Digital banking wasn’t mainstream until a couple of decades ago when Web2 came along to move banks and financial services organisations online.
The advent of Web3 is signalling another wave of renaissance in the banking sector. Over the recent years, banks have been experimenting with decentralisation and deploying blockchain, decentralised finance (DeFi), smart contracts and distributed ledger technology (DLT) in the backend with aims to transform efficiencies and sharpen competitive edge. Suddenly, banks are becoming sexy again, at least in innovation terms.
Within the deep tech and fintech ecosystems, fintech companies in Asia Pacific have been prompt in capitalising on the Web3 banking trends. One of them is Partior, a start-up backed by Temasek, which is building a global cross-border payment platform based on DLT to transform wholesale settlement by eliminating disunified messaging, intermediaries and other legacy limitations.
Partior’s proposition is to enable instantaneous liquidity through atomic settlement between assets by instituting a unified ledger that serves as “the single source of truth” across various market participants and infrastructure. The Partior solution is also designed to be interoperable with both next-generation central bank liquidity and traditional transactions processing platforms.
Deeptech Times sat down with Stella Lim, chief operating officer of Partior, for this two-part series to gather her views on the imminence of Web3 banking in Asia, challenges faced by regional banks during the transition, and overcoming the institutional inertia of traditional banks against change.
Lim was most recently the managing director for Asia Pacific at Swift where she spent more than a decade before joining Partior.
How will Web3 change banking?
The term ‘Web3’ can mean different things to businesses and organisations across diverse industries such as supply chain and manufacturing. In banking, Web3 is largely associated with blockchain and decentralisation.
Centralisation and consolidation used to be a common trend among banks back in the old days. When you centralise everything, you also create a single point of failure at the same time. Integration was a feat for many and the stakes were very high.
Why decentralisation has become so crucial today in banking is really driven by market and user demand. How can we become better? How do we do it faster and also more cost effectively and compliant at the same time? These are some of the questions banks are constantly asking.
Partior was created out of the genesis of Project Ubin, which was led by the Monetary Authority of Singapore (MAS) in 2016. The whole purpose was to look into addressing the challenges and pain points facing cross-border payments. From then on, Partior was incorporated as a company in 2021 to continue the project.
How are banks evolving and coping with the rise of Web3?
We have been looking into how banks are evolving from traditional finance to DeFi ever since, and the reasons why they want to do so can be attributed largely to customer demand and how they can elevate the overall banking experience.
Today, the banking and financial services landscape has changed considerably and that has resulted in a lot of challenges for banks and non-bank financial institutions (NBFIs), where they will need to play catch-up with smaller fintech solutions providers that are incredibly innovative and agile.
Over the last few short years, these fintech challengers have mushroomed and they are increasingly becoming a real threat to traditional banks and financial institutions.
Banks are not only grappling with technology advances. They also face losing market share to challengers and new players. Therefore banks need to step up the game, and it’s not about replacing anyone because the ecosystem players are already out there. What they need to do is to co-exist with the ecosystem and continue to stay relevant so that they are not phased out eventually.
APAC is a very diverse region made up of advanced economies and developing nations. What are some of the challenges faced by banks especially in developing nations when transitioning from Web2 to Web3 banking?
If you look at the banking scene globally, you have the U.S. driving most of the developments in the Americas on one hand, and the Eurozone united as one under a single currency on the other. On the contrary, in APAC, the banking sector is rather fragmented with countries steering their own technologies and progress.
We have been talking to industry stakeholders across various countries in APAC and have come to realise that they are all at different stages of development.
For instance, in Singapore, we have several central bank digital currency (CBDC) projects such as Ubin and Orchid, while Hong Kong is developing e-HKD and is looking into cross-border transactions.
In China, the People’s Bank of China is piloting the use of digital yuan or e-CNY. Thailand, Japan and Korea are also looking into CBDCs as well. Every country is getting ready in one way or another. In fact, 18 nations out of the G20 are preparing to introduce CBDCs. In Asia, I think a lot of the emerging economies are already at the planning stage.
Primarily, countries are exploring the use of CBDCs in their own domestic market. Our proposition is to provide support for domestic systems to become interoperable with each other for cross-border transactions ultimately.
That being said, banks will need to prep themselves by first making the crossover between traditional finance and DeFi so that they will be ready for digital assets, such as tokenised deposits, when the time comes.
Digital assets are projected to reach US$2.2 trillion by 2027. So, in order for advanced and emerging economies to transact with each other effectively, they will need to look into interoperability first. This is where Partior comes in to provide a unified platform that is able to support and integrate with existing systems.
Read part II of the interview
