BLOCKCHAIN AND BANKS: BETTING BIG

I recalled not too long ago when blockchain technology was viewed with immense suspicion and skepticism. The mere mention of a blockchain technology gets associated with cryptocurrency and with “Silk Road”, etc.

Times have changed (and I feel it was the bold steps taken in the US).

Blockchain technology is not being embraced by some of the world’s most established financial institutions. In fact, banks have been quietly integrating blockchain into their core infrastructure and in the process, transforming how money moves, assets are managed, and trust is built.

We have indeed progressed from the volatile world of retail crypto.

On the Fringe to Foundational

Blockchain’s journey from a fringe innovation to perhaps becoming “the” backbone of the financial sector has accelerated in recent years. According to one source, banks globally have invested over USD 100 billion into blockchain-related initiatives. This is not just about chasing trends, but about future-proofing banking services.

According to a Ripple-backed report, 65% of banks are exploring digital asset custody, and 90% of finance executives believe blockchain will significantly impact the industry by 2028. The US banks are most likely to lead this development.

Reinventing Payments and Settlements

One of the most promising applications is in payment infrastructure.

JPMorgan’s Onyx division, for example, uses its proprietary JPM Coin to facilitate real-time, cross-border payments for corporate clients, processing over $1 billion daily. This system bypasses traditional intermediaries, reducing settlement times from days to seconds.

Goldman Sachs is also making waves with its GS DAP platform, which streamlines post-trade processes for repos and securities lending.

Meananwhile, HSBC launched a gold tokenization platform in 2023, allowing investors to own fractional shares of physical gold with faster settlement and enhanced transparency.

Collaboration Over Competition

Rather than going it alone, banks are forming consortia to build interoperable blockchain ecosystems.

Fnality International, which is backed by Santander, HSBC, Barclays, and UBS, is developing Utility Settlement Coins (USCs) to enable near-instant cross-border payments. Other initiatives like Project Agora and the Canton Network aim to reimagine traditional banking systems with decentralized infrastructure.

These collaborations are nothing short of a paradigm shift from “sand-boxes” and experiments in silos. These developments signal an industry-wide transformation.

Regulation and Public Sector Momentum

Regulatory clarity is beginning to catch up with innovation. Citi’s GPS report highlights blockchain’s role in enabling stablecoins and modernizing legacy systems. Governments and central banks are also exploring blockchain for public sector use, including digital currencies and transparent auditing systems.

And this has spurred a quest for an alignment between private and public sectors in helping banks navigate compliance while pushing the boundaries of what’s possible.

The US has definitely taken the lead. Money laundering, while a valid concern, is more effective when cryptocurrencies become cash, which is at the crypto exchange level. Practically speaking, AML is most relevant and effectively policed at the exchange level. Applying “same risk, same rules” at the retail level kills innovation, and this feedback is being realised.

Challenges Ahead

Despite the momentum, hurdles remain.

Regulatory uncertainty across jurisdictions complicates cross-border operations. Security and confidentiality are paramount, especially when dealing with digital asset custody. And integrating blockchain with legacy systems is no small feat.

Embracement of advanced technology, say Artificial Intelligence and the Blockchain, is no longer optional; it’s inevitable. Practically dictates that our focus will be on markets which are conducive and forward-looking and are attuned to the technological developments at all levels, finance, medical, education and the like.

The Road Ahead

Turning our focus on banks, it is clear to me that banks are not just adopting the blockchain technology, they are trying to redefine it to ensure that their services remain relevant in the present times. As the technology matures, we can expect faster transactions, more transparent systems, and new asset classes that were previously unimaginable.

BLOCKCHAIN AND BANKS: BETTING BIG was originally published in Pundi X on Medium, where people are continuing the conversation by highlighting and responding to this story.