Deutsche Bank AG has announced its strategic bet on blockchain technology as a potential remedy to the margin compression challenges facing the financial services industry, Bloomberg News reported on May 29.
The German banking giant is participating in Singapore’s Project Guardian, an initiative led by the Monetary Authority of Singapore that aims to leverage the benefits of blockchain for financial markets.
Deutsche Bank is currently testing a new platform built on the Ethereum network designed to offer services for tokenized funds under Project Guardian.
Anand Rengarajan, Deutsche Bank’s head of securities services in Asia Pacific and the Middle East and global head of sales, emphasized the urgency of adopting innovative technologies. He said:
“Blockchain will be critical in helping us stay competitive as margin compression impacts the financial services industry.”
According to Rengarajan, blockchain and smart contract-based solutions can significantly reduce costs, shorten transaction times and minimize risks.
Tackling rate compression
The asset management industry is under pressure as fee income continues to decline, driven by the rise of passive investment products. A report from Boston Consulting Group shows that the average asset management fee has fallen from 26 basis points in 2010 to 22 basis points in 2023.
Project Guardian is a joint effort that brings together policymakers and financial companies to explore tokenization in areas such as fixed income, asset management and currencies.
The initiative supports Singapore’s ambition to establish itself as a global blockchain hub. Participants include major financial institutions such as JPMorgan Chase, DBS Group, Ant International, Standard Chartered and T. Rowe Price Group.
The companies are working to create industry standards for tokenization, particularly in the areas of cross-border forex settlement and bond trading.
Future potential
Tokenization involves creating digital representations of real-world assets on a blockchain. Citigroup estimates that the tokenization market could grow to $5 trillion by 2030, with assets including bonds, real estate and private equity. Despite its potential, tokenization is still in its early stages and has yet to be proven on a large scale.
Deutsche Bank’s new platform aims to provide comprehensive record-keeping services to issuers of tokenized funds, facilitating investor management, custody arrangements and valuations. The platform is currently a proof-of-concept and is expected to be commercialized in the future.
Rengarajan highlighted the interoperability of the platform, which allows fund managers to use it regardless of the underlying blockchain technology. He added:
“We will invest heavily in this technology in the coming years, building on the foundation we have laid. This will prepare us for a promising commercial future.”
In 2023, Deutsche Bank partnered with Swiss crypto technology company Taurus SA to develop a digital asset custody service. This partnership reflects a growing trend among major financial institutions to explore the commercial applications of blockchain and crypto technologies.