Creating a stable coin backed dollar-for-dollar with bank reserves helped solve a customer need at one of Australia's largest banks. Learn how TradFi (traditional finance) is bridging to DeFi (decentralised finance) at ANZ Bank. LIVE from Hong Kong FinTech Week and Singapore FinTech Festival.
Walter Jennings: Welcome to Waves in the Finoverse. I'm Walter Jennings, the host of a podcast brought to you by Finoverse. We're talking with the wave makers creating ripples, waves, and tsunamis across finance, crypto, FinTech, Web3 and beyond. Listen weekly to hear the changemakers talk firsthand about their experiences in this dynamic industry. We're live from Singapore FinTech Festival. I'm your host Walter Jennings at Waves in the Finoverse. And today we're going to go down under and talk with David Buckthought, Head of Technology for international payments and digital assets at ANZ Bank. Welcome to the podcast, David.
David Buckthought: Thank you. Thank you for having me.
Walter Jennings: Now, David, technology in international payments and digital assets. You must be in your element here at Singapore FinTech Festival.
David Buckthought: It's an exciting space, I walked in today, today is my first day through the festival, and I was just blown away by the amount of booths that are just purely around crypto digital assets, payments. I never realised I was going to be such a huge thing coming through.
Walter Jennings: Yeah. Now, as you've been with ANZ over 12 years, you're obviously familiar with the payments landscape. And, I guess, the godfather of the payment system, Swift. So you've got both centralised finance, as well as DeFi. Let's talk first about Swift and the way that's used in the bank and the priority that has.
David Buckthought: Swift is still huge for us. We still will process 99% of our international payments through a Swift network. And some of the things it does really well. It's got mass adoption across the world. So there are over 10,000 banks that are participating across the Swift network. And it makes it really simple for us to have standardised capability site, standardised governance processes through. So there are some positives around Swift. And as I said, the rest of the industry probably hasn't caught up quite enough yet to be able to really start challenging swift in that space. But it's happening and it's happening really quickly.
Walter Jennings: It's a little bit like Facebook, when everyone's on it, you have to be on it.
David Buckthought: Exactly right.
Walter Jennings: Yeah. Now, at the same time, we're seeing the rise of blockchain solutions. What are some of the benefits that blockchain bring to the payment services.
David Buckthought: It's an interesting one, and have been trying to work this out through my own mind, probably over the last couple of years. And I think even the step before blockchain really kicked off in the finance industry over the last two years, a lot of fintechs were coming into the game as well. And we'd see that they were disrupting the payment industry through new services, cheaper services, easier to-consume services. And I think blockchain is just adding another sort of technology to those startups, another way that they can help reduce some of the friction.
And if I look at where I believe the friction is a lot of people talk about this really long delay across sort of Swift payment processing. And sometimes it's true, sometimes it's not. The bits, that we'll start to see, a real movement on is probably more on the ability to tie the value transfer to the transaction itself. So instead of having a transaction where I sell you a share or a house, and then I have this payment settlement side that runs in parallel, and we lose track of where each other are at and we need to reconcile them. We can tie those two together and have atomic settlement of the transaction itself.
And I think that's where we're going to really see the reduced sort of time delays in the process. Cost is a bit of a factor. But most of the cost doesn't come from the Swift network. It comes from the multiple banks in the chain. And because we need the multiple banks, everyone has a little clip along the way. For the processes they do now, this becomes a lot more or sort of induced and use a kind of transaction settlement. So what we'll find is the cost reduction through those kind of processes as well.
Walter Jennings: We have heard the term DeFi or decentralised finance and the term CeFi, centralised finance, it seems you're right at the intersection of the two worlds. And that's where the gears start to grind a little bit. How are you finding? Is it smoothing out a bit? Do we still have some years of heartache ahead?
David Buckthought: This is a fun topic. I think this one is the true evangelists around DeFi. We don't need banks, they don't play a part in this world, the whole model is set up. So it's decentralised. And we don't want people in the middle controlling. And then you've got the banking sector that goes "well, hang on, I think there's a place to play in here". And I don't know where this goes over the next 2-3-4 years.
But I do think banks still provide value to customers. And I think this is the key that we need to start working out. It's not about the product that we're trying to do, the payment that we're trying to make. It's what value do we as banks actually play in that process? So if we're providing a trust, kind of value, that you can custody your coins with us, you can trust us for your key shares, you can do all those kinds of things. Maybe that's a space. So unless you can prove that value for customers. I don't know where you go around with it.
Walter Jennings: I think,David, it's an ecosystem question. And it's not a question of one versus the other. Because there will always be people using traditional banks and others who want to remain completely in DeFi. And in between those extremes, there will be 1000s of shades of grey with plenty of opportunity.
David Buckthought: 100%. And this is where I even look at Swift versus blockchain. And I don't see it as a Swift first blockchain necessarily, I kind of see it as a use case play. So while we're processing payments, we need to be able to make logical decisions. Is swift, the best network to actually process this for and there will be a bunch of reasons why you could go either way. Is blockchain the best way to do this for direct API's with partner banks? Is that the best mechanism? So I really like tying it back to what is the customer trying to achieve out of it? What's the use case? And what technology do we want to run with?
Walter Jennings: I don't remember whether this is an American or Australian saying having spent 12 years down under but horses for courses, you don't want to run a mother on a dry track and vice versa.
David Buckthought: Exactly right. And for all the Australian listeners, the Melbourne Cup, carnivals happening at the moment and tracks are wet.
Walter Jennings: Well, then you're gonna want a mother. Okay, now, look, there's been a fairly exciting development recently. You've got a coin out there. Can you tell us a little bit more about that?
David Buckthought: Yeah, so really exciting. So the wheels really started turning at the start of this year, and I being in banking for the last 10-15 years. I'm quite accustomed to how slow banks can move. But I have been amazed in what we were able to do in such a short period of time.
And really, when we focused on the outcomes. Be able to turn this thing around in two-three months. So what we're able to do is when we started looking at, well, where do banks play in the digital assets, world? And what kind of things that would customers want from us, we kind of narrowed it down to a few core components, when we knew we would want a custody solution, we knew we would need to have some sort of ability to transfer value, because we really believe in the tokenized economy. And for that, you need to be able to then have a coin that moves the value around.
So one of the very early things that we did was mint our first Aussie dollar stablecoin. This was 100% collaterally, backed, deployed on the Ethereum network. So first of its kind globally, for a bank issued coin on a public permissionless Blockchain.
Now, we say Ethereum but very chain agnostic, we've been able to prove the deployment across multiple chains now. So again, the whole horses for courses comment, we don't want to put all of our eggs on a particular chain and go "Yep, that's where the future is going to be". We believe in the theory and we believe in the developer community that supports it. And we love just having the EVM standards that we can sort of back onto but we do want to make sure that if we find that private chains are better for a particular set of use cases that we can still use our coin across though.
So through that process, we were able to find a customer that was really keen to participate with us. They wanted to be able to purchase some traditional crypto currencies through an exchange they worked with zero cap and we came together as a bit of a partnership and said for customer lead, this is exactly where we want to be.
And you guys need the ability to move Aussie dollar fear into a USD through. And we use the Euro cap to make a markup from our Aussie dollar coin to USDC, and they're straight conversion now USDC, meaning the USD dollar digital currency. So predominantly a lot of our cryptos in the market traded through a USDC leg, so we had to get it over there. Their traditional flow was a couple of days to execute there.
So traditionally, they need to move the money to an Australian bank that would need to send it to a US bank that would need to get it to a particular US bank that would be able to issue the USDC coin. This was a long process, costly process. And what we were able to show is we could bring that down to minutes. And this is where I think customers are really starting to see the benefit of what we're doing. So that just keep going down that customer led customer value side for us and the Aussie dollar coin. I think we got a lot of marketing and a lot of hype.
And one of the best parts I think for ANZ was regulators really started to take note, we took the Australian regulators along the journey with us. And it really started helping them go. There's something here, this is real, we really need to start working on our policies as well. Already happening on the side. But it started just moving that sort of cog a little bit faster. So the industry started getting excited, other bank started questioning what we're doing and wanting to work out how they could start moving down that path. So..
Walter Jennings: David, for our listeners who may not be deep into crypto, can you define the stablecoin?
David Buckthought: Yes, so a stablecoin is and there's multiple varieties of stablecoins.
Walter Jennings: But let's talk about the Aussie dollar stablecoin.
David Buckthought: Premise of a stable coin is it's 100% collaterally backed. And the reason why that's important for us and important for a lot of use cases is you don't have the wild fluctuations that you can get in the existing crypto market because ours Aussie dollar coin one for one. So if we minted a single Aussie dollar coin, we had one Aussie dollar sitting in a reserve account held by ANZ.
Walter Jennings: Got it.
David Buckthought: So that mean, at any given time you knew you had redemption capability for that coin, you didn't need to find a market on someone who's willing to buy it, you had $1 that was being backed by
Walter Jennings: Now, that wasn't the case with other stable coins. And we've seen some spectacular collapses, it must have been a little awkward coming out with the Aussie dollar stable coin at the time others were imploding.
David Buckthought: The timing was just amazing. So as I said, there's a lot of different types. I think the biggest one around the algorithmic side of it. Now, you can always break those net. Long term they're probably not going to lose their pegging. But there is that risk profile.
So I think if you look at the way we did it, we said we don't want to take that risk completely out of the equation, because we want to be able to convince the industry, we want to be able to convince our regulators that this is such a safe means and this coin is just a representation of what you've always known the Aussie dollar. So being able to do that 100% collateral impact rather than using an algorithm to be able to support it was important for us.
Walter Jennings: So, David, the earlier stablecoin issues were not similar model. They hadn't had the same reserves backing them, is that correct?
David Buckthought: There's so many stablecoins out in the market. They've got so many different varieties of ways to do it.
Walter Jennings: One Korean has the collateral back?
David Buckthought: That's correct. Yeah.
Walter Jennings: This is not central bank digital currency, or CBDC. Can you kind of talk our listeners through the difference between a stablecoin, Aussie dollar coin, and a central bank digital currency?
David Buckthought: Yeah. So it's going to be interesting over the next sort of 6 to 12 months. Every central bank is now looking at CBDC. So what CBDCs are is basically the central bank digital currencies or digital coins and they mint their own. And then they circulated as they would print paper money.
Walter Jennings: The Reserve Bank is in Australia would be the one to look for those developments.
David Buckthought: Yes. So they've just kicked off a project, actually in the participation with a lot of the finance industry and a lot of the players that are looking into the digital asset space at the moment, and working out well. What what is the CBDC? Why would a regulator want it? Why wouldn't we use a bank issued stable coin? So starting to go, what are all those different use cases? Where do their lines start and stop? Do they only issue to banks who then sort of provide that out to the wider community?
So there's a lot still to happen in that space. And I think we're seeing regulators across the globe. I know Mads is being asked actively looking at this over the last 12 months as well, and every other jurisdiction. So it'll be interesting to see where this lands in two or three years time and how much convergence we have around the way regulators are looking at it. Or how much they diverge and just go, this is our country. And this is how we think it will best sort of make use.
Walter Jennings: Yeah, we're actually at Finoverse, the official appointed organisers of D3 Bahamas 24 to 26, January next year, and one of this tracks will be regulator showcase, because the Bahamas was issued one of the first central bank digital currencies, with the sand dollar. So there's been quite a lot of interest from regulators around the world where what were the problems that they solved? How did you go about it? And certainly the Aussie dollar coin would be of interest for that audience as well.
David Buckthought: Yeah, I hope it would be, I'd love to get some information out there. I think the other thing that regulators are really looking for is the industry to help guide them. So one of the great things about our Aussie dollar coin, and where we've got to over the last 9 to 12 months is sort of our partnership play. So Chainalysis, is a company that we work with quite a lot.
Walter Jennings: And we've had some of their professionals on our show. So we're very familiar with Chainalysis.
David Buckthought: Fantastic. And one, not just their technology is great. But one of the other upsides to them is they work really closely with all of our regulators in Australia. So when we go back to them and say "Hey, we'd like your approval around these use cases that we're doing". They already see Chainalysis, is name on that and they go "Great, we're comfortable with that".
They see Five Blocks name on it, and they say "We really respect their security standards tick. We like that". They see our OpenZeppelin audit reports and go yes, sort of leading the market in auditing of smart contracts and said "You're doing everything right". So that partnership play was really important to us as well.
Walter Jennings: Well, it sounds like for the Aussie dollar coin, you had to look away from CeFi or centralised finance and dive deep into DeFi. Can you introduce us to DeFi and how that world works for you?
David Buckthought: Yeah, it's again, it's one of ones that my mind is kind of been evolving over the last 12 months. I think where I started at the start of this year, and where I thought we would actually be building technology and where we'd be participating completely changed to now. One of the things that I'm a strong believer on is the tokenized economy, I think that you look at all the benefits around tokenization of real world assets, financial products, the way that you can fractionalize those and get them to a much more adoptable state, you don't need to buy half a full house anymore.
You can tokenize the title, and then you can fractionalize that and buy 100 of a house, so you get a lot more people accessing markets. So we really believe that is somewhere that the world's going to go, and then we just need to work backwards. Where do banks actually add value in that larger process? Do we offer tokenization as a service? Do we look at the stable coin being the facilitator of value movement? So it's going to be a really interesting space? And I gotta admit, I don't know what, where, where I'm going to be in 12 months time with it. But it's exciting.
Walter Jennings: Now, I think the toothpaste is out in the tube. And it's not going back in. Now, what are some of the technologies that are catching your attention at the moment?
David Buckthought: So quite a few of them that I just mentioned. So we're loving the way that Five Blocks goes around sort of their sharding of the keys and their security pieces. So having that kind of MPC model on the way they built their security. We were really enjoyed that. I think, Chainalysis one of the reasons why we have really enjoyed working with that team is that internally and externally, a lot of the time there's this aura of it's a little unknown black box, sort of the DeFi world we can't control where the money's going to. How do we know it's not you being used for sort of nefarious activities, and they're able to be up show all of our risk and compliance teams that the visibility you can get is amazing. It's probably better than what are traditional finances.
And now some of the problem is well, when do your obligations stop if I know five hops away that this has happened? Is that still something that I've got Got a an obligation to be able to stop report on do something else. So I think it's just that the technology companies are just shooting the lights out and being able to provide us so much more information, so much more capability. Now it's just a matter of how do we not get lost in all of that? And how do we really line up what's important and focus on getting those right
Walter Jennings: Now, the payment services, you are Head of Technology for International Payments and Digital Assets. And of course, here at the FinTech festival, we're seeing Payment Services everywhere, real explosive growth in the last few years, but you're also responsible for digital assets. And I'm interested to understand kind of ANZ's view on digital assets, perhaps at the institutional and retail level.
David Buckthought: So from a technology side, from my perspective, it's a really interesting kind of intersection of payments and digital assets. Because I don't see them as these competing worlds, I really do believe that we'll find payments will use a lot of our blockchain technologies in the future. And probably for quite a long time, they'll continue to use a Swift network or a visa direct API or a multitude of other capabilities that are out in the market.
The key thing for us is being able to build flexibility in our sort of workflow to be able to go alright, we need low cost, we need high speed, we need transparency, we need these kind of attributes. This is the best way to route our payment, we need to digitise it, we need to get it through a blockchain network or we need to get it to this mass adoption space, we want to use the Swift network. So being able to have that flexibility and as different technologies mature and they get more capabilities than we can just flip between them.
I think from a broader ANZ perspective on digital assets, we're very focused around the institutional side of the world at the moment. So a lot of our sort of customer demands coming through that space. So really focusing on getting those core banking services, right, so the ability to have a stable coin, the ability to have custody, and to transfer. Now, what that will allow is all divisions across the bank to be able to then say "Fantastic, and my use case can use that, that then that". And within a month, a couple of weeks, however long, they're able to roll out their own sort of use case to be able to provide that kind of plumbing network.
Walter Jennings: Now, David Buckthought I seen your driver's licence, I understand your middle name is security. So can you help us understand how you're using DeFi and tools to enhance and ensure the highest levels of security?
David Buckthought: Yeah, so security risk is always the two that pop up. And whether it's fin crime risk, or anything else. It's so evolving, I think, if you look at what's happening in sort of the industry at the moment, with data breaches across every industry, in traditional sort of finance, traditional business, there's no difference in my mind on sort of your exposure threat across a digital asset kind of world versus a traditional finance world. They're just different.
So security is foremost for all ANZ. We're really strong around that. And every time we do a deployment through this, we go through the strictest kind of risk controls our cyber team is involved actively with all of our discussions that we go through, what we're finding is having Five Blocks or companies that we then use as a way to be able to authorise transactions across networks is really good for us. The way that they do their authentication, and they're signing their security standards, really top notch.
So we make sure that every time we build something ourselves, or we enter internal partner agreement, that those two pieces around risk, compliance, security, always the first couple of questions asked, and once we get past that we go, all right now what's your capabilities? And how do we move from there. So it's going to be a really fascinating space over the next two to three years, I think every time a new technology comes out, there's always people that are trying to work out how to breach it. And then there's always institutions trying to work out how to stop them.
So we'll just see this evolving kind of threat matrix and then a process of being able to add in a new technology to stop it.
Walter Jennings:Look that AI maker checker kind of, you know, try to breach it, try to fix it, fix it and that's a constant game that will never end even when our children are sitting in the podcast. Now listen David, you're from Australia, passing through Singapore, where are you on your way to next and why?
David Buckthought: So off to India on Sunday, so flew through Singapore landed on Wednesday. We've got a significant team out of Singapore. So it's our Asia APAC hub for ANZ. And I've got a large development team in India in Bangalore as well. So actually on the way to see them, it's been three years of COVID lockdown so there is a lot of people I haven't seen in a while and it's just it makes such a difference to sit down with people have a coffee, have a chat and really get to know him on a personal level again, so really looking forward to it.
Walter Jennings: I'd forgotten what human contact was. David we end our show with the segment we called tracks in the Finoverse. So we asked people there the music that's going to power them along through the Finoverse and what song would be your on your journey?
David Buckthought: Ah, look. Honestly, I think what we need to be able to do in this industry is just keep pushing forward. So I'm going for push it by Salt and Pepper.
Walter Jennings: Oh, awesome. That's very good.
David Buckthought: So real flashback to the 80s
Walter Jennings: Will allow listeners here to close out our interview with David Buckthought, Head of Technology, international payments and digital assets at ANZ Bank. Thank you so much for being a guest on Waves in the Finoverse.
David Buckthought: Thank you for having me. It's fantastic.
Walter Jennings: See you soon.
