Banks embrace blockchain: Why traditional finance wants to change

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Banks embrace blockchain

Why should digital money have banking hours?

Banking already feels almost entirely digital to customers. People check balances on their phones, pay with cards and send money without visiting a branch. Behind that experience, however, parts of the financial system still depend on operating hours, settlement windows and chains of intermediaries.

That becomes particularly obvious with cross-border payments. Money may need to pass through several institutions, currency conversion and separate settlement processes. Time zones, weekends and cut-off times can still add friction even though, to the customer, moving money may involve little more than pressing a button.

Some banks are already trying to remove those constraints. Wells Fargo, for example, plans to introduce tokenized deposits for corporate clients this fall, allowing funds to move and settle 24 hours a day, including weekends and holidays. Blockchain does not remove the bank from that transaction, but it could remove some of the waiting.

Banks want blockchain without giving up banking

Bitcoin was designed to reduce the need for a trusted financial intermediary. Banks are interested in blockchain for almost the opposite reason: they want some of its advantages while preserving their own role in the system.

BankChain makes that explicit. Its planned network will be owned, designed and governed by the banking industry rather than operating as an open network.

“This is about banks of all sizes building their own future,” said Kathy Kraninger, interim chair of BankChain Alliance and CEO of the Florida Bankers Association.

Tokenized deposits show how that could work. A tokenized dollar deposit is still money held at a bank. Customers retain the protections and relationships of conventional banking, but the deposit can potentially move through blockchain infrastructure around the clock and interact with other digital assets.

Blockchain is becoming part of banking around the world

American banks are hardly alone. In the UK, Lloyds Banking Group completed three live tokenized-deposit transactions in July as part of Project Agorá, an international initiative testing how tokenization could improve cross-border payments.

One transaction converted Swiss francs into sterling while linking the currency conversion, payment and settlement into a single process. Normally, those steps can move through different systems and institutions. The test showed how they could instead happen together on shared digital infrastructure.

The project goes considerably further than one British bank. In July, 28 financial institutions and central banks across Asia, Europe and North America completed real-value transactions using tokenized commercial bank deposits and central bank money.

Crypto changed what digital money could look like

Banks now face expectations that barely existed before crypto. Bitcoin showed that digital value could move without conventional banking hours, while stablecoins took that idea further by allowing digital dollars to move across blockchain networks without Bitcoin's price volatility. Whatever someone thinks of crypto, it has demonstrated that money does not technically have to stop moving because it is Sunday.

That does not mean stablecoins are about to replace bank deposits. Banks provide lending, deposit protection, compliance and connections to the wider economy that a token alone cannot reproduce. But once money can move continuously elsewhere, restrictions imposed by traditional infrastructure become harder to treat as inevitable.

Banks are changing the technology, not their role

There is still a large gap between successful tests and rebuilding financial infrastructure. Different blockchain networks will need to communicate with each other, while systems handling enormous volumes of money must meet demanding security and reliability standards. Around-the-clock payments also require technology, liquidity and risk management that operate around the clock.

Yet banks are clearly moving beyond experiments. Major institutions are launching tokenized deposits, international projects are moving real money through blockchain systems and thousands of smaller U.S. banks now want access to the technology.

Bitcoin’s answer to weaknesses in banking was to create money that did not need banks. The banking industry’s answer seventeen years later looks very different: keep the banks, but rebuild some of the machinery underneath them. The first Bitcoin block carried a headline about rescuing banks. Now the banks themselves are turning to blockchain to prepare for what money looks like next.

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