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Deutsche Bank sees blockchain as key to addressing margin compression
Deutsche Bank AG announced its strategic push into blockchain technology as a potential remedy to the margin-squeezing challenges facing the financial services industry, Bloomberg News reported on May 29.
The German banking giant is participating in Project Guardian Singapore, an initiative led by the Monetary Authority of Singapore, which aims to harness the benefits of blockchain for financial markets.
Deutsche Bank is currently testing a new platform based on Ethereum network designed to offer services for tokenized funds as part of Project Guardian.
Anand Rengarajan, Deutsche Bank’s head of securities services in Asia-Pacific and the Middle East and head of global sales, highlighted 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 lower costs, reduce transaction times and minimize risks.
Addressing 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 indicates that the average wealth management fee decreased from 26 basis points in 2010 to 22 basis points in 2023.
Project Guardian is a collaborative effort bringing together policymakers and financial firms to explore tokenization in sectors such as fixed income, asset management and foreign exchange.
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.
Companies are working to create industry standards for tokenization, particularly in 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, covering assets such as bonds, real estate and private equity. Despite its potential, tokenization is still in its early stages and has yet to be demonstrated at scale.
Deutsche Bank’s new platform aims to provide comprehensive recordkeeping services for issuers of tokenized funds, facilitating investor management, custody arrangements and valuations. It is currently a proof of concept, it is expected that the platform will be commercialized in the future.
Rengarajan highlighted the platform’s interoperability, which allows fund managers to use it regardless of the underlying blockchain technology. He added:
“We will invest heavily in this technology over the next few years, building on the foundations we have laid. This will prepare us for a promising business future.”
In 2023, Deutsche Bank partnered with Swiss crypto technology firm Taurus SA to develop a digital asset custody service. This partnership reflects a growing trend among major financial institutions to explore commercial applications of blockchain and cryptographic technologies.