EN| Banking and Digital Assets: From Myth to Transformation | MERGE Institutional Summit São Paulo

And to kick off we've got a great panel. So, can I ask you guys to get teed up here? So, we have Luis Ayala who is the head of Latin America for BitGo. One of the premier institutional custodians. And we have Alvaro Rosenblut of Banco de Credito Bolivia.

And then we have Larissa Moreira of Brazil's very own Itaú. Okay, that was the introduction by the way. So, First of all, I would like to remind that none of us are English speakers to begin with. So, bear with us if And also it's very hot. So, bear with us for a second time.

Today we're going to speak about this transition or this uh perspective that all the traditional banks have endured with digital assets. Who here remembers what happened on January 3rd of 2009? All right, a few hands. That is the genesis of Bitcoin. Probably what led every of us to be here in this moment in the discussing Okay.

That's better. Discussing new things, new approaches in which traditional finance just have to adapt. And today I have the pleasure to be speaking with two that I consider myself friends. Maybe they do not consider me their friend, but I consider them my friends. Alvaro that comes from Bolivia, one country that Uh, I was speaking earlier this morning about uh all the transactions, all the complexities of the financial system in in Bolivia.

And Larisa, who is uh actually in Itaú, the largest bank in the largest Latin American country, uh I think wise in uh GDP wise, uh population wise, so uh I am very happy to share this uh I I hear a lot of echo from myself. But anyways, um so uh the what I would like to open with this myth to reality. So, I'm going to ask you uh Larisa first, Itaú has been increasingly exploring digital assets and uh i- inside its strategy, right? Uh getting comfortable with it, using it uh uh more and more. How did it evolve from being just a crypto myth into actually embedded into the infrastructure of Itaú?

Thanks, Luis. Um good afternoon, everybody. Um it's a pleasure to be here today. And yes, I also consider you as a friend. Um I believe that uh the main thing when you think about where when you move from myth to transformation as a bank, in the early days, we always think about crypto as uh innovative thing and uh POC or experimentation process inside the bank.

But when we move from that point and we started to offer clients some products and uh receive some feedbacks of what clients should want and also what we have as a vision as a futures of state of products as a financial institution, we realize that crypto move from only as an investment and an asset itself to possibility to use as infrastructure. So, that's why I believe that mainly the main events that we uh we we participate participate in the last, I don't know, three, four years become huge like this. So, it's a it's an opportunity for us to see crypto not only as investment, but also to uh an asset to transform the banks and the financial system not only in Brazil, but also in other countries. I see. How important this transition from Bitcoin that that we spoke earlier to actually starting to use it as an everyday currency or as a everyday vehicle to to speak about financial transactions.

Um for Alberto, actually I want to talk about the regulation pivot that Bolivia had. For years, there was this conception that in Bolivia you could not touch crypto. Well, it was not a conception. The uh Central Bank actually banned crypto as a whole. There was a moment in time in the last a few years that the Central Bank had to adopt crypto quickly because if they didn't, then the country would have paralyzed.

So, I would like to ask you how has the bank internal culture shifted specifically from this reality and uh how did you became this regional leader in the transition of USDT as a digital asset? Hey everyone, good afternoon. Uh really a pleasure to be here representing BCP, and I also consider you my friend, to be clear. So, just to put some context on what Luis was saying, in Bolivia we were facing a severe structural crisis. There actually were no dollars.

So, what does that mean? That the global trade from the country was paralyzed. From a retail perspective, and also from a corporate perspective. So, that was the main reason why our central bank on 2024 lifted this ban on crypto assets. And that was the key point for bank, actually for BCP, to actually start learning uh what was USDT, and start building this rail to continue to offer our clients this international trade services.

Imagine you couldn't send dollars to your sons or daughters who are studying abroad, or you couldn't pay suppliers. So, actually that was the main challenge, and actually how did we transform ours ourselves in the bank was leading by example, meaning we we we started this solution really slow, really trying, making MVPs at the beginning, and then like releasing the solution to our our clients. Right? Our priority was to guarantee cross-border trade, and by launching USDT prepaid solutions, we bypassed its physical dollar bottleneck. We start treating blockchain as a myth, actually, and we deploy it like the financial plumbing our clients needed it to survive.

The main detractor, or actually the main challenges was our compliance department. And how did we handle this was actually talking with them, meeting with BitGo, like starting the this learning process, so they could be aligned with the business side. I see. If you see the transition is literally crypto is now so big specific use cases in this case is just a simple financial transaction. It's actually don't encrypt it because there is no other option in this case for Bolivia.

So business models actually transition, products get created, so on and so forth. And particularly in as the cross-border payments industry, it is so complex with multiple rails, multiple currencies, and I mean all the challenges, people want money fast in their pocket, uh and how do banks are working, particularly Itaú is working to simplify the experience to make it faster, cheaper, seamless when you are talking about cross-border transactions, Larissa. I believe the first step it's always to try to understand which use case we're talking about and we already know that the main topic here nowadays is related to stable coins and cross-border payments, but also when we analyze the whole landscape, the main point is to try to understand that and to face the fact that money will become more fragmented. And also, due to this hypothesis, uh the main challenge is, as a bank, to try to unify it. So, how do we simplify the whole journey for the customers the for the clients?

And to deliver uh experience that will uh make life easier, will have less cost for them, and also to not have to say that we are using some technology um as a stable coin or even to blockchain. So, the main challenge uh as a bank is to try to cope with different rails that we have nowadays, different blockchains, different payment networks, and to try to unify in a whole in a just one experience as a client. So, I believe that this is the main vision that we are working nowadays. I see. It is uh it is always that we as users, like literally the three of us are users uh of our own banking experience, and we always want things to just work, right?

I want to go click, boom. And I want things that actually work and and happen. Um also on the business model and the transition that uh BCP had to do, Alvaro. Uh you launched this digital uh prepaid card in USDT uh to solve this liquidity that we already spoke about, liquidity issue. Uh is the transformation for you here about crypto?

Uh or is it simply that blockchain is the most efficient plumbing to uh making this transition happen? Actually, to your question, the answer is the second one. Meaning, what we did was focused on and let me elaborate on that, invisible technology because familiarity drives scale. And what do I mean by that? We did We We weren't selling blockchain or crypto per se.

Actually, what the bank was say was selling was confidence and a certainty. And what do I mean by that, right? Our corporate importers, our real clients didn't know about gas fees, blockchain. They don't They don't understand that. And they just needed to pay suppliers.

They just needed to send money abroad. And what we did as and And also, we didn't do this alone. We did it working with BitGo side by side was packed these web free rails, these complex models into a prepaid digital card that looks, feels, and operates exactly as a traditional card, as a traditional banking banking payment method. So, meaning we abstracted all the complexities. So, our client experienced the same product that they used before.

So, what do I mean by that? We used blockchain without using blockchain. The client didn't know that, but actually we were really really connected and really And that was I think the main point of of our success as BCP. Meaning, we were handling Just to put numbers, all the credit card All the credit cards emitted by BCP were 20,000. With BitGo and with this solution that I'm talking about, we are handling 100K cards.

So, meaning 5X increment in like 5 6 months. So it was really it was really the those were really good results. Awesome. Where where have we all heard this before that uh crypto is working underneath and it actually works on the top, right? Uh There's a there's a lot of uh um of benefits of using crypto regardless that uh the user doesn't necessarily see the crypto underneath.

Um we're going to speak about another type of myth uh and this is uh not your keys, not your crypto. Uh we're going to speak about uh custody for a brief period of time on only. But ultimately when you are interacting with digital assets, um uh custody is critical. Critical because necessarily you need those rails of crypto to move along, right? And uh all the banks, including Bigo by the way, we need to convince uh somebody that uh it is easier if you custody keys uh elsewhere uh like if you're an individual, you actually have your keys at Itau or you have your keys at BCP, so on and so forth.

And these cross-border or even whatever payment that you do in digital assets will actually use these keys, right? So particularly how do you guys see the role of banks in custody particularly? Can we start with you uh Larisa? Uh good question and I believe that custody is um critical part of the infrastructure and I believe for the whole crypto uh ecosystem when we see custody as a main vault or even the vital part of trust. Uh for clients, it's important to to realize that for banks, the relationship as a client for with the bank, the trust is a critical part of the relationship.

And for banks, not only the custody will become a very important part, but also um the whole process that will uh include not not only the on-chain verifications, but also the off-chain verifications. So, we are talking about the KYC process. We are talking about the compliancy, product governance, and other all the aspects that we have to deal with as a bank. And when we allow when we analyze the whole regulatory framework that we have here in Brazil right now in place, uh not only the custody will become like the vital part, but also the whole aspects of governance that we not only banks must comply with, but also all the VASPs and and exchanges and other third-party solutions that will become a part of the ecosystem will have to comply also. So, um as a bank, we see custody and as Itau, we were one of the first banks to develop our internal custody solution.

And to to realize that this is one of the first and vital parts of the infrastructure that we want to provide for clients. And but seeing that next steps for um Brazil um and the regulatory landscape that we are um seeing right now. The custody, but also we see as the custody, but also the whole governance for products being offered to our clients uh as important as other um parts of the solution. So, uh just to wrap up, custody is like the trust of the relationship for clients, but also there are many factors that we should also be aware and to develop as uh part of the ecosystem. Sure.

There's a There's a lot of challenges uh ultimately holding keys whatsoever because at the end, if you don't have the keys, you just do not participate in blockchain, right? So, um I think that is uh key the key part of it all. All All banks need to transition over that. What is your perspective uh Alvaro on on getting that idea of custody uh into a an individual that it's uh a customer of the bank? Thank you.

It also was a real challenge for on BCP because imagine having a country that banned crypto assets 2024 and as of now 2026 2 years later is like the standard. 50 per 40 50% of international trade transactions more or less from a BCP perspective are handled are using blockchain uh as a rail, right? So, when you start talking to these and BCP's focus on retail customers, they start talking about custody, they they don't understand. It's really difficult to to transmit the idea. So, what we did was focus on the bank has your back, meaning as I was saying earlier, we try to sell confidence.

So, you don't need to worry about your keys, you don't need to worry about your wallet, you don't need to worry about your custody. Trust in BCP that we will be in charge of that. Imagine if something happens with your USDTs in your wallet, BCP will reimburse everything that you have, for example. Those sort of messages help us to help our clients to trust our solution, right? So, in two words, like perhaps I will answer institutional accountability with our clients, right?

Meaning if you have any problem, you can go to our channels, you can go to present a claim. I will be really answering for your money or for your crypto assets. Basically, that. Yeah. Ultimately, most of the banks do custody, whether they like them or not, they do custody already, right?

It is just in a different format, maybe in gold bars or in coins, bills, and they do it most of the time in a vault. So, it is indeed part and a basic part of the trust that we all have in in in banks. So, just to close on the transformation outlook, if we imagine ourselves maybe having this same conversation four years from now, the year is 2030, do we are we still looking at digital assets as a separate part of the business or is it just our day-to-day that we already mixed it up with the regular uh yeah, the regular way the bank works. What do you think ladies? Uh, I believe that when maybe in 5 years we're not sitting here discussing how digital assets will be part of the ecosystem but but mainly um, the difference and the the challenge that we are faced nowadays that will have to align with legacy systems and other infrastructures that we already have.

And digital assets will become much more related to infrastructure. One more infrastructure that we have in the banks. And not only as product or even to innovative project. And we are seeing nowadays much more the discussions become more focused on how to develop and to adjust what we have now in our banking infrastructure. And maybe in 2 years, 3 years, 4 years, 5 years we would discussing the lessons learned in 2026.

You want to share with us your your perspective Alberto? Actually on our end what we do project is that actually right now we're seeing the stable coin volumes already rivaling traditional traditional networks, right? So the ultimate golden will be that the global finance network uses blockchain as an invisible back end, right? The client doesn't know and perhaps doesn't care if it goes through blockchain or not. Actually, what it what we found with our solution is that our clients care that they their transactions their transactions settle 24/7 and instantly.

If they flow through blockchain or not, they don't even care. They just care that it's instantly. And I think that's one of the benefits of of this world that we're providing to our clients. So, for years from now, what we're thinking that from a Visa perspective, our international trade is 90% 100% performed through blockchain. And without like I was saying before, it's like the client doesn't know that it's going or flowing through blockchain.

Actually, they only care that it's settled instantly. I think ultimately that sums it up. This myth or this I'll say wave that started back then in the 3rd of January of 2009 has transformed an entire industry and will continue to do so as we move forward. Definitely with the the two use cases and the two traditional banks that are thriving with digital assets, I would really like to thank you both for participating with me in this panel. I know it's it is very nice to share what you're doing day-to-day, and it's also very important to share it with with the public.

So, thank you very much. Thank you all. Thank you.