Navigating the new normal: How to survive a world filled with CBDCs, DLTs, and BTCs

Here we are, nearly halfway through the year, and more than a few notable events have transpired. For starters, the second largest bank failure in history happened, not once, but twice, which seems a bit above average. Those who thought what happened at SVB and Signature Banks was just a fluke received another stark reality check when First Republic was shut down and subsequently ‘acquired’ (looted might be a more appropriate term) by Jamie Dimon’s monolithic JPMorgan Chase. This event was predictably billed by President Biden as an opportunity to “make sure that the banking system is safe and sound.” I imagine that leaders in the democratic, decentralized financial services space might not entirely agree with this sentiment, but I know I’m sleeping better at night knowing that the modern-day robber-barons are keeping our money “safe and sound.”

While big banks continue to get bigger, Massachusetts Senator Elizabeth Warren doubled down on her war on decentralized assets, bringing a bill to the senate floor which would all but ban the use of your own crypto wallet, under the noble guise of ‘anti-money laundering’ and ‘protecting Americans from scams.’ I have to admit, I often make the mistake of giving hard-working, autonomous, self-governed people the benefit of the doubt as to how they choose to invest the fruits of their labor, but I digress.

In January we covered five strategic opportunities for your financial institution’s consideration, in this article we’ll explore where we’ve been, where we are now, and what’s coming next:

CBDCs
CBDCs and digital assets continue driving innovation in money away from electronic dollars and toward a digital ‘money-data’ merged with the internet. The regulated ledger network (RLN) pilot project launched by the New York Fed in November highlights the Fed’s appetite for ongoing exploration of CBDCs and digital assets in the wholesale settlement space. The continuous advancements in distributed ledger technology and the pursuit of faster, more secure, and affordable settlement and liquidity systems underscore the relevance of digital currency in the current banking landscape, but at least one presidential candidate doesn’t seem convinced that federally issued and controlled CBDCs are the answer consumers are looking for. As we look through the remainder of 2023 and into 2024, and consider the growing list of global challengers to electronic dollar supremacy, we believe it’s prudent for local financial institutions to continue educating themselves about emerging digital asset networks, private digital monies and commodities, and potential (sudden) demand for local storage and control of wealth in forms other than the 50-year-old electronic dollar.

Digital retail operations
We predicted that digital currencies would continue to disrupt banking and commerce, which should now be self-evident given the content above. This trend raises important questions for retail banking operations around which ones to adopt, which ones to avoid, and how to position legacy operations to adapt to these technologies. Community banking institutions will either focus on building products and services that meet consumer expectations of faster money movement or continue to see their deposit dollars diminished by non-banks in the DeFi space. The winners will be those who prioritize control of homogenous, multi-sourced data in a centralized, modern core, while developing digital operations that collect and utilize diverse forms of money-data, positioning themselves to integrate their operations with new distributed networks for value storage and exchange.

Inflation & fiat currency instability
I’m sure we are all breathing a sigh of relief that the cost of eggs is back ‘down.’ I, for one, was sick of pretending that unsweetened applesauce, mashed banana, and aquafaba (really?!) are suitable substitutes for use in my great-grandmother’s cookie recipes. Oddly, while we are being told that inflation is under control, we are now paying 23% more per dozen as this time last year, and crediting the price ‘decrease’ to generalized economic stability. Many consumers are turning to alternatives as their once-beloved cash continues to lose its purchasing power. It’s no wonder that the popularity of digital assets like Bitcoin and the upward market trend continue to indicate a growing awareness of fiat instabilities and a desire to preserve wealth. As the language of financial literacy evolves in 2023, there will be a continued shift towards new value storage and exchange networks, driven by consumers’ experiences of declining savings balances and the perception that traditional centralized institutions may not offer the same risk-free stability as in the past.

Community partnerships
The opportunity to forge partnerships with local businesses and merchants isn’t new, but the privileged position that FI leaders have to support and sustain local economies is proving to be critical in 2023. Merchants are facing an ever-evolving landscape of digital currencies and streaming money, and they need a trusted partner to guide them through these changes. By leveraging a modern core and data control, your local FI can offer valuable financial products that support local businesses’ relevance and profitability. As businesses strive for efficiency and explore crypto payments, there will be a growing need for secure and efficient deposit and liquidity solutions. Banks that can speak the language of digital currency and provide services like ‘liquidity on demand’ will have a competitive edge in attracting commercial accounts. Collaborating with merchants and businesses will be crucial to navigate the changing economic and technical landscape, ensuring security, efficiency, and affordability across various forms of commerce. With all this in mind, at DaLand, we plan to spend the rest of 2023 ensuring our FI partners can use their modern cores to plug into faster, more secure, and higher-yielding payments networks, like those made possible by Bitcoin and other digital asset innovations.

Investing into your core & extension of data
We’ve covered a lot about the ‘why,’ but what about the how? To prepare for the future state of money and banking in 2023 and beyond, it is crucial for FIs to accelerate investments in their core systems. This means shifting from traditional electronic channels (online banking replacement projects) to building innovative, self-service digital branches, focusing on storing and processing data more efficiently and in real time. It is essential to prioritize control and extension of data to avoid outsourcing to third-party vendors, who love nothing more than taking control of your institution’s financial relationships. This requires a modern, safe, and innovative solution for storing money-data, in digital vaults and homogenous databases, with seamless integration to decentralized ledgers and layer two settlement networks.

For sustained, responsible, regulated, revenue generating relevance, trusted community financial leaders will relinquish reliance on archaic data systems and embrace the modern financial networks and modern cores which support them. This strategic shift requires a multi-year change management process, optimization of digital operations, and a collaborative partner whose commitment to your success has gained us the reputation of ‘THE Next Generation CUSO.’

Let the journey begin!