traditional Financial institutions are choosing to integrate innovative elements into their businesses through partnerships or in-house development teams. Various innovative business formats with crypto assets as the core are "new species" for banks and other financial institutions. However, at this stage, banks that are directly involved in crypto asset-related innovation are still scarce. Even among the more than 70 banks that have participated in and explored the encryption market, this proportion is less than 20%. But the situation is getting better. Many large banks such as JP Morgan and Citibank are conducting in-depth exploration of innovations related to crypto assets, and are trying to change the situation through tokenized assets such as payment stablecoins, tokenized deposits, and institutional-level DeFi pilots. Thoroughly and deeply engage with crypto innovation.
Some of the most well-known banks and financial institutions are now establishing their own digital asset trading platforms and other blockchain systems, or supporting and incubating more independent encryption companies to maintain independence in business development. sex. However, at this stage, banks that are directly involved in encryption innovation are more exploring in pilot projects led by the government or conducting pilots among institutions, and there are not many use cases that actually involve users.
JPMC’s DeFi institutional-level foreign exchange trading diagram
Draw your attention back to the present. According to the latest World Bank list released by the British "Banker" magazine, at least 9 of the top 20 banks in the World Bank have already participated in or plan to develop the encryption market.
(Note: There are 10 Chinese banks among the top 20 World Banks in 2023. If we do not consider these, we can almost say that the world’s largest banks are all Participate in the exploration and layout of crypto business.)
In 2023 alone, we will see JP Morgan, Citibank, and French Agriculture in the blockchain and crypto asset markets. Credit Bank, Santander and other banking giants are present. Among them, JP Morgan is in a leading position in blockchain and encryption business. The JPM Coin system it operates has processed more than 300 billion US dollars in transactions by June 2023, and has made positive achievements in the fields of inter-institutional clearing and settlement, cross-border payments and other fields. Achievements, and deeply participated in the Monetary Authority of Singapore’s “Guardian Program” to explore institutional-level DeFi and asset tokenization innovation and applications.
Looking at the overall situation in 2023, there are the following characteristics:
1) Banks in the European region have become the main force in participating in and exploring crypto businesses;
2) Despite being in a bear market, banks are exploring ways to deploy the blockchain and crypto markets More variety and depth;
3) Asset tokenization, crypto custody services, cross-border payments and other key words currently used by banks in the crypto market.
Crypto business exploration and layout of some banks in 2023
3. Accelerate data integration and banks deepen encryption innovation
As global adoption increases and related technologies mature, the banking industry is accelerating its penetration into crypto-asset innovation and promoting innovation in core banking products and services in custody, brokerage, trade clearing, settlement, payment, lending and other areas. Crypto-assets are also moving towards the mainstream relying on banking business. The asset scale and user penetration rate may grow exponentially, and eventually realize interactive development with the real economy. Each bank is gradually finding the most suitable path to participate in and explore blockchain and encrypted asset businesses based on its own business conditions. However, because the crypto market is still in its early stages of development and there are many gaps in regulatory details in many regions, banks often have to take the lead in experimenting without clear regulations when expanding new businesses, which also means that these banks need to spend more cooperation. Innovate at regulated costs. With the entry into force of the EU MiCA regulations and the gradual improvement of the encryption regulatory framework in Singapore, Hong Kong and other regions, global crypto asset compliance is accelerating. In order to deal with the risks that crypto-asset business may bring to the banking industry, the Basel Committee on Banking Supervision, as the setter of global banking industry compliance standards, completed the standard formulation of "Prudent Treatment of Crypto-Asset Risks" in December 2022, providing Provides a benchmark framework for global banks’ handling of crypto asset exposures. Recently, the committee has proposed disclosure requirements for banks’ crypto-asset exposures, requiring banks to disclose their crypto-asset holdings as a supplement to previous standards for banks’ handling of crypto-asset risk exposures. The improvement of the regulatory framework and the formulation of business standards are instilling confidence in the banking industry to pay attention to and explore the encryption market. At the same time, many banks are waiting for more governments and mainstream institutions to adopt digital assets as a signal to fully develop or expand their crypto businesses < a i=4>. Considering the various government-level initiatives in Hong Kong, Singapore and other places and the strong interest in the release of digital assets, we believe that the signals expected by banks will soon become a reality. When the signal comes, if the banking industry wants to seize more valuable digital business opportunities in the growing crypto asset market, it must provide customers with innovative and competitive products and services. . But if the crypto asset market continues to grow at its current pace, traditional banking infrastructure may soon become obsolete. Banks need to start now to build a new generation of operational infrastructure that can adapt to crypto-asset innovation and lay the foundation for resisting risks and achieving growth in the rapidly changing banking industry. This includes not only updating and upgrading the traditional bank operating system framework, processes and technologies to more securely manage customer assets and handle related businesses, but also requires appropriate technological solutions to solve issues such as business data integration, security audits and compliance reporting. . Among them, on-chain data integration is the most urgent but also the most easily overlooked problem. While blockchain networks contain a detailed history of every confirmed transaction, as blockchain use cases continue to expand, on-chain data will be encrypted and compressed, and will be fundamentally different from the data used and generated by traditional systems , posing huge challenges in standardizing and utilizing blockchain data. The improvement of data capabilities has become a key area of concern for the global banking industry. Having accurate data and ensuring that it can be accessed and shared in all business links in a timely manner is the key to banks winning customers and gaining competitive advantage. Key . While banks have been building data capabilities for years, the pressure to gain data insights to more fully understand and serve customers has never been greater. Customers, especially institutional customers, are increasingly interested in real-time data and are more and more sensitive to risks. These changes require banks to make more effective use of traditional and alternative data sets and establish new partnerships with more third parties to provide customers with better data products and services. For banks that are involved in or plan to deploy encryption business, the improvement of blockchain data capabilities and the integration of on-chain data and off-chain data determine the success rate and final upper limit of their encryption business respectively. The key factors . The lack of blockchain data capabilities will not only weaken the ability of regulatory authorities to supervise and manage crypto assets, but also fail to establish sufficient trust with crypto customers, especially institutional customers. When laying out the crypto-asset business landscape, banks should strengthen the collection and analysis of crypto-asset transaction data in a more rigorous and robust manner, focusing on the integration of public blockchain data and internal business data. To support core business functions and establish a unified view and management system for customers and their on-chain and off-chain transactions to achieve the overall goals of business, compliance and risk management. In order to make up for the lack of blockchain data capabilities, banks are establishing cooperation with on-chain data service providers such as Ouke Cloud Chain and Chainalysis to improve encryption business efficiency and compliance by integrating the technical capabilities of both parties. sex. Bank of New York Mellon completed its integration with on-chain data products in 2022, becoming the first global systemically important bank to use on-chain data products as part of its risk management plan. Large banks such as Cross River Bank and Barclays Bank and cryptocurrencies Friendly Bank has also purchased related products and services from third-party on-chain data service providers. After completing the data integration on the chain, the bank can quickly improve the expansion efficiency of the encryption business, judge the development of the track through the data on the chain, provide support for business decisions, and more importantly, can Gain the ability to monitor and mitigate crypto asset risks with proven on-chain data solutions. Although banks today often have mature AML, KYC and BSA compliance programs in place, for crypto risk exposures, technology and processes need to be enhanced to improve the agility and comprehensiveness of risk identification capabilities. Based on data integration and combining the technical advantages of traditional compliance technology and blockchain analysis technology service providers, the banking industry uses more effective technological solutions to monitor and track crypto-asset transactions and improve Encrypt business security and compliance to protect investors and gain customer trust.4. Conclusion
The rapid growth and integration of multiple technologies such as generative AI, embedded finance, blockchain and cryptocurrency are profoundly changing the operation and service models of the global banking industry. Among them, the challenges and opportunities brought to banks by the proliferation of encryption technology are the most direct and obvious. Although the lack of a clear unified regulatory framework globally may hinder the application of crypto assets in certain scenarios, the predictable regulatory trends and compliance processes have greatly improved the credibility of the crypto business and the banking industry in the future. Entry into the crypto market will be accelerated within a few years and have a huge impact on the speed and direction of crypto business innovation. As long as the external environment does not change significantly, we believe that:(1) The European banking industry will continue to consolidate its leading advantage in the encryption field, Asia and the Middle East Driven by policies and markets, the banking industry will also become increasingly active in the crypto field; (2) The banking industry will gradually form differentiated competition in encryption business. Encryption trading and custody services will become the most competitive but most attractive tracks in the short term. In the long term, the potential of the asset tokenization market is even greater. huge; (3) Banks can start from this stage to conduct scenario planning and pilot exploration around the impact of asset tokenization on business models and the new opportunities it brings for value creation. And in the process of exploration, we will pay more attention to blockchain data and accelerate the integration of blockchain data and traditional business data to more effectively formulate short-term response plans and long-term transformation plans.
Appendix: Cryptocurrency layout of 50 banks around the world
