Behzad shed light on the complexities that traditional banks face, particularly in terms of moving money globally. He highlighted the limitations of current infrastructure, operating on a non-stop, 24/7 basis due to overlapping business hours across different regions.
Additionally, of course, the outdated technology running on legacy systems poses a significant hurdle. Upgrading this technology is a meticulous process, given the critical role it plays in the financial ecosystem and the stringent regulations banks must adhere to.
“It makes it quite tricky just to swap one bit of technology out with the other,” explains Behzad.
Behzad emphasised the potential of blockchain and distributed ledger technology (DLT) in addressing banking challenges. He outlined key advantages, including enhanced transaction efficiency and speed, automation through smart contracts, traceability, and improved security.
“The fact that you have one version of the truth and it’s auditable is hugely beneficial,” says Behzad. “The fact that we can encrypt transactions on the blockchain, we can use cryptographic proofs, means that the security benefits actually are fairly substantial.”
These benefits, he argued, could lead to substantial savings and increased capital availability for banks willing to adopt DLT.
Three pillars of transformation
According to Behzad, the adoption of blockchain and DLT in financial services revolves around three core pillars:
- Firstly, the efficiency gained in managing financial resources; with potential savings reaching $100 billion, as estimated by the Global Financial Markets Association.
- Secondly, fostering innovation by enhancing traditional banking products and services and adapting to emerging industry trends like the decline of physical cash and the rise of digital ownership.
- Lastly, the tokenisation of illiquid assets – such as real estate – creating a potential $16 trillion opportunity by 2030, according to the World Economic Forum.
Behzad discussed Deutsche Bank’s strategic approach, highlighting the importance of custody and management of digital assets as the starting point—stressing that building custody infrastructure lays the groundwork for enabling other blockchain use cases, such as on-chain digital currency and wholesale settlement.
Addressing risks and challenges
While acknowledging the positive strides in blockchain and DLT adoption, Behzad highlighted inherent risks—including limited intervention capabilities in erroneous or fraudulent transactions and concerns about obfuscation through mixers and tumblers.
To counter these challenges, he outlined efforts to enhance risk management frameworks, transaction monitoring capabilities, governance, and KYC capabilities.
However, Behzad is less optimistic on crypto ever being used as a stable form of payment.
“I don’t see that as a viable solution for the financial services industry at large,” explains Behzad. “I don’t think regulators see that as a viable solution either.”
Behzad concluded on a positive note, expressing optimism about the accelerating pace of blockchain adoption. He highlighted increased regulatory clarity, solutions addressing interoperability challenges, and the active involvement of banks, FinTechs, and other financial services counterparts in building a collaborative ecosystem.
“Ultimately, no one bank or financial institution can win this game. It’s an ecosystem play. It needs all the other banks to play. It needs FinTechs to be involved. It needs CSDs and other financial services counterparties to be in the mix,” concludes Behzad.
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