Selected Challenges & Success Factors for Banks in the Context of Launching a Digital Assets Offering

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Various banks have opened up more to the topic of digital assets in recent months and are actively driving forward conception and implementation projects for a digital asset offering (e.g. PostFinance in Switzerland[1]), or are already offering one (e.g. Maerki Baumann, Kaleido Privatbank or Bank Frick). For a successful launch of such an offer, various fields of action need to be addressed. The basis for the conception, operational implementation and launch of a digital assets offering is to ensure the relevant expertise in the appropriate depth and breadth both in the project team and in the specialist departments involved during the conception and implementation phase, the leap from a project-oriented way of working (Change the Bank, CtB) to operation (Run the Bank, RtB), and anchoring in the corporate culture .

This two-part blog post outlines selected challenges in these three fields of action, presents exemplary measures, describes success factors, and highlights key takeaways.

Initial Situation

The illustration of the fields of action below assumes the following initial situation for a financial institution:

  • The strategic decision to launch a digital assets offering was taken at Board of Directors (BoD) and Executive Board (GEB) level and the project was approved.
  • The project team has the necessary resources (budget, time)
  • Suitable opportunities and the initial target model [a] for operational implementation have been outlined (here: target model “Intermediary for Digital Assets”)
  • The initial offering within this target model comprises the trading of selected digital assets via the bank. The custody and trading of the assets on crypto exchanges is handled by an external partner.
  • The offer is basically open to all customers, but in the first phase the focus will be on wealthy private customers and initially, the bank will not provide any advisory services (execution only).
  • First further development steps are already planned (e.g. inbound & outbound delivery of digital assets from customer or to customer wallets, further services such as staking etc.).
  • Agile[b] methods & tools are used selectively for the conception & implementation of the offer [c] but not consistently in all organizational units

For the purposes of this blog post, it is assumed that the bank’s senior management, as well as the board of directors, have given considerable thought to the strategic positioning of the bank’s digital assets offering. This includes answering the following questions, among others:

  • How does the offer contribute to the achievement of our strategic objectives (e.g. acquisition of new customers, etc.)?
  • How does the offering help us position or differentiate ourselves from competitors?
  • How do we want to be perceived by stakeholders and to what extent does the range of digital assets influence this external perception?

Furthermore, the design and implementation of the offering are made a strategic initiative so that they receive the necessary priority in resource allocation. In addition, sponsorship of the project is anchored in senior management. Without the commitment of the GEB and the BoD, the positioning within the corporate strategy and the willingness to provide resources for the conception, implementation & launch, the likelihood of success decreases noticeably. 

Field of Action “Concept & Operational Implementation”

The blockchain industry and digital assets are a new asset class compared to established investment products such as stocks or funds. The underlying blockchain technology is seen to have a lot of potential and in recent years solutions have emerged for a variety of potential use cases, e.g. tracking delivery information of goods in supply chain management[2] or the tokenization of previously non-bankable assets such as art objects[3] [4]. This has occurred at a very rapid pace, often in an unregulated setting. The drivers of the development are start-up companies that attract highly skilled workers with relevant expertise in the context of blockchain and digital assets. Freedoms in work design, programs for participation in the company’s success, or a clear vision and mission of the company are points of attraction for highly qualified workers with the corresponding know-how in the context of digital assets or blockchain.

When designing and implementing a digital asset offering, relevant know-how is necessary in the project team right from the start. Employees often already have know-how, e.g., through private involvement with the topic, or innovation departments have built up know-how as part of their work. The challenge, however, is to ensure that the project team has the appropriate depth and breadth of know-how at the start of the project[5]. In addition, the aim is to bridge the gap between banking expertise and specialist knowledge in the context of digital assets. The complexity of the issue increases with each additional specialist department involved. Questions that may arise in the course of this process include, for example, how digital assets are treated in the context of the bank balance sheet or how external cooperation partners can be mapped as counterparties.

Field of Action “Change of Working Method from Ctb to Rtb”

The concept for the digital asset offering has been finalized and the first tests in production are planned. If the tests are successful, the handover into operational mode is foreseeable for the project team. So far, conception and implementation have been driven by the project team, which has acquired a great deal of know-how and built up corresponding competencies during this time. During this time, specialist departments have been involved on specific issues and the project results have been documented. In accordance with the nature of project teams, responsibility is to be transferred to the broader organization in RtB mode. This raises the following questions, among others:

  • Which organizational unit or specialist department will take the lead in the future and further develop the topic?
  • What resources are required in the relevant organizational unit or specialist department to support the topic? What know-how is required and how is it ensured?
  • How can the explicit and implicit know-how built up in the project team be captured and passed on?

As can be seen from the exemplary questions, the topic of know-how plays a key role in the transfer from CtB to RtB mode. On the one hand, the relevant know-how should be secured in the right places in the organization or specialist department and, on the other hand, the responsibility for the targeted development of know-how should no longer lie with the project team. Derived from the requirements for the available know-how, the provision of corresponding resources in the form of budget or new recruitments is often necessary.

Field of Action “Anchoring in the Corporate Culture”

As part of the tests in the production environment, other relevant departments are first identified and involved (e.g., Application Management & System Engineering for mapping within the IT infrastructure such as the core banking system). Finally, for the successful launch of the offering, other departments are also involved, such as the sales organization with customer advisors, customer support or call center. Experience shows that employees have already come into contact with the topic of blockchain and digital assets in one way or another, e.g. in the media, through online documentation or in conversations with customers and in private. This can give rise to certain attitudes and expectations that can lead to uncertainty, e.g., with regard to what requirements are placed on the technical know-how of employees. The lack of tangibility of digital assets, the frequently low level of prior experience with the technology, and the associated complexity can lead to further uncertainty. In addition, (negative) media coverage influences employees, e.g., as recently seen in the context of the insolvency of the crypto exchange “FTX.com”[6]. In order to reduce this uncertainty with regard to digital assets, communication on the part of management and corresponding training opportunities play a critical role[7].

Another challenge in this field of action is managing employees’ expectations with regard to the digital assets offering. This includes the expected scope, the time availability of the trading venues and its impact on working conditions as well as the involvement of employees in the further development of the offering. For example, does the bank only offer trading of digital assets or does it also enable the inward and outward delivery of digital assets from customer holdings for internal custody? How does the fact that trading on crypto exchanges is generally available 24/7/365, as opposed to traditional trading venues, affect working hours? How can employees contribute ideas to further develop the offering and what involvement is expected of them, such as gathering customer demand for additional digital assets? These are just a few of the questions that need to be addressed in order to give employees security with regard to their future area of responsibility.

Offering digital assets can help the bank position itself as an innovative financial institution, but there are also economic expectations associated with it. Business units with customer contact are often managed on the basis of defined criteria (e.g., number of customer meetings in a period, products placed, or new money inflow). With digital assets, these objectives are expanded, which can raise questions about prioritizing the new offering compared to existing products & services.

Summary & Outlook

The exemplary challenges during conception and implementation, during the change to the operating mode, and during anchoring in the corporate culture show the complexity of launching a digital asset offering. A common element in the three fields of action is the topic of know-how, which is initially acquired, transferred to the organization and ensured as part of cultural anchoring. In the second part of the blog post, selected measures for dealing with the challenges in the three fields of action will be outlined, success factors described and key takeaways identified. 

[a] An overview of possible target models in the regulated space can be found here: https://ccecosystems.news/en/target-models-for-a-digital-asset-offering-in-the-regulated-space/

[b] This article explains agility in the context of the Spotify model https://ccecosystems.news/en/why-spotify-did-not-use-the-spotify-model/

[c] You can read about how agility supports the adoption of blockchain in the blog post “Part II: Need for Change – Transformational Needs and Best Practices for Enterprises Using Distributed Ledger Technologies” under the heading “Transforming organizational culture

Sources

[1] Lange Zeit spotteten Banken über Bitcoin, jetzt findet ein Umdenken statt: warum die Finanzbranche Kryptowährungen auf einmal ernst nimmt (NZZ, 2022); Abgerufen am 24.11.2022, von https://www.nzz.ch/finanzen/lange-zeit-spotteten-die-banken-ueber-bitcoin-jetzt-findet-ein-umdenken-statt-warum-die-finanzbranche-kryptowaehrungen-auf-einmal-ernst-nimmt-ld.1698763?reduced=true

[2] Blockchain for supply chain solutions (IBM, 2022); Abgerufen am 12.12.2022, von https://www.ibm.com/blockchain-supply-chain

[3] Beispielhaft: Kunstwerke tokenisieren (VP Bank, 2022); Abgerufen am 12.12.2022, von https://www.vpbank.com/de/privatkunden/anlegen/digitale-vermoegenswerte/kunst-tokenisierung

[4] Vgl. Tokenisierung von Assets, der nächste Hype nach Bitcoin – ein Blick auf das Wertversprechen (ccecosystems.news, 2021); https://ccecosystems.news/tokenisierung-von-assets-der-naechste-hype-nach-bitcoin-ein-blick-auf-das-wertversprechen/

[5] How financial firms can jump-start their digital asset strategies (EY, 2022) ; Abgerufen am 12.12.2022, von https://www.ey.com/en_us/financial-services/how-financial-firms-can-jump-start-digital-asset-strategies

[6] How financial firms can jump-start their digital asset strategies (EY, 2022) ; Abgerufen am 12.12.2022, von https://www.ey.com/en_us/financial-services/how-financial-firms-can-jump-start-digital-asset-strategies

[7] Fünf Handlungsfelder für Change Management (Lippold, 2019); Abgerufen am 12.12.2022, von https://www.der-bank-blog.de/fuenf-handlungsfelder-change/fuehrung-und-management/37658406/

Dominik Jocham
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