How payments will advance after the crypto crisis
Northern Trust, the major institutional bank based in Chicago, works with clients that hold significant amounts of digital assets so it has a keen interest in how the world of payments and banking develop alongside the evolution of crypto. While it doesn’t hold or custody digital assets for clients today, that’s likely to change one day.
Specifically, the bank expects that in just seven years, by 2030, somewhere between 5% and 10% of its assets under custody may be digital assets, such as cryptocurrencies, stablecoins, central bank digital currencies (CBDCs) or tokenized digital assets, a spokesperson for the company said.
For now, the bank plays a role in advising clients on the movement of the assets in collaboration with its partner Zodiac Custody, which is the custody agent for the assets.
In a Dec. 5 interview, Peter Sanchez, an executive vice president at Northern Trust who heads up banking and treasury services, discussed how he sees payments and the movement of money evolving alongside digital assets following the collapse of the crypto exchange FTX and other crypto companies in recent weeks.
Editor’s note: This interview has been edited for clarity and brevity.
PAYMENTS DIVE: Did the FTX crisis obliterate the possibility of crypto becoming a more mainstream payments option anytime soon?
PETER SANCHEZ: I would say probably not obliterate, but probably pushed it back a little bit. And I think, there’s probably going to be a pause. There’s going to be reflection by the market. And some of the other options, in terms of real-time payments, and where the market is going from an overall payments perspective, may even push it out further.
PAYMENTS DIVE: Talk to me a little bit about how you think the FedNow real-time payment system might be useful to Northern Trust or its clients.
PETER SANCHEZ: Given the low-value transaction amount that we’re seeing in the FedNow schema limit of about $500,000, with client settings at around $100,000, FedNow will be more popular with retail and corporate spaces initially rather than institutional banking, which is what we have a focus on.
PAYMENTS DIVE: What dollar threshold would FedNow have to touch to be more relevant to Northern Trust and its clients?
PETER SANCHEZ: It would have to get into the millions (of dollars) in terms of the money that we move for our clients – you’re talking about significant institutions, significant net worth individuals and also those service agents, both custodians and administrators, that service the admin funds today. So, basically, the fund admin business and the related investments into those funds are all done at the million-dollar level.
PAYMENTS DIVE: How are ACH or other digital payment schemes lacking for the bank’s purposes and how could they be upgraded?
PETER SANCHEZ: I think moving towards a real-time payment environment is essential in the payments business in terms of fraud and in terms of efficiency and in terms of just the overall process and control environment.
PAYMENTS DIVE: How about with respect to cross-border payments and your bank’s use of the Swift cross-border network?
PETER SANCHEZ: We believe, from an evolution perspective, cross-border payments will drive innovations within the (Swift) network, specifically with more central pre-validation of cross-border transactions before they’re allowed to be sent, reducing the error process and speeding up payments and receipts getting to client accounts. Secondly, there will be a linking between cross-border and domestic payment schemes, thus reducing the friction and speeding up client experiences of sending and receiving payments anywhere in the world. Long term, the evolution of an open API global payment ecosystem could ultimately bring significant change to the Swift cross-border network as we know it today. Short term, not much will change, but there will be support for making the cross-border system more streamlined.
PAYMENTS DIVE: What regulatory changes may be required and how might they unfold?
PETER SANCHEZ: I do think that you have to optimize the whole AML KYC (anti-money laundering and know-your-customer) process and try to make that more efficient. And then once you do that, the payment process should be a little bit more streamlined. So the ultimate answer is: There’s going to have to be some form of regulation that allows it to happen.
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