The financial industry is in the midst of an exciting phygital transition. Historically, banking operated through analog and physical channels. Today, it is increasingly transitioning to digital channels, becoming the core of its business.
There is a growing regulatory trend in the region to enable Open Finance and the interoperability of financial products. Institutions have already shifted more than 50% of their business to digital channels.
In this context, banking technology becomes crucial for financial entities to not only innovate but also address the “business as usual” in their predominantly digital operations. This has led to a shift in mindset, with banks seeking to participate in new digital ecosystems to capture the future value that their customers are demanding in the short and medium term. One of the technologies enabling the creation of these new financial services is blockchain and asset tokenization.
But what is blockchain, and how does it relate to tokenization? To start, we should see it as a versatile technology, much like the internet, which originally served for sending emails but has since evolved infinitely.
Although blockchain in the region became popular through the buying and selling of cryptocurrencies, it is essential to highlight that it is a technology that goes beyond this. It fundamentally combines a distributed, efficient database for balance maintenance, record historical movements of these balances, process and validate transactions of the assets that make up these balances, and expose this information transparently and immutably. This makes it a cornerstone for the adoption of Open Finance.
On the other hand, tokenization is the virtual representation of a tangible or intangible asset on blockchain, allowing for its division, exchange, and transactional capability. These assets inherit the properties of blockchain and can be used as a means of payment. Integrating this concept into the financial system creates rails that enable multi-asset payments, making financial system holdings liquid and facilitating mixed and partial payments using fiat money, securities, commodities, loyalty points, and cryptocurrencies.
This enables the offering of personalized solutions to address specific market challenges, such as the issuance and transaction of digital assets, digital wallets, the creation of virtual accounts for managing specific-purpose balances, loyalty 3.0 programs, and even cryptocurrency payments processing. All of this is done with the security and transparency that blockchain technology provides.
Integrating blockchain technology into the financial system’s infrastructure (APIs for the existing banking core, clearinghouses, payment schemes, and authorizations), enables financial institutions to develop and deploy innovative financial solutions. Through the automation and streamlining of financial transactions, banks can save time and resources, leading to an improved customer experience and the potential to introduce new products to previously underserved or unbanked markets.
Web3 in the financial sector
Web3 technology is increasingly intersecting with traditional finance, with several compelling use cases emerging. A noteworthy example is the recent launch of ‘n1u,’ a digital wallet tailored to the youth and gaming community, which we developed and invested in collaboration with Visa, and it already has expansion plans for Mexico and Colombia. The wallet offers a comprehensive array of services, including cash-in and cash-out, transfers, QR code-based payment solutions, cryptocurrency trading, mobile top-ups, and even the ability to subscribe to streaming services – all powered by a 100% blockchain core.
Another example is the tokenization of financial instruments for use as a payment method. From atomizing and programming the issuance of trusts and their rules for settlement and subscription, to the tokenization of credit invoices or “accounts receivable” to enable transparent and parameterized crowdfunding. We have worked on both of these use cases with insurers such as Río Uruguay and Banco de Valores, and we are also exploring them in Mexico and Central America.
In conclusion, the opportunity and the time to adopt disruptive technologies in the financial sector is already here. Banks are increasingly defining themselves as participants in an ecosystem in collaboration with fintechs rather than traditional buyers or clients of technological products. These factors create a scenario in which a technological layer that interoperates, is transparent and guarantees the issuance and management of different assets without altering power/competition relationships among financial product providers is becoming increasingly important. I have no doubt that blockchain and Web3 are already a strategic pillar in the dynamics of the financial system and its strategy for the coming years, just as identity and data management are.
At Koibanx, we have been working for 8 years to build, legitimize, and certify the technological infrastructure that enables the inclusion of blockchain as an additional transactional medium in the financial system. This includes not only technical aspects but also legal and operational perspectives, obtaining e-money licenses in the countries where we operate, connecting banking APIs, linking processing rails, and providing institutions with a means for their efficient and seamless participation in the ecosystem.
By Leo Elduayen, CEO and Co-founder of Koibanx
Founded in 2015, Koibanx is a pioneering company providing blockchain infrastructure for the financial system. It leads the technological revolution in the industry in Latin America by offering transactional services and asset tokenization to the banking and financial sector. Through its platform, its clients’ infrastructure becomes more secure, agile, and profitable through asset tokenization, enabling value exchanges and reaching new market segments. Koibanx works by building the rails that enable multi-asset payments, making financial system holdings liquid and enabling mixed and partial payments using digital currencies, fiat money, securities, commodities, and loyalty points.
For more information, visit www.koibanx.com