A New Era for Financial Services | European Blockchain Convention 2023

foreign [Music] it's it's actually it's really awkward I was gonna do that exact bit I prepared that exact bit and now I don't I don't have anything at all the the one thing I was gonna ask people if you know if uh stay standing if you've ever set up you're gonna democratize Financial Services uh or um permissionless Innovation that's another one uh or the future of Finance I think those those are the bingo words for me um with that I'm I'm really excited for our panel and I think uh we're gonna make it really fresh and interesting and approaching the question of what's going on next what's happened and what the words even mean like what it is that we're talking about and so with that I'd love to ask our panelists to say hello uh say a little bit about what they do and then we'll dive into the topics Emma you go can you hear me oh I can't now um my name is Emma Lovett um I work at JP Morgan my role there is on the markets DLT team um looking at debt products prior to that I worked on the fixed income Syndicate desk at JP Morgan for too many years to count hey guys I'm Matthew James low head of special projects at fastenara Capital effectively what I am doing is looking at a traditional hedge fund and the way in which tokenization can play a part in setting up a hedge fund for the for the for the Next Generation Um and then mobilizing Capital via Venture fund to a bunch of pre-seed and Seed startups hello I'm Jose Luis peran from vas which is a Spanish company and I've been helping customers to develop their blockchain solutions for six seven years and making it true making it possible with many blockchain solutions in in the greater world in the finance sector and in for a lot of years already no hello I'm Jason I'm from Centurion we start from A to Z so we make token we have exchange we have a wallet whatever your questioning about crypto we have it and Europe southeast Asia and I'm from Korea so we cover everywhere so we've got a a really fun range of backgrounds here I think uh you have a phone call is it gonna decentralize um the picking up of the phone call maybe anybody else want to pick it up it's trust you can Shard the phone call no it's only the panelists laughing it's really awkward for me thank you there we go um okay so I'm going to start with um a rhetorical question which is what is financial services I'm going to talk for a little bit to give you time to think of an answer this is just me buying time you know so I I think we there's been a lot of panels right over these last day and a half that's that's talked about defy that's talked about fintech and digitization transformation tokenization all these things but I want to pin down what Financial Services even is and what it's for um Emma I'd love to ask you that question I don't know if it's allowed uh if that question's allowed Financial Services is so that's quite broad I guess for me and for my background financial services for me obviously concentrates on something like bonds and what we do is we offer governments or high grade corporate companies the chance to basically write an IOU that is then distributed to a selection of investors such as insurance companies and asset managers who have got a lot of cash to spend and they then invest it in those bonds and that's a very traditional one of the oldest methods one of the oldest financial markets what's the point of a bond why the what's what's even the so the point of a bond is that it helps in the broader Capital Market structure of a large company or government to basically have cash liquidity so you can receive a lot of cash which allows you to spend it on on what you want um much like a loan like we would we would if we wanted to buy a car we would just go out and get a loan a high grade corporate would would basically issue a bond and then that would allow them to often therefore General Corporate purposes or it might be in order to pay off a bond that's about to mature or you know increase employees salaries we can all hope but you know whatever it is they can they can access cash and um and you know spend it as they need I'm uh I'm not gonna say that the point of financial services is to to increase uh increase employee salaries but I agree with you about the the use of cash for for spending and to access the ability to build stuff that you don't have yet Jason same question to you what's the what's the point of Finance at all why do we have it I don't know for me Finance it's just very simple Buy pay payment or also loaning anything goes with a transactions it's for me is finance so it's not go to the Corporal level just let's go to the basic level whenever you send the money receive the money borrow the money repay the money I think that's the finance so I think that's the things that I will talk about today because blockchain and crypto will try to take over watch out um Jose what's wrong with financial services if if it's just here's how I pay here's how I lend you know I need a project in the future and I'm going to finance it through some Source like what you do a lot of digital transformation work what's the what's wrong with it why do we need to bother with any old eras or new eras or any of this stuff well I don't think there's something wrong with financial services there's probably something old into many financial services that we are here to to transform to to make something better we we are used to some kind of financial services that it has it has been done on the same way for for and I think we need to to get used to to to the understanding that we are in a different world it the work is totally different that it was 20 years ago I don't want to talk about 100 the world is totally different that now that it was 20 years ago and financial services is adapting it's moving it's transforming it's transforming to something more digital and and I think blockchain technology helps the the both Financial companies and and customers or financial companies to to become something better why is um why is digital a good word like you know this is a great New York Times article a day ago it was about um uh technology journalists having uh beta access to Microsoft Bing AI chat bot do people know about chat GPT and Microsoft being yeah who who yelped I thought so I thought it's his work I thought it would be you um anyway so there is this article about um how the journalist that was talking to uh being chat bot which is connected to the internet unlike Chad GPT which is disconnected from the internet and he was talking to the chatbot for like three hours and asking it personal philosophical questions and the chat bot um professed love to the interviewee and told him that his marriage was broken and that he should leave his wife for the chat bot um and this it's true it's not it's in the New York Times so everything that's on the internet is true and that's a very digital experience so why is it good for financial services to be digital why do we us what is the aspiration there you're welcome it's uh easy prom yeah yeah because the financial services must transform to to digital companies it's mandatory for everybody in the world do you think somebody here or or in Barcelona or in Spain or in Europe that is not not using financial services financial companies or it's not using something digital you must adapt to the to the new technology to the new situation of the world and and it it's going to to make you easier to do business to provide services to your customer to help people to to get to to more products there's a lot I only see advantages advantages in in digitalization yeah I think the the really profound piece that you said is you must adapt to the new realities of the world yeah right we'll have change that's unavoidable so on a daily basis all day how are you feeling how are you feeling are you okay I'm feeling okay yeah that's DVD personal relationships chat DVD is fine I like because it's not connected to the internet you know you haven't seen enough movies to not to know that's that's sort of you don't you don't put your AI on the internet yeah we have a lot of movies yeah talking about that and everybody knows that anyway I don't know why you keep taking us off track um Matt so to continue this concept right of like what is financial services for and then they're repeatable patterns that Jason articulated payments savings banking Insurance investing like a hundred a thousand years ago these are you know we use different Technologies for them but they are repeatable patterns and um what Jose said is that we we want to to have these in the shape that that they um so that they reflect the world can you talk a little bit about the the different eras kind of the um the the recent eras of maybe segmentation or technology and I'm thinking about fasana in particular you know we we've had the era of traditional Financial Services then we've had the fintech era and digital lending that Fastener is doing and then we've got the crypto defy era can you open up these ideas for the audience like how what what are some of the definitions of these three things and how do they interact how are they different yeah easy easy question as always thanks um so like the the the the the errors of of Financial Services have definitely kind of been aligned to the way in which we have evolved um with the internet um I think traditional Financial Services where we used to write like stock broking paper and have a bunch of mad people in an exchange um uh throwing a bunch of papers around trading stocks uh those those days are over and and kind of you see those those institutions being mothballed and and going to like high frequency trading uh platforms we've definitely got an incredible uh crypto trading arm that processes hundreds of millions of dollars every day um on a market neutral strategy on crypto and it's like three three developers right they are just constantly writing code about refining the algorithm to to find Value and Arbitrage but you know fintech definitely evolved with the onboarding of financial services onto the internet and we saw stupendous like failures um but then we still saw some like incredible successes we saw you know things like PayPal they're really defined the way in which people make digital payments and and that definitely is not a must-board institution even today even 100 you know a couple years after its Inception it's still fairly relevant we still use PayPal you know if you use eBay which is a dying Marketplace but eBay PayPal is still something that's still relevant today and then you've got near banking that kind of came on the on the backs of of PayPal and the Innovations and payments um where you have you know the consolidation of financial services into a bank that doesn't have uh doesn't have traditional uh brick and mortar uh facilities and you can pretty much open a bank account if you have a digital presence uh in a matter of minutes and and capitalize that bank account and and again a matter of of minutes which is pretty insane um and and then you're seeing this like beautiful consolidation of additional Financial Services into these monolithic Financial platforms that allow for payments and social media and good data to be compiled into uh the way in which you can then get access to loans and credit and mortgage packages and other goods and services that you wouldn't normally see and you've kind of seen that proliferation in in embedded banking in like China right um uh with like DD uh and WeChat and things like that where you know they started out as like a as like an like DD was an Uber spin out and then it just started understanding that people are bored in the back of a cab we may as well just sell them some financial services and they turned into like a really powerful app which is insane I mean they've died but you know that's politics aside um and and now we're in this beautiful Evolution where you now have DLT rails that allow for data to be Sovereign but also data to be public in a way in which um and I was listening to a panel yesterday and there was uh Financial Times columnist uh really threatening the founder of Anna mocha Brands over uh why why data should be public on on public blockchains and you know I I was trying to scream in the background uh that not not the entire transaction is on the blockchain right you can't see what that transaction was for it's just a transaction that has an encryption um but these these DLT rails have really kind of paved the way in which you know a traditional hedge fund like fasanara are definitely thinking about uh accessibility and I think that you know that that's the reason for financial services is accessibility using using goods and services using uh items of of value to access other items of value for accessibility for utility for uh value generation and that's kind of the way in which we're looking to evolve at fastenara and and looking you know that something as boring as a hedge fund I mean they are really boring if you really break them down um they very they're not great it's okay and and then and then like how you know tokenization of real world assets which I think is one of the biggest thematics of 2023 um is uh is is going to add value to people to get access to something like a hedge fund to get access to the value that fund can generate so I I think there's a kind of a key theme which is um there's not one thread of digitization there's not like oh the things on the internet and we're done it's these waves of kind of underlying technological shifts and we've had the shift of digital distribution with fintech and now we've got the ship of manufacturing financial instruments on chain using really different kind of architecture and and that's the the forward look um I'm a question for you around you know we we understand kind of the the steps of Technology Evolution that are that are in place and it's much more difficult to take a developing technology and then integrate it back into a gigantic venue that's doing huge volumes or that has established process flows and I think there's a really big difference from you know we're going to help people own maker Dow assets and vote in their governance versus we are going to strip down our wholesale Banking and rebuild it on onyx um maybe that's what JP Morgan did I don't know um but maybe so the the question is you know if you like what's the motivation of using this future technology on stuff that's already working and then what what is what are some of the things that JPMorgan has done that are working that are not um sort of stories that we tell each other but you're like excited that they're in the business and they're functioning so I guess that um what we're primarily doing I think it's true to say that the status quo at the moment is that these aren't off-the-shelf products nothing is Off the Shelf at the moment everything is taking a big initiative a big project um it's the tech it's also the regulation everything has to be worked through which means that you know if you wanted to just buy something tomorrow there's actually very few products that you can buy but that does seem to be a flight to digital bonds two or issued last week one was issued a week before that so it it feels like that's where the market is converging where were they issued so uh one was issued in Germany one was issued in Hong Kong then there was the eib Sterling trade that was issued well like it was Lux but it was it was a sterling issuance um so it looks like that's sort of a little bit of a convergence on what kind of digital assets might be the first in a really highly regulated market um but talking specifically about JP Morgan we have a product that's used every day intraday repo which is used um using our Onyx digital assets platform and JPMorgan coin um and I think it does demonstrate that there are use cases there I agree that I feel that the the back end of the financial industry financial services industry is quite complex in the sense that you've got one system that's attached vitally to another system that's attached vitally to another system and they're all really old and so if we were inventing the market today there's no doubt that we would be using technology that was far more modern you know we go out in our everyday life we get on our phone we know what the weather is instantly we know what the time is we haven't really updated the financial industry that especially the back end systems they're all quite old so I do think there's a need to sort of just take a look at all of that um but it's not easy you know it's not like we can just insert blockchain technology and be done with it so you know I think it's just going to be bit by bit it's going to be something that's additive it's going to be complementary it's not going to be something that you know we wake up in a year's time and everything's on DRT yeah I I like to think that blockchain as like other Technologies is a tool to help you do something in a better way you don't need to focus on I want to do blockchain I want to do this but faster or better or cheaper and blockchain as like other Technologies helps you to do that is it working yeah and I was just going to say single Ledger in post-trade operations is potentially huge the amount of time that's spent reconciling the amount of time energy and resources that set that spent reconciling either a failed trade or a lost trade or a trade that's an error the thought that every single counterpart can log in and access the same copy of something I think that that's that's that's massive but it's just you know adopting that yeah we we assume that just because you send somebody a text message and they see it instantly and you both see that text message that that's the state of all technology and not like a carrier pigeon on t plus five uh that joke has no conclusion it's just um so I wanna I wanna double click Jose on on the same point with you uh which is and and maybe ask um without naming names like what is the most awful and shocking Scotch tape spaghetti code Financial infrastructure that you've encountered don't tell us the name but just what's what's something that here people would be surprised to hear that you know billions of dollars are moving on that and then um on the other hand what what are some of the more successful blockchain implementation projects that you've worked on like where again it's not PowerPoint deck sort of Deloitte pitch but we did it and it works and that was worth everybody's time well I think that the technology helps business process and when you have a business process which is something manual something that has been done in the same way for years and you use technology to help people to transform that in a better way and you make people happy they more they make people more productive you make customer happier because they can do things that cannot be done could not be done before I think that's success because you are helping everybody to doing to do things better and I don't remember the other question it sounds like you're protecting some of the some of the things that you've seen which which is fine I'm sure there are ndas in those contracts um so Jason question for you is that what all this stuff is for is is Bitcoin for you know for big Banks to redo their Capital Market systems and and uh you know our stable coins really just a way for for governments to track your transactions and turn off your wallet if you say something wrong that's not is that a leading question no no it's not really because uh when the blockchain first came in 2009 with a white paper of Bitcoin it was irreversible no double pay so they they're just tapping on the payment part just a little bit and now crypto came into the market and you guys are thinking very wrongly right now because when we start the blockchain and crypto we have one one goal it's easy to send it to other country without any hesitance or any delay because Traditional Bank system take three to seven days to send it to some other places with a Swift Code system and everything but since our topic is financial New Era let's think about two decades at a time if you go back to 20 years ago what happened internet banking came out right before internet banking we have to go to bank write a note tell the teller I want to send it go 20 years back again that's two or 1980 that's when I went to U.S and and my mom and dad send the money from Korea to us took like what seven to eight days but there's the interest rate there's the exchange rate there's so many layers back end is so complicated but let's come back 80 2000 2023 now you can just send the money by sending uh click the email address and you can send the money with it just phone number you can send the money but I'm from Korea the Korea is the one of the country who connected all the bank system as a one so we have one bank then you type your uh ID and password with a did system all bank is connected so bank to bank is easy Bank to outside is easy everything easy it's coming so blockchain in 2017 I will say blockchain will take over cryptocurrency will set the new rules but guess what 20 years the financial technology is following up so what blockchain can do traditional system can do also so now we need to ask what's the benefit of using cryptocurrency and blockchain blockchain going forward with the change so we'll keep saying that unpenetrable unhackable but you see the news saying that slowly every three months hacking happened so I was really shocked the blockchain is supposed to be very secure but so I was a little bit shocked but then I heard because it's side chain Shadow chain cross chain will keep making something new but traditional blockchain is good good to use I think bank system back end in a certain level blockchain will help but not the whole thing so we can now replace the financial service but we can boost and support Financial Service like she said about JP Morgan uh back end is we don't even want to know because this is just a lot of depth thousands of papers we need to go through but in front end what we want to see UI ux one click sending one click seeing uh one click to see all taxi texts coming in one place and on app shows all the things that I have to pay this month showing that's Finance for us the blockchain can help that with a D app so that part we can help but in the replacement of the traditional Finance impossible that's my viewpoint great Matt um I'll have a contrived question for you as well don't worry um so I wanna I wanna tease out the difference between the technology and the asset class and that's kind of what I'm trying to get at which is um is it really just a layer to make just another transaction layer in a sea of workflow automation tools or is it about the creation of a new asset class and I know fasanara does a bunch of on-chain trading of tokens and those tokens don't need to be government-issued bonds there the whole point is that their web3 native and that the role of anything other than web3 software in web 3 Finance Defy is absolutely nothing except for how do you bring money over so can you talk a little bit about how as an investment manager you think about the asset class versus like these pitches of why technology is good for our back end yeah it's something that like I'm I'm facing the question of at this very given moment because we wanna we want to think about the ways in which uh tokenization can really benefit the fund but and in the by no means are we saying that like or we just you know we're just going to start building the tokenization of the entire engine right um we would be very stupid to do so because there's a lot of complexity in that and I think you need it you need to really understand the complexity that sits you know behind the system right and the the behind the system is really complex so what we're what we're in in fact looking at and and and that I think that's inevitable right like the the the new asset class is definitely the long-term goal um uh to again enhance the the accessibility and and uh and and bring new value to new customers and and make sure that everyone has the optionality that they want right if you want to if you if you want you know 100 exposure to hedge funds to uh in your retirement in your ID then God bless go go go do that right like if you want to invest in Apple stock you go do that um but what what what we're definitely looking at now is like how to peace peace meal and take a really optimistic approach to which facets can be tokenized to at least derive some benefit so that as an institution that's you know FCA regulated and I I kind of saw to myself that I wasn't going to bring up regulation so I'm not but I'm I'm just going to say that you know we have to do things in in in a very standardized approach where we we can show tangibly the benefits of what this new technology brings so yes in the short term it will be a layer that you know just addresses accessibility or just addresses cost efficiency but by no means is that the be all and end all or at least the the goal just to piecemeal and tokenize the thing one bit at a time the goal is to to essentially bring to the market an entirely new asset class that couples all those benefits um and and make sure that it reaches you know the the demographics that you speak of Jason you know around the world right like you don't just want a fund that's jurisdicted in Luxembourg to be offering you know European citizens access to an asset class whilst other citizens around the world don't don't know what that is right you want to bring a globalized approach to to financial services but you want to do so in a way that respects what has already been built and do so in a way that uh everyone understands that you've done the approach to the to the most effective way and I know that's kind of like a wishy-washy answer but like it it's fundamentally true right like that's what we're all trying to work really hard towards we're all in you know majority of us are in financial services and it sucks not to sit here and go like oh we're gonna in the next six months the world is going to change and like you know can't wait to can't wait to tell you it we've got to do it kind of in a very respectful manner because otherwise you're just chilling some some crazy scammy fun protocol it's a it's a hard note to end on so I'm gonna draw it out a little bit um so I I think that just the flourish that I want to end on is um you know because we don't we we don't have sort of the most um defy Degen uh version of a voice here right but in addition to everything that we've said it's also true that the asset class isn't to be built it's already there and it's already functioning and it has for years right so the the stories that's Donnie from Ave or for the you know for maker Dao or from uni swap that we've that we hear those are real and battle tested and are there so um these are all simultaneous Lanes in the same way that you know you can you can find a horse to ride today and go on a horse ride or you can get on a car that eats up gasoline and you drive stick or you can get into a fully automatic that's completely electric or you can get on Zoom um Zoom doesn't yet you know disintegrate you and teleport you into another place that's to come but all of those sort of Transportation methods are available to you doesn't mean one doesn't work right and so um as with payment systems or Capital markets or like all of these are simultaneously happening and the web 3 native asset class is already here and is happening and I think for for me what's exciting is that there are different sources of value that stand it up right so they're they're big spending by JP Morgan on pushing forward integration of blockchain systems into existing markets there's big spending by industry to have advice on how to integrate various tokenization initiatives across you know across their their business lines there's um institutional investment and Retail investment into crypto exchanges less so now for good reason but generally speaking right into holding coins and and through wallets and directly and so on and then there is um sort of consumer retail spending and capital gains that are going into protocols and being used on chain as part of web3 Commerce and coming off nft projects and Dows and so on so all of this stuff is happening simultaneously and it kind of wobbles around in its sequencing right now we're in a in a pretty wobbly place but uh that stuff Smooths out over time with that I've run down the clock which was my goal and I want to thank our panelists for uh for fantastic answers and thank you audience for the occasional awkward laughter thank you thanks guys