FUTURE OF FINANCE 2022

Blockchain technology a key enabler to transform banking, investments and insurance

THE use of blockchain technology will help transform financial services, including banking, investment and insurance, as greater efficiency is achieved and more products become available.

Top executives at financial institutions (FIs) expect the use of such technology to be a powerful tool for improving processes, reducing risk, and paving the way for a wider variety of asset classes to be accessible for end-customers.

"The power of blockchain lies in its ability to remove friction in the financial markets, and at the same time, build trust through atomic (instant) payments which result in greater transparency, higher efficiencies, lower settlement risks and economies of scale," said Shee Tse Koon, group executive and Singapore country head, DBS.

"I believe banks will continue to play an evolving intermediation role in this new reality in which smart contracts will reshape how execution can be achieved in a trusted manner," he added.

In 2019, DBS launched a multi-tier financing facility on a logistics blockchain platform to help small and medium-sized enterprises (SMEs) in China get faster access to trade financing. 

The bank has also participated in a pilot to use blockchain-based technology to facilitate subscription, redemption, and record-keeping of retail funds, which could potentially improve efficiency and lower the barriers of entry for retail investors.

"Financial institutions and regulators can continuously experiment and advance breakthrough solutions together to reshape the boundaries of financial markets for its participants," he said.

Meanwhile, Shayan Hazir, HSBC'S chief digital officer for Asean, also called blockchain a "game changer".

"With its ability to join up disparate systems, blockchain is a game changer as we shift from clunky, cumbersome and inefficient processes to fully digitalised end-to-end processes that are faster, more secure, and seamless for all parties involved," he pointed out.

Hazir noted that the technology can help improve processing speed, enhance security and allow for better inventory management in the context of global trade. The bank has been working with a partner to simplify the paper-intensive process for issuing letters of credit - documents that guarantee a seller gets paid.

"Blockchain technology offers a fast and secure alternative, which is helping reduce letters of credit processing time from between five and 10 days to a matter of hours," Hazir added. 

Lim Khiang Tong, OCBC's group chief operating officer, also observed that blockchain and decentralised ledger technology could "revolutionise elements of banking" and said they have implemented such solutions in the cross-border payments and trade finance.

"But blockchain's use has extended even further in the last few years, with environmental, social, and governance (ESG) applications becoming apparent," he explained. "For instance, blockchain technology gives rise to high-integrity, tamper-proof data that facilitates ESG reporting, which would be beneficial as businesses make the shift to more sustainable practices."

Lim added that OCBC expects blockchain to become even more embedded in banking, and they have built core infrastructure to support blockchain capabilities.

"The different parts of the bank are able to quickly leverage existing blockchain capabilities and scale blockchain applications development in areas such as payments and ESG," he said. 

Beyond enabling financing solutions for corporates, the use cases of blockchain also extend to the insurance industry. 

Dennis Tan, Prudential Singapore's chief executive, noted that a potential benefit of such technology is making the claims process simpler and faster.

Insurance customers who submit claim requests typically need to provide the required information for evaluation before receiving a payout. This process takes time as multiple parties are involved and not all data may be easily accessible. 

"With blockchain technology, medical records could be shared between health providers and insurers securely and seamlessly with the customer's approval. This also maintains information privacy while creating a common and standardised repository of health data which customers can share with insurers on a case-by-case basis," he said. 

Tan also observed that tokenisation could support a "more frictionless payment process for insurance premiums", especially for credit card payments.

"Tokenised card details could be used in place of an actual card number for online transactions as instructed by the customer. This can give customer greater peace of mind as their card details are kept secure," he said.

The use of tokenisation also has opportunities for other parts of the financial sector, industry leaders noted. 

Kevin Lam, head of TMRW and group digital banking at UOB, said: "Asset tokenisation is an area that we continue to develop, tapping the best use of blockchain technology innovation to bring positive difference for our customers."

UOB has partnered digital asset platforms such as Marketnode and ADDX for digital bond issuances and for the digitalisation and digital custody of sustainability-linked bonds.

"By improving operational efficiency, banks can reduce operating costs and pass on the cost savings to customers," Lam said.

According to HSBC's Hazir, tokenisation is "set to transform traditional assets such as stocks and bonds".

He added: "Tokenisation of traditional assets can be seen as simply the next evolution in asset representation. With its ability to drastically reduce the manual processes and costs involved in structuring layered products, tokenisation can make a greater range of these products accessible."

Michele Ferrario, StashAway co-founder and chief executive, said that tokenisation could increase "the number and quality of product solutions available to clients".

One example he cited was the access to alternative products such as private equity (PE), which allows customers broader diversification. He noted that StashAway's own PE programme allows investors to invest in PE funds, with less than US$10,000 per fund.

"This is unheard of, in a world where banks typically require US$150,000 per fund commitment," he added.

Brendan Carney, chief executive for Citibank Singapore, observed that fractional ownership of assets could reduce barriers to investment, and promote more inclusive access, including for retail investors, to previously unaffordable or "insufficiently divisive" asset classes.

However, he added that the broader use of tokenised securities also raises market conduct and investor protection implications.

"The handling of the above will be essential in safeguarding investors' interests and ensuring a fair and orderly market for such assets," he said.  "Financial education will be essential for investor protection here, especially given the potential for increased retail investors participation in these markets."

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