Banks have been talking about using ‘blockchain technology’ for several years now, with several proofs of concept in the works, but never something compelling. This is because a lot of blockchain technology was pitched as a means to cut costs in back office and settlement/reconciliation. What if this is backwards? What if the best way for banks to adopt this technology is not through cost cutting but through new revenue generation? That usually gets banks much more excited than saving some money.
That’s what BankEx is aiming to do. Not just make blockchain technology interesting to banks, but also be able to compete with them, via fintech banking services delivered on the blockchain. This is the start of Bank as a Service, or BaaS as the team calls it.
This will immediately appeal to banks and financial institutions because now they are going to see blockchain not as just another database to reduce costs of reconciliation, but as a source of new business and revenue generator. This is what is powerful about the approach that BankEx is taking with their crypto project.
What else does the platform provide? A big concern revolves around liquidity and transparency in the markets. This is not always obvious to outsiders, but people inside the industry know how difficult it can be to parse what goes on behind the scenes, and how all the assets and agreements come together.
As a simple example, consider the Lehman Bankruptcy that shook the world financial system in 2008, the precursor to the global financial crisis. The way it was entangled in the system was not obvious to any single entity on Wall Street – not even Lehman itself! This is because the instruments are not transparent but opaque. If an entity looks into the system or books, they don’t get much information. How do you solve for this issue of transparency in banking assets in the system even today, 10 years after the financial crisis?
The answer is blockchain, which naturally lends itself to transparency from investors and other market participants. This greatly helps the capital markets and banking both at the same time – which is important for adoption of the technology.
BankEx also hopes to inject liquidity into the marketplace, so it aims to bring different banks on the same platform to trade with each other. This greatly helps with liquidity in the banking system. This is important because now banks can sell their assets more easily, and also due to price discovery. Instead of having to go out and look for a seller, which is usually another bank or financial institution in the same country, the bank can now open it up to literally every investor and financial institution in the world, therefore opening up to a much larger pool of investors than ever possible previously.