German banking leader Deutsche Bank AG is turning to blockchain technology to address margin pressure in the financial sector. The bank has begun testing a new platform built on the Ethereum network.

This platform, part of Project Guardian initiated by the Monetary Authority of Singapore, offers digital services for tokenized funds. The project aims to investigate the benefits of blockchain in terms of liquidity and efficiency.

Addressing Declining Margins

With the rise of passive investment products, fund managers are seeing a steady drop in fee revenue. A study by the Boston Consulting Group found that the average asset management fee fell to 22 basis points in 2023, down from 25 basis points in 2015 and 26 basis points in 2010.

Project Guardian, a collaboration between policymakers and financial institutions, explores tokenization in fixed-income, asset management, and foreign exchange sectors. Anand Rengarajan, Deutsche Bank’s head of securities in Asia Pacific, noted that innovation is key to staying relevant amid industry-wide margin compression.

Benefits of Blockchain and Smart Contracts

Rengarajan highlighted that using blockchain and smart contract solutions can reduce costs, risks, and transaction times for the bank.

Developing Tokenized Fund Services

Deutsche Bank plans to launch record-keeping services to help issuers of tokenized funds track investors, manage custody arrangements, and perform valuations. This initiative reflects the bank’s dedication to using blockchain for improved efficiency.

The platform aims for interoperability, allowing fund managers to use it regardless of the blockchain technology they prefer. Although still in the proof-of-concept stage, the ultimate goal is to commercialize the project. Rengarajan expressed optimism about the investments made over the next few years leading to a successful commercial outcome.

Last year, Deutsche Bank partnered with Swiss crypto technology firm Taurus SA to develop a digital-asset custody service. The bank recently also recognized Bitcoin as an important asset class.

In conclusion, Deutsche Bank's foray into blockchain technology represents a strategic move to counteract margin compression by leveraging innovation to boost efficiency and reduce costs in the financial services industry.