Tokenisation of assets and the role of the banks (2/2)
A conversation with Prof. Dr Hans-Gert Penzel about the future of property. According to Prof. Dr. Hans-Gert Penzel, recognised financial expert, Chairman of the Advisory Board of axytos and former Director General and CIO of the European Central Bank, tokens are already a natural part of the digital world. They allow the end-to-end digitization of processes without media disruption and can therefore be used as a store of value almost anywhere. In quantitative terms, they are presented as highly attractive economically because processes become more favourable, faster and more transparent.
In the second part of the interview part 1, you can read, among other things, what role regulation plays at EU level and what impact tokenisation will have on banks.
What barriers remain to the widespread use of tokens?
In the area of technology, the corresponding protocols are not always sufficiently elaborated and standardized, especially in the case of smart contracts. There is also a lack of convenient, widely available wallets to hold the tokens.
The classification of tokens via taxonomy is incomplete and inconsistent, and the requirements for individual token classes in the EU are not clearly defined. Ensuring Know Your Customer concepts remains unsatisfactory. The magic word is MiCA, i.e. the EU Markets in Crypto Assets Regulation, which will hopefully be adopted and implemented by 2024. But securitization of real estate and mirroring of complex rights will still remain cumbersome.
In terms of cost-effectiveness, the numerous analog intermediate steps have a negative impact on the result, so that perhaps only 20 percent of the envisaged 65 percent cost reduction remains.
In the area of acceptance, too, the cumbersomeness of analog intermediate steps weighs on the balance sheet. Added to this is the difficulty of tracing complex contracts and the fear that the apparent anonymity on DLTs such as the blockchain could dissolve very quickly. From a purely emotional point of view, young people and future generations will probably have fewer fears of contact because they have simply grown up with this technology.
Prof. Dr. Hans-Gert Penzel: “Providers of embedded finance solutions such as FinTech axytos have the enormous potential to put the trader back at the centre of attention while at the same time bringing the bank into the business.”
How do you see the future of the token then?
There is still a lot of work to be done, but in my view tokens have a great future in the long term. They are attractive as a digital anchoring of ownership because of the advantages in efficiency, transparency and speed. However, as described, there are still various hurdles to overcome and tokens will remain in the niche for many years to come. If around 3 percent of European GDP is anchored on tokens in 2027, that will already be a success. In about 7 to 10 years, tokens could then reach the mainstream.
What impact will tokenization have on banks? In connection with tokens, the term embedded finance comes up again and again.
Embedded finance means that the financial transaction is merely a necessary by-product: the customer wants to buy something, so he has to pay or finance it. Tokenization makes the financial steps particularly simple and thus allows embedded finance in the best sense. Banks, as repositories of trust, can also represent the fundamental basis and the end point of embedded finance here with their attached financial services. However, they must begin to build up the corresponding competencies now at the latest so that the advisors can take the customer by the hand and accompany him through all the steps.
If tokens are the future, what do you think are embedded finance solutions and providers that are already helping banks win back market share?
Here I see above all the revival and strengthening of the relationship between retailers and banks through embedded finance solutions in the area of payments. The big BigTechs and wallet providers make it extremely easy for shoppers to pay at the checkout, but they also extract large amounts of data and use it for their own purposes. They thus become direct competitors of traders, unsettle customers and threaten the banks’ core business. Providers like FinTech axytos have the enormous potential to put the trader back at the centre and at the same time bring the bank back into the business. This is done, for example, via an innovative white label approach in which the merchant offers further developed payment methods under its own control and with its own look and feel and thus also the important customer data for controlling and analysing the business remain in its systems.
Such solutions ultimately strengthen merchants and banks at the same time, as banks can also economically map small amounts as instalments or instalment credit with the help of axytos embedded finance.
About the interview partner: Prof. Dr. Hans-Gert Penzel, member of the atriga Advisory Board, teaches and conducts research at the University of Regensburg. From 2004 to 2010, Penzel was Director General and CIO of the European Central Bank, from 2010 to 2019 Managing Partner of ibi research at the University of Regensburg.
Read here part 1 of the interview.
We are looking forward to hearing from you.
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