In the second half of the two-part series on Web3 banking, we continue the conversation with Stella Lim, chief operating office of Partior, on the limitations of traditional banking systems, the roles that regulators and policy makers play within the Web3 banking ecosystem, and how customer demands are pushing banks to stay relevant in the Web3 era.
What issues or problems is Partior trying to solve, and how does Partior solve them?
The banking world today is still undergoing a lot of friction and processes are still very much fragmented. Every bank has its own ledgers and books to record transactions.
Imagine you are transacting with multiple banks and every bank has its own set of multiple ledgers, that could mean once a transaction is completed, the cash is still not settled yet. When that happens, you would have encountered liquidity issues because your liquid assets can’t be accessed simultaneously at the same time. This is so because payments are still based on the sequential model dictated by the traditional banking infrastructure.
The sequential model in simple terms means when you send payment instructions from bank A to bank B, they would have to conduct validation checks and verifications and different banks use different systems or authentication to prove that you are a genuine customer. And if any part of the validation or verification fails during the process, the entire transaction will be cancelled.
So, that is where Partior comes in to provide a global unified ledger system to enable atomic settlement for the modern infrastructure. Atomic settlement enables simultaneous and irreversible transfers of assets or funds between parties, and is based on the principle that either the entire transaction succeeds or fails as a single, indivisible unit. This ensures that the finality of the accounts are updated on both sides and removes the risk of partial or incomplete transactions.
We are able to do that because our platform is programmable and set policies are based on smart contracts. I spoke about cash and assets being on separate ledgers earlier on. Our platform is also highly composable meaning you can put multiple asset classes into one transaction system. Hence, when a transaction occurs, cash is also settled at the same time, which enables a complete, end-to-end view of asset movement.
We are in fact changing the ways banks do business and how money flows by providing the means to access liquidity fully. What this means is that customers no longer need to prefund their accounts to ensure they have sufficient funds to support transactions.
Due to the programmability and composability features of our platform, we are able to facilitate just-in-time funding, which automatically funds an account in real-time during the transaction process.
Deep technology such as DLT has changed how banks conduct business with each other and will continue to do so going forward.
One of the biggest challenges in transitioning to Web3 banking lies in overcoming the institutional inertia of traditional banks against change, especially those with legacy systems in place. How do you instill a mindset change and foster innovation among them?
Blockchain, DLT or Web3 banking are not simply plug-and-play. There are still a lot of misconceptions among banks today on DeFi as they think they will need to overhaul their entire banking system in order to implement new technology. It doesn’t work that way.
One of the very large banks that we have been speaking to is considering replacing its existing core banking and transaction system which it has been using for years but is unable to handle digital assets or DLT demands. The complexity of its traditional system is so mind-blowing that it isn’t something they can replace overnight.
Therefore, DeFi or Web3 banking will need to co-exist with traditional systems for the next few years. Banks can consider phasing out traditional components at various stages of planning and implementation.
To do that, the design of the decentralised system is crucial because banks will need to evaluate and decide which transactions are more suitable to migrate onto blockchain and which to stay on the traditional system, as some countries have restricted policies or taxation on currency and foreign exchange.
Banks also operate in multiple countries and some of those countries may not be ready for blockchain or decentralised technology. Hence, it will be a case of co-existence for the DeFi and traditional banking systems until those countries are set. The DeFi components will allow banks to experiment and undertake projects on tokenised assets during the design phase.
When it comes to implementation, banks will need to map out the required skillsets accordingly to various rollout phases. That is also where we come in to help banks support the existing traditional transactions and enable interoperability with the traditional messaging layer of the financial market infrastructure.
That having said, policy makers and regulators play a vital role here because they not only help spur innovation, they also ensure the industry players operate within the regulatory framework. For an initiative to take off, it requires a lot of education, agreement and collaboration within the ecosystem, and between the public and private sectors.
Regulators are not formulating policies to stifle innovation. They are supportive of inventions or initiatives that can help address problems or improve efficiencies.
Quoting the proverb “It takes a village to raise a child”, China is one such success story when it rolled out its e-CNY where transactions using the digital yuan hit 1.8 trillion yuan last year, which was the highest among countries with their own CBDCs.
The Partior platform supports fiat money, CBDCs and stablecoins, which are essentially regulated currencies and regulated digital currencies. We don’t handle cryptocurrencies. It’s a space where all regulators are still watching closely.
So, it takes a lot of collaborative efforts between stakeholders and countries in order to make Web3 banking a reality.
Precisely. Banks, fintech solutions providers and policy makers across nations are all looking to collaborate with one another so that they can ultimately build a system that is meant not only just for domestic use but is also capable of interoperability with other systems for cross-border payments. That is why Partior’s global unified ledger was created to unify cross-border transactions and revolutionise the way funds are transferred internationally.
What are your technology and business priorities for Partior over the next two years?
We are live now with our cross-border payment clearing and settlement offerings. Next in the pipeline is our decentralised forex payment-versus-payment (FX PvP) solution which helps to ensure settlement finality across advanced economy, emerging market and developing economy currencies.
We are also introducing our enterprise liquidity management solutions and services which are designed for small and medium enterprises (SMEs) and corporates, to afford them with the ability and convenience of performing cross-border transactions with their customers.
You mentioned SMEs and corporates. How can blockchain or decentralisation help banks add value for their customers?
SMEs and the corporates play a very important role in the whole financial services landscape because they are the customers and end-users of banks.
They are the ones that are demanding for better and faster services. They are the ones that require access to liquidity, especially for corporates that operate across multiple regions and countries. Liquidity is fundamental for them because they have to move funds around and need to be able to see how much they have in real time.
With demand comes supply, corporate customers have been pushing the banks to meet their evolving needs, such as performing treasury function, hedging, FX or even lending of funds internally to various business units or departments. Changing customer expectations and increased competition are compelling banks to re-examine their approach to customer service. That is why banks are implementing advanced technologies to help elevate customer experience and enable themselves to stay relevant in the Web3 era.
Can you tell us who are some of the customers that Partior is working with?
Today we are live with J.P. Morgan, which is our main U.S. dollar settlement bank. Likewise with DBS which is our Singapore dollar settlement bank. In the coming months, we are going live with Standard Chartered, as well as other banks in the pipeline for implementation.
These are critical milestones for Partior as we are one of the few companies not in the proof of concept stage. We are really live. So when banks come aboard Partior, they can reap the benefits immediately.
Read part I of the interview
