Seven opportunities for banks in web3

The web3 landscape is in flux, which mostly comes down to a combination of rapidly evolving technologies and regulators trying to catch up as they shape the space. When this collides with the heavily regulated and mature world of banking, friction is inevitable.

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In this post, we lay out some of the nascent opportunities in this space. We also argue that banks ignore them at their peril – they are attractive here and now and seizing them can lay the foundation for future success.

Web3 is poised to take off

As a bank, if you are already dealing with blockchain or tokenised assets… congratulations, but it's probably still not enough. And if you aren't – why not?

Don’t miss the inflection point

Web3 is still somewhat murky. There aren’t many banks – especially among the established players – that make a significant fraction of their revenues here. But at some undeterminable future moment, this will change. There will be an inflection point that might be triggered by an industry disruptor or simply by the weight of customer demand, followed by exponential acceleration.

This is a familiar pattern, which we have seen with other technologies, especially ones subject to network effects. One such example is ChatGPT for artificial intelligence. We have been talking about the potential of AI for several decades. Then one killer app completely changes the public perception and urgency to act.

A similar inflection point will occur for web3. Those banks with existing web3 capabilities and offerings will take off. The others will be left in the dust. This is reason enough to get in asap. And the good news is, it's not a loss maker even now. In fact, you can profit from existing opportunities and use them to get ready for the big push down the road.

Seize opportunities now...

Opportunities most often arise from a confluence of client demand and the technological and/or organisational capabilities to meet this demand. Firms can seize these opportunities by cleverly matching up supply and demand, creating solutions, and offering them in an attractive and favourable way. It is in this kind of matchmaking, by the way, where Zühlke excels. And we see current opportunities in web3 in everything from crypto and NFTs to brand loyalty and the war for talent. For example…

1. Offer new services for cryptocurrencies

Clients wish to invest in this asset class. Banks need to offer crypto wallets, custody and trading services, differentiating between the needs of retail and institutional clients. On top, banks can provide staking and lending for these assets. They also need to offer reporting services and support the data for questions related to tax valuation. Success means being open to decentralised finance, finding the right talent and partners, and coping with an evolving and uneven regulatory landscape.

2. Reduce cost with distributed ledger tech (DLT)

Running a bank is expensive – especially IT. Using DLT internally can help to automate processes dramatically. Tools like Corda or DAML can be used to revolutionise core processes at banks or exchanges. Especially DAML offers a low-code approach to digitalising business workflows. Regulation plays a key role (eWPG, MiCA) and paves the way to using decentralised approaches in Europe.

3. Issue digital assets as tokens

New regulation (eWPG/MiCA) is opening the door for centralised and decentralised, paperless approaches to issuing assets. Tokenisation reduces cost and opens the market for smaller investors, less expensive assets, and fractional investments.

Banks and stock exchanges can use blockchain/DLT to issue digital assets (e.g. options, bonds, and soon stocks) without a central party.

4. Offer custody for NFTs

The next generation of clients is used to paying with Apple/Google Pay and PayPal. At the same time, it feels scary to them to operate a self-hosted wallet once they collect valuable NFTs (even by accident). The broad majority will want a stable partner and safety net to care for their portfolio – especially when it comes to emotional investments/holdings like digital collectibles. Banks are in a perfect position to fulfil these needs.

5. Use the metaverse to reach Zoomers and Gen Alpha

Today's teens – tomorrow's investors and decision-makers – are growing up with Roblox and Minecraft, paving the way for the metaverse. Marketplaces for digital goods and virtual clothes or avatars appear. Big brands like Nike and Gucci already have a presence. So should banks. The metaverse offers new opportunities to get in touch with the next generation of bank clients.

6. Offer voluntary carbon credits with on-chain proof (ReFi)

Become net zero and insulate your commitment from accusations of greenwashing, for example by engaging with Regenerative Finance start-ups to improve your sustainability story and on-chain proof for CO2 compensation. Banks could also engage with these start-ups and play an active part in voluntary carbon markets, offering these services to their clients.

7. Use loyalty programs to stay close to your clients

Blockchains and NFTs create a whole new spectrum of possibilities for loyalty programs that can be leveraged to increase client engagement. Engendering brand loyalty and visibility become even more important as embedded finance pushes banks away from client interaction.

…and get ready for the big shift – for free

These possibilities only scratch the surface. We would be happy to get into the details – including challenges you may face and how to meet them – or expand upon the list with you at any time. But the big point we are making here is the following:

Web3 unlocks new worlds. These new technologies enable new ways and new (virtual) locations for business. They bring fresh avenues of interacting with clients, many of whom are already increasingly at home in these environments from use cases that have little to do with finance.

In a banking context, web3 is currently at an interesting juncture. As outlined above, the scale and scope of available opportunities alone are sufficient to justify a greater commitment – even if we haven’t quite reached the inflection point. Once it arrives and brings a phase of accelerated development, banks that have underinvested will have a very hard time catching up. In other words, we are now at a sweet spot, where investments are already rewarded here and now, while at the same time allowing you to build your presence, know-how, and capabilities to future-proof your business.

As the tech is still young, and the regulation has yet to catch up across jurisdictions, a deep engagement can be complicated. Ideas and ambitions need to be matched to technology providers and platforms. That's where we come in with our advice and network. Let's get in touch.

Contact person for Germany

Stefan Grasmann

Group Head of Thought Leadership & Chief of Blockchain

Stefan Grasmann is partner and Group Head of Thought Leadership & Chief of Blockchain at Zühlke. He is responsible for the thought leadership program of Zühlke and is passionate about Blockchain technology and Decentralized Finance (DeFi).

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