The unanswered questions on Web 3

Web 3 at Sibos 2022: Reflections on how the conversation has moved on since Money 20/20

Four months after Money 20/20 Europe, Baringa were back at the Rai Conference Centre in Amsterdam for Sibos 2022. With over 8,000 attendees from across the globe it was fantastic to be amongst world leading industry experts in Financial Services, Technology and most specifically Payments.

In July, Baringa shared reflections from Money 20/20 Europe, and the focus on Web 3. Money 20/20 is known for its innovation and start-up community, so it was no surprise that Web 3 was the prominent theme. However, with Sibos historically targeting the more ‘traditional’ and mainstream players, we were assured to see Web 3 dominating 80% of the agenda.

There was a recognition that Web 3 is not just a buzz word for the disrupters or FinTechs but is in fact top of the banking agenda.

In our article ‘Web 3: The star of Money 20/20’, we highlighted four themes that came out of the sessions and discussions we were involved in. It was no surprise that these same four themes emerged during Sibos:

1. Web 3 remains at the ‘emerging’ stage: The feeling during Sibos was one of early exploration across the financial services market. Banks, Payments Service Providers (PSPs) and Regulators are still trying to understand the complexity of Web 3 and the opportunities it will enable so that they can build strategies to respond to these new innovations.
2. Regulation is critical for growth: Regulators and Central Banks were heavily represented at Sibos and openly discussing the progress being made in regulating the digital asset market. One statistic predicted that the tokenised market will hit 0.4% of GDP in 2022 and is expected to be 10% by 2030. The underlying consensus was that regulation will be a key enabler, both for growth and innovation, but also as important for consumer safety.
3. Web 3 continues to enable economic freedom: once again, use cases were referenced regarding ways Web 3 can enable access to digital assets. Interestingly these were not only the usual examples of crypto to avoid corrupt governments but there were discussions about NFTs being available to the masses – the question of whether this digital asset can really help economic freedom is open to interpretation but interesting to see the conversation developing in this way.
4. Partnerships are vital: a major objective for many who attended Sibos was to understand the opportunities around collaboration. Web 3 has enhanced the need to build partnerships across the ecosystem, developing new ways to approach market innovation.

But there were a few notable differences to call out between the two conferences:

CBDCs are the hottest digital asset

At Money 20/20, the discourse was very much concentrated on cryptocurrencies, yet at Sibos airtime was given more to CBDCs. This is unsurprising given the pace of movement in the CBDC market. General agreement was that 105 countries globally are now looking at CBDCs, representing 95% of GDP, which is a rise from the 90-100 countries quoted at Money 20/20. The European Central Bank shared their programme for the Digital Euro with the design work expected to be complete by the end of this year. Further focus was on the launch of SWIFTs test case, with 14 large central and commercial banks teaming up to work through CBDC-to-CBDC transactions between different DLT networks. This will really open up the possibility of cross-border payments in the CBDCs space .

Interoperability remains a key challenge, with privacy viewed as a top concern

It would be unlikely that a conference organised by SWIFT didn’t address interoperability -- as a key focus for any cross-border payments. SWIFT talked about a ‘problem of digital islands’ with the risk that innovations are delivered in silos, which lack connectivity between them. This is as true between Web 3 technologies, such as DLT platforms, as it is between Web 2 and Web 3 technologies. However, interoperability can’t refer only to the technology but also to the policies and functional requirements that enable payments domestically and globally. The complexity of interoperability for Web 3 has not been underestimated, and how privacy is managed in this interoperable Web 3 world is a key challenge that Banks and Regulators will need to explore. A lot of focus is expected on how privacy is approached in the coming 3-5 years and the role of the Regulator in managing this as CBDCs and broader digital assets become mainstream.

The metaverse becomes more tangible

Probably the most surprising development was the sense of excitement around the opportunities that the metaverse can bring. While not expected in the near term, there was an openness to explore the use cases in banking. Despite Money 20/20 being a conference known for disruptive innovation, the discussions around the metaverse felt very intangible. And although still at a nascent stage, the dialogue on the metaverse felt like it had moved on extensively in the four months prior to Sibos. Topics such as how payments could operate in the metaverse, questions around identify and opportunities for Financial Services were covered. The feeling was one of ‘when’ and not ‘if’ a metaverse will be a part of everyday life.

Banks are engaging with Web 3

Sibos was an occasion to showcase the strides that banks are making to engage with, understand and develop their approach to Web 3. The level of progress was varied. Some banks appear to have done little beyond acknowledging Web 3 or trying to educate themselves on what it is. Front runners who have invested more heavily in Web 3 strategies and digital assets largely remain in Asia and Australia. Yet there is a growing middle ground, especially with regards to consideration being given to DLT and blockchain, as well as increasingly attention turning to CBDCs. A key example mentioned already is the pilot being run by SWIFT, with 14 participating banks from across the globe, including: Banque de France, Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo. Bank are definitely taking notice of Web 3 and it’ll be interesting to look to forward to next year’s Sibos where engagement will likely have increased exponentially.

There still remains more questions than conclusions

There are still more questions than answers regarding how Web 3 will impact Financial Services in the next five to ten years. However, banks, regulators and other market players are engaging with Web 3, acknowledging that the potential for innovation is significant, educating themselves on Web 3 and what it could mean for them. As Web 3 evolves existing ways of working, we will continue to share our perspectives in this space, and have created a glossary of some common terms, to help bring some clarity to some of the uncertainty. 

If you’d like help with working through what Web 3 means for your organisation, please reach out to us.