Why are banks so keen on tokenisation?

Most banks have clearly identified the advantages of blockchain. All that remains is for common standards to emerge. 

While banks are still cautious about cryptocurrencies, blockchain technology seems to have won over even the most senior bankers. Whether it's JPMorgan or Goldman Sachs, American banks have all launched major projects involving stablecoins or tokenisation platforms (or both). 

In Europe, France is leading the way led by Société Générale, one of the most active banks in tokenisation. In particular, it has set up a specialist subsidiary (SG-Forge) and issued a euro stablecoin (EUR CoinVertible). 

The bank has gone beyond the experimental stage as there are real transactions between players. In July 2023, it also became the first player to obtain approval as a digital asset service provider (PSAN) issued by the Autorité des marchés financiers (AMF). CACEIS, a subsidiary of Crédit Agricole, is also among the most advanced European players. 

The benefit for banks is optimised transparency and reduced settlement and counterparty risks. 

"At an operational level, tokenisation facilitates reconciliation because there is less manual intervention, we can virtually eliminate delays and operate 24/7," points out Geneviève Douhet, head of innovation for payment transactions and services at Société Générale. 

Tokenisation is relevant for improving markets where there are operational inefficiencies, friction and where there are complex flows of information and value to reconcile
Geneviève Douhet, head of innovation for payment transactions and services at Societe Generale.

"It also increases liquidity in traditionally illiquid markets by broadening distribution channels and reaching out to a wider investor base", she continues. "Banks are interested in tokenisation because they see a huge opportunity in digitising unlisted securities which, until now, have been dealt with entirely on paper", confirms Victor Busson, CMO of Taurus, which provides services that are highly prized by banks.Tokenisation being nothing more than the digitisation of securities or assets, banks can create a new market of trillions of euros in assets and millions of companies
‍Victor Busson, Taurus 

On the payments side, one of the most concrete applications is in stablecoins for so-called wholesale cross-border payments, i.e. between financial institutions. The central banks are all working on this with their various digital currency projects. Commercial banks as well as payment giants (PayPal, Visa, Mastercard) are also interested in the subject with their stablecoins.Cross-border payments can sometimes present operational frictions," explains Geneviève Douhet. "Customers are asking us to improve the times, costs and transparency of this chain, following the example of the initiatives launched by the Swift network. But beyond the technology, the big challenge for banks is to harmonise their systems. There are major issues of international regulation and interoperability. 

"Several central banks and private initiatives have launched plenty of projects, which is positive for innovation, but the issue is clearly interoperability between DLT and legacy payment rail systems to avoid ending up with fragmentation", she warns. 

The issue of governance is also crucial. Will several central banks be able to agree among themselves? Will several commercial banks, themselves regulated by different central banks, be able to reach agreement? 

"The challenge is no longer really technological for tokenisation, it lies more in the ability of the major financial players to define common standards," insists Geneviève Douhet. "We are at the beginning of the road, it remains to be seen whether we will all succeed in taking the right direction".