An air of excitement surrounds digital and tech talk at this year’s Sibos

The conversations around the digital landscape will take a giant step forward this year as the industry has once again upped its pace of technological change and innovation.

This year has been a challenging one for the rapidly evolving world of crypto and digital assets. After coming off a record year in 2021, which saw billions of dollars of institutional money flow into the space, 2022 represents one of the worst crypto winters on record, with more than $1 trillion being wiped off the value of cryptocurrencies. Stablecoins have also turned out to be not that stable, losing their 1:1 peg to fiat currencies such as the US dollar.

Yet, many of the technologies or concepts that underpin cryptocurrencies and digital assets — distributed ledger technology, blockchain, tokenisation, digital currencies — haven’t been fully exploited by wholesale financial markets and could hold the key to unlocking greater speed, efficiencies, transparency and cost savings in payments, securities, and FX settlement.

The financial services industry is also looking to solve age-old problems such as high costs, a lack of transparency, speed, a poor customer experience, fraud, which have bugged banks and their corporate customers for decades, with other forms of new-age tech such as AI, Internet of Things, quantum computing and the metaverse.

Needless to say, the industry’s adoption of cutting-edge digital technologies is at a critical juncture and this year’s Sibos stream ‘Embracing the digital landscape and technological opportunities’ will set the scene for how the pivot to digital is impacting all aspects of the financial services industry — from FX and securities to payments and trade finance. It will also look at the implications of the race to digital for market participants, including banks, market infrastructure providers and corporates, and ask the difficult questions around security, data privacy, interoperability and integration with existing financial infrastructures and participants.

Embracing digital currencies

Discussion about the future digital landscape in financial services will inevitably involve some focus on digital currencies. Not one, but three digital coins will be flipped at Sibos this year in the industry session, ‘Flipping the digital coin: CBDCs, stablecoins and cryptocurrencies’.

“With panelists deeply involved in the development of digital money, the discussion will range from which digital money will survive, what pain points it will solve, and what it needs to be successful,” says Zennon Kapron, session moderator and director of Kapronasia. The panel will also discuss the challenge of interoperability and look at potential outcomes as we move into a world of even more digital money.

…the discussion will range from which digital money will survive, what pain points it will solve, and what it needs to be successful,”

Zennon Kapron, director of Kapronasia

Central banks are tripping over themselves to mint new digital currencies or CBDCs (retail or wholesale) to ensure the move to an increasingly digitalised and cashless economy still provides access to the ‘safest’ form of money, central bank money. While a retail CBDC could address issues around financial inclusion, wholesale CBDCs could significantly cut costs and increase transparency in cross-border payments.

Ahead of this year’s Sibos, two ground-breaking reports from SWIFT brought good news for the development of this space, while also providing a foundation for the conversations to come during the week. The findings show that CBDCs and tokenised assets can move seamlessly on existing financial infrastructure, which has been hailed as a major milestone towards enabling their smooth integration into the international financial ecosystem.

The findings, from two separate experiments, solve the regularly highlighted challenge of interoperability in cross-border transactions by bridging between different distributed ledger technology (DLT) networks and existing payment systems, allowing digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.

Last November, J.P. Morgan and Oliver Wyman released a joint report, “Unlocking $120 Billion Value in Cross-Border Payments,” which estimates that “a full-scale multi-central bank digital currency (mCBDC) network that facilitates round-the-clock, cross-border payments in real time” could potentially save global corporates up to $100 billion in transaction costs annually.

While moving to this new digital world poses significant challenges, the questions of how CBDCs will co-exist with existing infrastructures, and interoperate with one another cross-border has been addressed through SWIFT’s collaboration with Capgemini to achieved CBDC-to-CBDC transactions between different DLT networks based on popular Quorum and Corda technologies, as well as fiat-to-CBDC flows between these networks and a real-time gross settlement system.

The success showed that the blockchain networks could be interlinked for cross-border payments through a single gateway, and that SWIFT’s new transaction management capabilities could orchestrate all inter-network communication.

Nevertheless, the industry session ‘Connecting digital islands: Joining up digital currencies and payment systems’ will explore all the learnings and latest progress from the many cross-border experiments over the past 12 months with CBDCs, also including the ECB’s Digital Euro, and Project Dunbar, a platform for international settlements using multiple CBDCs. Various CBDC models proposed in the BIS’ paper to the G20, regarding options for access to and interoperability of CBDCs for cross-border payments, will also be explored.

Trade, FX and payments in a changing world

As the pace of technological change and innovation reaches breakneck speed, it is not just cash or the flow of central bank money that will be impacted. All aspects of the financial value chain, including FX, payments, securities, and trade will be touched by the inexorable push towards digital.

Various sessions in the ‘Embracing the digital landscape and technological opportunities’stream will touch on how each of these sectors will be impacted, and how they can leverage new tech to transform manual and inefficient processes.

In the world of trade, there is still ongoing debate about digitisation and electronic bills of lading and how that could shift the tsunami of paper that still dominates the business.

And in the more than $6 trillion a day FX market, tech companies, market infrastructure providers and banks will look at how FX should evolve in a changing world.

Arjun Jayaram, founder and CEO of Baton Systems and one of the panelists on the ‘FX For a changing world’industry session, says market access is a big problem for many FX businesses as the high level of settlement risk restricts trading opportunities. “The problem is that access to safe settlement mechanisms such as Payment versus Payment settlement is far from universal,” he says. “Currently, only 18 currencies provide eligible and direct access to PvP services, which are limited to a tiny subset of the 10,000-plus firms that would benefit from direct access to a riskless settlement service for all 120-plus currencies.”

These inefficiencies present an opportunity for blockchain technologies to provide riskless, on-demand settlements that complete with legal settlement finality in a matter of minutes, says Jayaram. “Operationalising the benefits of blockchain in a way that enables capital market firms to take advantage of this technology will have a massive impact on the global FX markets,” he explains. “Blockchain-inspired technologies offer the opportunity to settle FX trades with speed, transparency, non-repudiation, and auditability.”

Blockchain-inspired technologies offer the opportunity to settle FX trades with speed, transparency, non-repudiation, and auditability.”

Arjun Jayaram, founder and CEO of Baton Systems

A blueprint for the future

While FX is ripe for innovation that will allow more participants and currencies to access efficient settlement, the same is true for payments. SWIFT gpi and SWIFT Go represent new standards in cross-border and low value international payments, and further innovation is likely to come from vast technological advancements that are making payments more seamless, and invisible from the customer perspective as they become embedded in apps that customers use in their everyday lives.

Philip Panaino, global head, cash at Standard Chartered Bank expects the industry session: ‘Let’s get digital: A blueprint for the payments model of the future’ will show increasing industry consensus for instant frictionless payments to become the norm for cross-border, especially in light of blockchain enablement. “I think there will be some excitement with DLT becoming a more mature technology,” he says, “as it clearly demonstrates the ability to solve a lot of industry woes whilst offering interesting new opportunities - CBDCs naturally, but also more futuristic aspects like the Internet of Things.”

Panaino also hopes to see discussion on how collaboration is changing in the payments space. “Partnerships are a big theme for us all in the industry,” he says, “and that is a great foundation for innovative solutions for clients, who are at the heart of what we do.”

Another session will explore the G20’s calls for cross-border payments to be cheaper, more transparent, and more inclusive, and what that really means in terms of encouraging wider collaboration between the public and private sectors.

“In order to achieve the G20’s cross-border payments targets, it will be critical for banks to appropriately invest in the right systems, processes and technologies,” said Chris Jameson, co-head of product management, GTS EMEA at Bank of America. “In our session we will explore the main challenges and limitations with cross-border payments, and how we can encourage more collaboration across all sectors.”

Of course, no discussion on a blueprint for the future of payments would be complete without mentioning data and standards.

The session ‘Powering payments: the dawning of a data-rich era’ will explore the systemic benefits of moving to the new ISO 20022 standards, which banks have invested heavily in and are now looking to leverage. Session moderator Liz Lumley, deputy editor of The Banker, will ask panelists how ISO 20022 is enabling better data and how it can be leveraged to increase interoperability, improve financial crime and fraud management, and deliver new and improved services to customers. The session will also explore the systemic benefits of moving to ISO 2022, from a Eurosystem, US and overall customer’s perspective.

“The migration to ISO offers great promise,” she says, “but only if over time there is a commitment to harmonisation across jurisdictions.”