Category: Banks

Fireblocks advances DeFi in capital markets

On By mehranmuslimiblogIn Banks, cryptoLeave a comment

You may have noticed mentions of Fireblocks across a range of crypto-related articles. Now the crypto custody market has partnered with FIS, the Fortune 500 technology provider to banks and capital markets firms, to offer crypto services.

This deal will enable FIS’s 6,400 clients to access large crypto trading venues, liquidity providers, lending desks and decentralized finance (DeFi) applications. Who are FIS’s clients? A mixture of asset managers and hedge funds, as well as banks and brokers.

Adam Levine, Fireblocks’ Head of Corporate Strategy, said, “This is going to be a great opportunity to empower FIS’s clients to access all the weird and wonderful things of digital assets. Whether that’s holding a variety of cryptocurrencies, making payments on stablecoins, accessing lending and borrowing platforms, or accessing permissioned DeFi, which is appropriate for the regulated institutions that we’re talking about.”

It may seem like just another day, another deal. But, when you look at how regularly we are seeing similar stories in the crypto-related media, it is a clear indication that institutions are edging closer to crypto – provided the right sort of know-your-customer (KYC) is made available to them. In this case they will have been reassured by Fireblocks’ close relationship with Aave Arc to provide just this kind of support. Levine said, “FIS clients would absolutely have the opportunity to participate on Aave Arc; obviously, they will have to go through the KYC-related whitelisting process, which we don’t anticipate being a challenge.”

FIS is in a strong position as the big banks explore crypto products, even if they just dip their toes in the water with crypto derivatives. John Avery, FIS head of product for digital assets explained that since FIS is a fintech provider with 30 years of experience, they are well-placed to provide what the big banks are seeking. Avery said, “There are investors who will seek out synthetic exposure as their only means of access to crypto and digital asset investing. But for the market makers and the brokers, they will need access to the underlying physical assets.” He added, “The appetite of traditional clients to control their own wallet technology and get exposure to different types of these assets will grow over time, either for their own portfolios or to support their structured products or derivatives businesses on top.”

Big banks in the crypto space

On By mehranmuslimiblogIn Banks, Bitcoin, cryptoLeave a comment

It was inevitable that banks would be unable to resist entering the cryptocurrency space, and more of the biggest US banks are in it than you might think. So, who exactly is taking such a ‘risk’, as the US banking regulator put it?

It seems that Bank of New York Mellon was the first to enter the fray in February 2021 with its offer of holding, transferring and issuing Bitcoin for asset management clients. The clients will be able to store BTC and ETH in BNY Mellon wallets, which have been created in partnership with Fireblocks. The service hasn’t launched yet, but is expected this year.

Bancorp’s Bitcoin custody service went live in October 2021, with NYDIG, a Bitcoin company, acting as sub-custodian for the bank. And State Street Corp said in March this year that it intends to offer crypto custody services in partnership with infrastructure platform Copper.co. This, according to the bank, is subject to regulatory approval.

Deutsche Bank is planning to develop a service to hold and trade crypto for institutional investors, and has already completed a proof of concept, although it is keeping this move very quiet indeed. Similarly, BNP Paribas has also completed a proof of concept with wallet provider Curv. The plan is to develop a secure method to transfer tokenised securities.

Wealth Management Clients

Banks have been rushing to offer their wealth management clients exposure to crypto, starting back in 2021. Morgan Stanley is the pack leader, according to CNBC. It reported in March this year that Morgan Stanley is enabling access to three Bitcoin funds for clients with at least $2 million in assets held at the bank.

JPMorgan Chase is allowing its financial advisers to accept buy/sell orders for five crypto products from its wealth management clients, and Wells Fargo has been offering something similar since 2021. Indeed, both JPMorgan and Wells Fargo have registered private Bitcoin funds with NYDIG.

Citigroup now has a digital assets group, and Goldman Sachs is offering wealthy clients access to an Ethereum fund via Galaxy Digital.

Trading and Research

You will find the same names in trading. Goldman rebooted its crypto trading desk in March 2021, and in March this year became the first US bank to carry out an over-the-counter crypto trade in partnership with Galaxy Digital.

The big banks are also putting a lot of money into research, particularly Bank of America, Citicorp and Morgan Stanley, with all of them creating new departments and opening up new job roles.

And there you have it – big banks aren’t really as crypto-averse as you might have thought.

Consumers want banks to offer crypto

On By mehranmuslimiblogIn Altcoins, Banks, Bitcoin, cryptoLeave a comment

The crypto market saw a sudden uplift on 15th March, following a few days of sideways trading. According to Ron Shevlin at Forbes, Biden’s recent executive order regarding the responsible development of digital assets helped lift the price of Bitcoin, Ethereum, and other cryptocurrencies.

Ari Redford, Head of Legal and Government Affairs at TRM Labs, offered Shevlin a neat opinion about its effects: “The executive order is really a call for coordination—playing quarterback to ensure that regulators are working together to feed into a clear and consistent framework for crypto regulation rather than engage in disparate work streams.”

This is important for traditional banks, and it should encourage them to engage with cryptocurrencies. They would be foolish not to do that, since many Americans are demanding to be able to purchase crypto directly from their bank, rather than use a crypto exchange.

For example, a very recent survey by Cornerstone Advisors conducted in February 2022 found that “one in five American adults hold some form of cryptocurrency.” The generations that favour crypto are Millennials and GenZ, with Gen X trailing a bit behoind, and the Boomers solidly rejecting the idea of crypto.

Twenty-five percent of Gen Zers already own crypto and 29% plan to buy it within 12 months. Thirty percent of Millennials already own it and 27% will buy it this year. Furthermore, among the Gen Zers and Millennials with crypto, 40% bought or sold it five or more times in 2021.

With regard to banks, the survey revealed that around 50% of Americans that already own crypto would “definitely use a bank to invest in crypto if they could, with another 42% indicating that might do so.”

But banks don’t seem to be getting this message. Shevlin writes: “According to Cornerstone Advisors’ What’s Going On in Banking 2022 study, just 1% of US banks provided cryptocurrency investing or trading services before this year.” What is more, only 1 in 10 American banks plan to offer a crypto service in 2022. It seems that although regulators are trying to make it easier for the banks to become involved, bankers are still tied to their old views.

One senior bank exec told Cornerstone:

“Why are there more cryptocurrencies than US banks and credit unions combined? When is the consolidation and fallout going to occur?”

While another said: “Cryptocurrencies aren’t stable enough to be a legit payment mechanism as the value could fluctuate during the transaction. Instead of pushing crypto ATMs and ways to create your own currencies, it would be great to see more focus on how to solve issues like unaffordable housing and the student loan.”

It seems he’s missing the point, and indeed, the demand. Although nt all of them are so blinkered. One banker actually sounded positive, commenting, “We need to accept that cryptocurrency is here and start planning TODAY on how to approach this and not wait until it’s too late and we’re reacting versus planning.”

We know that banks are risk averse, and have consistently issued warnings about the risks they see with crypto, but it would seem that based on the consumer view, the biggest risk to the banks is not getting involved with cryptocurrencies at all.

The financial sector needs AI

On By mehranmuslimiblogIn AI, BanksLeave a comment

How can artificial intelligence (AI) support banking services, and are banks looking at it favourably, are two of the questions that Insider Intelligence’s AI in Banking report sets out to answer. In response to the second of those questions, it appears that 80% of banks are highly aware of the potential benefits presented by AI.

The scope of possible uses for AI and machine learning in finance stretches across business functions and sectors. At present, the technology is being widely used in upgrading customer services, looking at new ways of segmenting clients in order to offer more bespoke products, as well as fraud prevention and loan assessment, and there are many more opportunities to expand it.

In customer services, banks now use AI-based chatbots in order to provide customer services and support on a 24/7 basis. The bots, as many of you have probably experienced, have been ‘taught’ to answer basic customer questions via an instant messenger interface. They are able to provide fast and relevant information and support to each user and drive tailored interactions, and the more sophisticated the chatbots become, it is anticipated that customer satisfaction will rise in tandem.

Client segmentation is an interesting one. It divides bank customers into groups based on common characteristics, such as demographics or behaviours. Here, AI can seek out patterns within client data quickly and on a huge scale, creating outputs that would otherwise be unachievable through manual means, or at least would take an exceedingly long time to process if humans were performing the task.

In loan assessment and fraud prevention, AI also uses its pattern recognition skills to search out irregular transactions that would otherwise go unnoticed by humans but may indicate the presence of fraud. In this respect, AI is a great tool for banks to assess loan risks, detect and prevent payments fraud and improve processes for anti-money laundering. For example, Mastercard’s Identity Check solution developed in Dublin, uses machine learning capabilities to verify more than 150 variables as part of the transaction process to help reduce fraud, thus giving merchants more confidence.

These examples are just the beginning of how AI can benefit finance, although it is important to consider that with increased use, it is imperative that controls on how AI is set up and applied are put in place to ensure systems are robust, fair and safe. For example, an AI tool that has not received the necessary guidance and proper training can output responses that lead to unknowingly biased decisions, with potentially damaging consequences.

It is essential that responsible governance of solutions plays an important role in the successful deployment of AI. It is only by keeping models tight to their tasks and free of bias and error that banks can be sure of the best results for all.