EXCLUSIVE: “Digital Assets Are Coming. But Maybe Not In the Way You Think.” – Alex Gatiragas, G+D in ‘The Paytech Magazine’

G+D’s Alex Gatiragas explores the inevitability of decentralised finance

‘Digital asset management is no longer optional for financial institutions.’

That’s according to fintech writer Ian Horne who also leads content at one of the world’s leading fintech conferences. More and more people are starting to agree.

The use of digital assets as investment and decentralised finance more generally has grown from a desire to “facilitate peer to peer transactions, without the need for financial intermediaries.”

But despite the promise of finance without borders, it would seem institutional support is needed in order to increase adoption amongst consumers. A recent VISA study found that 59% of consumers believe digital assets require established financial institutions to achieve wider adoption. Responding to this, HSBC, JP Morgan, Deutsche Bank and many more established multinational financial institutions are working on digital asset management offerings.

There is clearly an appetite for digital asset investment that needs to be served. Interest has exploded in the last 5 years, with crypto and retail investor platforms offering ease of access to a new asset class. The total value of tokens deposited in DeFi applications is around $80bn. The good news for financial institutions is 39% of existing crypto owners say they will switch to a bank that offers crypto products this year, according to the VISA study.

Many countries are exploring the possibility of a Central Bank Digital Currency (CBDC) issued by central banks, although a clear distinction is made between this and crypto assets as an investment vehicle. But given the popularity of Crypto as an investment asset, it’s now advisable for banks to get on board. There may be a slight irony in digital asset investment only being palatable to the masses when a third party is involved, but we’re still intrigued to know what benefits remain for consumers and financial institutions in this area.

Giesecke+Devrient have now entered this field, looking to make it easier for providers to offer digital asset management services, with their new product Convego TruSafe. Alex Gatiragas, their Director of Solution Experience, is cautiously optimistic about the future potential of this technology.

Where we are now

According to Gatiragas, one driver for established institutions to get involved is that fintechs and newer players are already there. Increasingly, the likes of Revolut offer easy ways to store crypto and other digital assets as well as popular exchanges such as Binance and Coinbase.

“Traditional financial institutions are being challenged by the new entrants in the market.” In theory for banks, once they “introduce similar capabilities within existing channels, accessing these services should be simpler.” “The immediate opportunity,” says Gatiragas. “Is in laying the foundations for these digital assets by providing custody related services. A way to safely and securely hold onto those assets just as I would hold shares in a company or precious metals for example.”

“Purchasing digital assets and holding them as an investment vehicle,” is currently the main use case for most consumers. The release of crypto based ETFs at the start of 2024 helped validate and establish them further as an asset class and major US banks have now given the green light for wealth advisors to sell them to clients. People now have a blend of investments from foreign exchange through to shares, ETFs and now Bitcoin and other digital assets. However, for the time being the value of individual crypto assets fluctuates wildly, making it very difficult to see them as a reliable form of payment.

CBDCs and stablecoins may have wider use in the nearer future, but both have their detractors. The barriers and a way through Even as an asset class there are certain hurdles that need overcoming before
digital assets can be widely used.

“I think the main barriers are convenience, trust and security. We need to build trust in the market itself, because unfortunately there have been cases where hacking has occurred, consumers’ funds have been mishandled, or the experience has simply been too cumbersome.”

To repair the dent in consumer trust following such cases, regulation is needed. The MiCA (The Markets in Crypto-Assets) regulation in Europe should enable crypto firms, such as issuers, exchanges and wallet providers, to operate throughout the European Union if they secure licensing and have provided some clarity on what you can and can’t do.

Gatiragas says “MiCA is a benchmark for global regulation. A lot of regulatory bodies are looking at MiCA, and taking the good bits out of it. Our entry into this market was highly driven by the regulatory environment so it made sense for us to closely follow what they were doing.”

Asia is further ahead still, with certain countries making huge strides forward in the digital asset space. In Singapore, a pilot run by the MAS looking at the adoption of DeFi protocols in regulated markets, identified the importance of regulated institutions acting as “trust anchors,” issuing and verifying the credentials and identities of participating entities. User experience also has a huge role to play.

“For mainstream adoption as digital investment, we need to make sure it’s simple,” says Gatiragas.

Digital wallets could be what’s needed to help with this.

Undergoing increasing adoption through the likes of Google Pay and Apple Pay, digital wallets are also being used for boarding passes, train tickets, and more around the world. According to a recent Worldpay report, digital wallets are expected to comprise half of all e-commerce spend in the UK by 2027, worth £203.5 billion. However, debit and credit card use is still significant, accounting for 46% of e-commerce and 74% of POS transaction value in 2023. Banks can’t move away from them yet. Offering secure digital asset custody however could present a fresh business opportunity.

Digital asset management is coming

G+D are experts in enabling FIs to master mobile banking and digital wallets and Gatiragas can sense an increasing desire frombanks to offer multiple services and added value through a one-stop shop platform. Digital asset capabilities are a natural extension of this, even opening the possibility of funding a digital asset account with another more typical account.

A new offering from them, Convego TruSafe, could present an opportunity for financial institutions to get in on the action, combining physical cards with digital asset technology and security at the heart. And as ‘one of the largest providers and manufacturers of payment cards, and seamless digital payments experiences’ they are well versed in this area.

The product, Gatiragas explains, is a combination of a “card device, which is your cold storage, providing self-custody of your digital asset keys, and a mobile banking app that can interact with blockchains and shift your digital assets around and check the performance.”

Of course, one legitimate concern around digital assets is that their immutability can make them vulnerable. High-profile cases of owners getting locked out of their cold storage, after losing keys, add to the fear. To guard against this, Convego TruSafe, which G+D with its SecurityTech expertise produced in partnership with digital asset specialists eSignus, doesn’t rely on a lengthy password.

Instead, they “fragment a key into ‘shards’, kept in various places. For instance, One can stay at G+D, one can stay with the service provider, the financial institution, and the other one stays with the consumer.”

“If one of those fragments were to get compromised, it has no intrinsic value. You cannot do anything with just a fraction of a key. The beauty is that we keep a backup, so if a consumer loses their card, they can swiftly order a new one, authenticate through the mobile app, and effortlessly activate the new card to regain access to their digital assets.”

It’s a noble and attractive offering that should allow more financial institutions to offer customers, whether tech-savvy or cryptocurious, a way into the digital asset space. It could be that tech like the one above does in fact hold the key to empowering trust and control of digital assets.

“As the digital asset landscape rapidly evolves, financial institutions have a unique opportunity to lead the charge. By integrating secure, user-friendly custody solutions into existing platforms, they can not only address customer concerns around security and ownership but also unlock new revenue streams and position themselves at the forefront of this growing market, capitalising on early-mover advantages.”

This article was published in The Paytech Magazine Issue 15, Page 14-15