Digital assets continue to attract investment and attention, but their relevance to banks varies considerably. Financial institutions need to distinguish speculative cryptocurrencies from technologies that could improve settlement, liquidity management and client services.
Sean explains that stablecoins, central bank digital currencies (CBDCs) and tokenized deposits serve different purposes. Stablecoins can enable new ways to exchange value. CBDCs may support sovereign digital money, while tokenized deposits offer banks a way to represent traditional deposits within digital payment models.
Rather than treating these technologies as competing alternatives, banks can consider how they might work together while maintaining interoperability, regulatory compliance and trusted payment services.
Technology alone will not determine successful adoption. Governance, operational resilience and common industry standards will also influence how banks put digital assets into practice.
Domestic instant payments are now common in many markets, but moving money across borders remains more complicated. Transactions can involve multiple correspondent banks, foreign exchange, compliance checks, reconciliation and different national payment infrastructures. Each additional step can affect processing time, cost and transparency.
ISO 20022, SWIFT GPI, structured payment data and emerging connections between instant payment networks are helping improve interoperability and payment visibility. However, a more seamless global payment experience will require continued collaboration among financial institutions and payment networks.
As payment infrastructure evolves, richer data and standardized messaging can help banks improve straight-through processing, regulatory compliance and the client experience.
Replacing legacy technology is only one part of payment modernization. Banks also need architectures that can adapt as payment rails, digital assets, regulations and client expectations change.
Sean describes payment orchestration as an increasingly important capability. Rather than embedding routing decisions within individual payment engines, an orchestration layer can direct transactions based on factors such as destination, speed, cost, liquidity, payment risk, client preferences and network availability.
Combined with an enterprise data model based on ISO 20022, this approach can give banks greater flexibility to support existing payment systems while adapting to new capabilities.
Banks do not have to build every payment capability themselves. Fintechs, cloud providers, payment networks and technology partners can help extend connectivity and introduce new capabilities.
At the same time, banks need to retain ownership of functions that directly affect client trust, including operational resilience, payment monitoring, incident management and regulatory compliance. As payments become faster and more connected across markets, banks need to consider resilience alongside innovation.
Flexible technology, strong governance and carefully chosen partnerships can help banks adapt their payment services while maintaining the trust and resilience their clients expect.
Listen to their conversation for insights on how financial institutions can evolve their payment infrastructure, strengthen operational resilience and prepare for changing global payment models.
- Chapter 1: How banks can distinguish crypto speculation from institutional digital assets
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Andy Schmidt:
Welcome to From Transactions to Trust, the Financial Services Podcast. My name is Andy Schmidt. I'm the global industry lead for banking here at CGI. I'm joined again by my friend and colleague, Sean Devaney. Sean, do you want to introduce yourself?
Sean Devaney:
Hi. My name's Sean Devaney. I am responsible for our market strategy for our global payment solutions here at CGI.
Andy Schmidt:
So, for those of you who joined us for our previous episode, we talked about payments modernization, payment trends and deposit stability. Now we're going to continue the conversation, looking at digital assets, cross-border payments, and the future-ready payments bank. And we ended the last conversation talking about crypto, talking about stablecoins. And, you know, of course, at Sibos, that's a topic that received a tremendous amount of attention. But when we really look at this next theme, digital assets and tokenized money, you know, how do you separate the hype from bank-relevant use cases? How should executives distinguish between things as simple as crypto speculation and things like institutional digital asset use cases in the payments world?
Sean Devaney:
Yeah, I mean, that's a really key question. So, again I like to divide things up into threes. And I think that I do the same thing with digital assets and tokenized money. I divide it into three piles. You've got the speculative crypto asset stuff, whether it be Bitcoin or non-fungible tokens or whatever it might be. And that, you know, for me, largely looks like a commodities market. It's a commodity; it can go up and down in price, and you can speculate on the growth or a reduction in that price, but it's a speculation, right? So, I'll get lots of arguments from the crypto fans, but I think those things look like a speculative offering to me and should be viewed as such.
Then you've got the second grouping. This idea of digital currency, and that's in two subgroups actually. So, in true filibuster style, my three points are actually four. But that central bank digital currency and stablecoins are both forms of digital tokenized money that can be exchanged between organizations. We can talk about the differences between them in a sec.
And then the third grouping is the tokenized deposit, which is just a way of viewing your account balances and value that you have stored in your bank as a tokenized representation rather than just an entry on a normal accounting ledger.
But I think the question for me is what each of those things can do. So, the tokenized bit is not the issue. The real issue is whether that tokenized thing, because they're all tokenized in some way, it's whether it can settle safely across multiple institutions at scale, and that means it has to have reach and it has to be able to run at high volume, has to have some legal finality, and that can vary, but it needs to be agreed and documented, and it needs to work under stress.
So, regardless of the circumstances in which you're running, it needs to run predictably under stress. And that can be a volume stress, it can be a market stress, it can be an organization going out of business. But I think all of those things help us to separate those things into the different piles of speculation, currency, and a different way of viewing your deposits.
- Chapter 2: What role will digital assets play in the future of banking?
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Andy Schmidt:
What are the implications of stablecoins, tokenized deposits, tokenized cash, and CBDCs for banks? And I know we've been talking about CBDCs for a while, yeah.
Sean Devaney:
We've been talking about CBDCs for quite a long time. A couple of years ago, pretty much every central bank was either running a proof of concept or a consultation, or in the case of a relatively small number, actually implementing a central bank digital currency. So, you know, China did it, Bank of the Bahamas did it, both of which, by the way, have very different use cases for why they did it. But that's probably a different story for another day.
But I think that focus on CBDCs has kind of waned a little bit. And now the conversation is more about stablecoins and how they can be used. For my money, the stablecoin thing is something that we need to do a lot more work on the regulation that sits around it in order to be able to allow it to be shared across different institutions, different currencies, different geographies, and so on.
And then the third thing is the tokenized deposit thing. Now, if you look at any one of those in isolation, I don't think it solves a whole lot of end-to-end use cases. But perhaps when you look at them together, when you look at tokenized deposits as being a way for the bank to be able to better integrate with some of these other new forms of digital money, if you look at stablecoins as a way of providing a mechanism by which to exchange value between different organizations, and then you look at CBDCs as perhaps a way to do real international settlement without diluting the ability of central banks to influence money markets, I think those three things all viewed together are going to be the way to view the future of digital money.
- Chapter 3: Why are cross-border payments still so complex?
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Andy Schmidt:
Makes sense. And then when we're thinking about cross-border payments and modernizing for speed, for transparency, for trust, why do cross-border payments remain complex despite major industry progress?
Sean Devaney:
Yeah, that's a good question. I mean, cross-border payments are complicated purely because there are so many people involved. The challenge is, if you want to make a payment in your domestic market, then there are very clear and well-understood mechanisms for doing that. And they tend to be very fast, they tend to be very simple, they tend to be very reliable, especially in geographies that have got instant payment systems, which, by the way, is about a hundred or so countries now or geographies now have instant payment systems. So, it's absolutely the sort of default standard now. But if you want to make a payment across border, then setting aside SEPA for a moment, because within the Eurozone, that's a slightly different argument. But if you want to make a proper, a true cross-border payment, if you want to move money from the UK, into the Far East or into Africa or even the US, then that's a more complicated problem to have.
So, if your bank happens to also bank in the country you want to send money to, it might be relatively easy. But if they don't, then you need to have the correspondent banking model. And your bank needs to have a relationship with another bank that is based in that country.
Sometimes there can be two or three intermediaries because your bank might have a relationship with a bank that does transactions in dollars, because that's the biggest money market currency. That bank in turn might have a relationship with a bank in the country in which you actually want to move the money, which might be in Singaporean dollars or something like that.
So, there can be multiple steps in that process. And so that's quite a complicated value chain. And one of the things that the G20 announced a few years ago was a requirement to speed up, make safer, make more transparent that process, just by trying to remove some of the friction in that correspondent banking model by providing some other alternative models to the traditional correspondent banking model.
Andy Schmidt:
Where are the biggest friction points today? We got speed, cost, transparency, FX, you mentioned if you're dealing with different currencies, liquidity, compliance, reconciliation, finality.
Sean Devaney:
So, for me, it's all of them, actually. If you take the example, and admittedly it's an extreme example, but if you take the example of trying to send money from almost anywhere, actually, into sub-Saharan Africa or into some of the Baltic states in Eastern Europe, then a couple of things are true.
One is the speed of that transaction could be two or three days, and that's because of the correspondent banking network, because of some of the anti-money laundering checks that need to be done. There's a whole set of things that cause those delays. The speed is a problem.
Cost is a problem. So, as I mentioned before, we talked about up to seven or eight percent of a transaction value being charged in fees. If you're making personal remittances, and typically those values are in the $100, $200 range as sort of a higher end, then if you're paying 7% or 8%, that's a significant chunk of the money that you're trying to send abroad. So cost is a real issue.
Transparency is a huge issue because, as we talked about before with the correspondent banking model, you might have multiple organizations involved in the process along the route. And they all need to be able to give you a status of where that payment is. They all need to be able to tell the customer whether it's passed through their process or not, been handed over to the next bank and so on.
And so actually providing that information is really difficult. So, SWIFT have made some real strides in this space now by putting in universal reference numbers that trace a transaction all the way through, by initiatives like GPI and so on. And they're really helping, but they tend to be at the higher end of the value chain, right? As opposed to personal remittances.
FX is a problem just because FX is a price then, right? So, if you're a large corporation, you get one price to make payments because you can negotiate a deal. If you're again to take the sending money into sub–Saharan Africa example, if you're making a remittance into those markets, then you've got no ability to negotiate that. There are relatively few organizations that will provide you good funds into those countries. And so, you suffer on the FX space.
And then when we start looking at the corporate model and how you're managing liquidity, being able to show an end-to-end view of an organization's financial position across different markets in different accounts is really complicated.
So, the answer is, the biggest friction points are speed, cost, transparency, FX, liquidity, compliance, reconciliation. They are all complicated at the moment.
Andy Schmidt:
Yeah, and I would think that if you have multiple apps, some of these things would compound, which makes it even more challenging in terms of time and cost.
Sean Devaney:
A hundred per cent and that's why some of those initiatives from SWIFT have been so important. It’s to try and resolve some of those. But as I say, they tend to be at the more corporate payment end of the spectrum and not down at the remittance end.
Andy Schmidt:
That makes sense. And in terms of changing the agenda, changing how this all works, how are ISO 20022s, instant payment networks, even digital assets, how are they changing the agenda, changing the discussion for cross-border?
Sean Devaney:
Yeah, so the ISO thing and SWIFT have made great strides and that they've made some real improvements to the model or the market that exists out there. And I don't want to take anything away from the work that both SWIFT and the ISO organizations have done. But the problem is that not every payment is using that SWIFT standard. Not every payment is ISO 20022. So, you still had some challenges and problems. There isn't any way of connecting infrastructures in different countries together other than by bilateral agreements at the moment, largely. There are some regional multilateral agreements, but for the most part, it's bilateral.
So, I mentioned earlier that there's about 100 or so instant payment systems active at the moment. If each one of those was to have its own bilateral agreement, that's 4,000 and something different contractual arrangements that they've got to have to connect those systems together. So, if I want the same experience sending money cross-border as I have making a domestic payment, then that's an incredibly complicated landscape to understand exactly where I'm going to send it, make sure all the countries are covered and so on.
So, there are a number of initiatives going on at the moment to try and reduce that complexity, provide some of those multilateral scheme connections between those instant payment systems. And I think that's something we're going to see growth of over the next few years. And that's primarily driven by the fact that most of those instant payments, not all, most of those instant payment systems, are using ISO 2002 or have some plan to move to them.
I think the challenges are around what the banks still need to do, right? So, we've got structured addresses now, or we will have by November, all structured address information for ISO 20022. We are better definition around identifiers of organizations and beneficiaries and so on in that payment message, but we need governance around that whole model.
And so, I think there are some real changes being made now to how rich data is included in those payments, and that's going to make a real difference to cross-border payments going forward.
- Chapter 4: Why partnerships and operational resilience matter
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Andy Schmidt:
We're thinking about now the future and building the future-ready payments bank and looking at capabilities, partnerships, operating models, and so on. What capabilities should banks prioritize over the next three to five years to remain competitive in payments?
Sean Devaney:
I think that boils down to one thing, really: having an architecture inside your payment systems and your payments environment that can adapt quickly and safely, both to change in the market, but also change in where you want to be in the market.
So, those organizations that have an architecture that ties to payment orchestration. So, the ability to route things differently depending on what the circumstances are, I think those are the organizations that are going to be more successful.
Being able to root not just on destination, but speed, cost, type of product, risk of the payment that you're trying to make, customer preferences, and frankly, what bits of the end-to-end value chain are working at any given point, I think is really key. So, that routing logic needs to be up in that.
We call it an orchestration layer, but it could be a conceptual layer, it could be a whole load of different processes and tools. So, you're not building another bottleneck, that's really important, but you're using something outside of those payment processing engines to determine what your routing should be. And that really brings a lot of flexibility into that payments processing model.
Andy Schmidt:
How should banks balance modernization of legacy infrastructure with innovation in digital assets and new payment rails? What should they be looking at in order to be competitive?
Sean Devaney:
That's a really good point. That there are organizations out there that are leading the way in this space, but there are also organizations that just aren't focused on this as a change. And that might be because the vast majority of their market is domestic. It might be because a very large percentage of their customer base is local. And so therefore, they don't need some of those flexible models in terms of if I'm going to be routing payments one way on Monday, I need to route it a different way on Tuesday because the payment scheme in a different country has changed or failed or whatever it might be.
But I think the key thing is I still maintain that that routing logic shouldn't be the payments engines. It should be separate because you still have the idea of most of my payments might go through my instant payment system one day. But if that fails, I need to be able to take that set of payments and process them through my high value system or vice versa. And being able to have interchangeability is one of those other things that's driven by the ISO 20022 model, as well as having that idea of a separate orchestration layer that determines routing rather than having the routing happen in specific payment engines.
I think the other thing that organizations need to really think about is their data model. So really understanding how they're viewing data in their payments business. And the ISO 20022 model is a really good starting point for that.
It's a starting point. Depending on where you connect to, you have to add some other information. In the US, for instance, the ACH model out there requires a couple of pieces of data that aren't in the ISO 20022 model. So, you can't stick religiously to that as a model. You need to be able to add functionality data on top of that. But start using that as a starting point, I think is really key.
Andy Schmidt:
Yeah, and that flexibility, that adaptability helps you maintain payment flow, maintain customer competence, and so on. There are a lot of pieces and parts that go into making this happen.
Where should banks partner with fintechs, technology partners, even clearing networks and ecosystem players to rather than say building something themselves?
Sean Devaney:
Yeah, and that becomes really important when we start looking at those organizations who don't necessarily have the scale to be, you know, the big transaction banks out there. They don't necessarily have the volume to be able to invest in this in the same way that some of the bigger organizations that would do.
So, I think the important thing is looking at the partnerships that you need for your technology partners, whether that's cloud providers, software providers, whatever it might be.
But also, how do you leverage those fintechs and technology partners to give you more connectivity out to different markets that you might not be in or different payment schemes that you might not want to invest in, and so on.
I was at Smarter Faster Payments earlier this year in the US, and it was very surprising to me how many organizations were connected to the real-time payment schemes for receiving money, but weren't connected to it for sending money. And that's growing, it's changing over time. But the adoption has been very much give me the money, not so much I'm going to send you the money.
And so, I think partners can help in that space by helping organizations to connect into those services, but also by helping them to understand what the implications are for liquidity management and treasury and so on.
But I think you have to stay in control of the bank. So, the fact that we're doing 24 by seven real-time payments, potentially not just domestically, but cross-border, means that we require absolutely continuous monitoring of that process.
We have to be able to synchronize our changes and releases across the environment in the bank so that there's no downtime for those things because the customer expectation is that they are needing to be up all the time.
You have to be able to do regular failover testing and own that within the organization so that you're confident that when you do have a DR instance, then you've got the ability to fail over to another site or environment.
And then also just clear ownership. And this goes back to some of the operational resiliency regulations that have come in both in Europe and in the US, where it's more of a requirement to understand what your supply chain is doing with your payments data and processing as well as just what you're doing. So, we're having clear incident ownership and a view of how that data is managed, how those incidents are managed throughout the value chain, I think is really key.
Andy Schmidt:
Excellent. Well, thank you. This is going to close out this episode of From Transactions to Trust. And Sean, as always, really appreciate the conversation and your view in terms of where things are heading, and certainly look forward to continuing the conversation with you about what's coming next. So, thank you again. Thank you all for joining us and have a great rest of your day.
Sean Devaney:
Thanks, Andy.
