Navigating an increasingly decentralized world | Finance and Investment

This is what emerges from a study by Capgemini which reports on the latest developments in these different technologies and their implications for financial institutions.

ACCELERATED ADOPTION

In recent months, the financial services industry has turned more widely to decentralized technologies, whether in banking, capital markets, payments and insurance.

Decentralization has its advantages. It enables faster remittances and payments, especially in cross-border transactions, and transactions with greater transparency and immutability. The insurance industry can also benefit from automating several parts of its value chain, including insurance claims processing.

According to Capgemini, today nine out of ten central banks are experimenting with digital versions of fiat currencies in the retail and wholesale sectors. It is in China that digital currencies would deploy the fastest. More than 250 million electronic wallets have been

opened in this country, and by the end of 2021, the value of transactions amounted to more than 85 billion yuan.

A majority of asset managers (72%) build digital asset tokenization solutions. Stocks, bonds, buildings, works of art, etc. Different types of assets can be “tokenized”, which consists of transforming all or part of the value of an asset into tokens (token, in English) exchangeable on a decentralized market. Tokenization can bring operational efficiencies throughout the lifecycle of digital assets – from issuance, distribution, exchange to settlement.

Faced with this transformation, regulators and providers in different countries are setting up pilot projects to better control the exchange and settlement of tokenized securities. This is particularly the case in Singapore and Great Britain as well as on the territory of the European Union.

CRYPTO AND NFT IN STRONG GROWTH

Over the past two years, cryptocurrencies have experienced rapid growth, which even the stock market crash of June 2022 did not really slow down. The Asia-Pacific region is leading in this area, while several emerging countries are also doing it. Major institutions like Goldman Sacks and Commonwealth Bank of Australia are getting into cryptocurrency trading. As for Visa and Mastercard, they have teamed up with partners to offer virtual currency rewards to their customers.

There is also decentralized finance (or DeFi) gaining traction. It allows users to make peer-to-peer transactions through a blockchain without having to resort to an intermediary like a financial institution. However, this type of transaction is more exposed to cyber risks.

On the side of the NFT market, it has exploded in the last two years. Trade in these digital assets reached US$17.6 billion in 2021, an increase of 21,000% compared to 2020, with 2.3 million buyers, reports Capgemini.

The advent of the metaverse could well propel it even further. Gartner predicts that by 2026, a quarter of the population will spend at least one hour a day in this virtual world for work, shopping, education, social activities or entertainment.

Companies are more and more interested in it. Nike launched a pair of NFT sneakers last year in collaboration with fashion studio RTFKT. The American giant has also created its own virtual world on Roblox, an online video game platform, where players can use branded items in their digital version.

The metaverse would be seen as the next frontier for customer engagement in banking. JP Morgan became the first bank to enter it with the launch of its Onyx Lounge online store. HSBC is also interested. She launched a fund to find investment opportunities in the metaverse for her wealthy Asian clients.

Faced with these important advances, Capgemini believes that the financial services ecosystem will converge between centralized and decentralized systems. Before going down this route, companies will need to make business cases and consider the technology challenges that will arise.

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Navigating an increasingly decentralized world | Finance and Investment


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