Beyond digital money: making it real

From tokenised homes to faster, simpler customer journeys, digital assets are beginning to move beyond money - into deeds, contracts and other forms of value. 

So, what happens as more of what we own, manage and exchange becomes digital and programmable? And what needs to change to make that a reality at scale?

In the third and final episode in our mini-series, Lloyds Banking Group COO Ron van Kemenade is joined by Jayne Opperman, CEO of Consumer Lending at Lloyds Banking Group, Jana Mackintosh, Managing Director of Payments and Innovation at UK Finance, and Max North, Director of Strategy& at PwC, to explore how digital assets are becoming a reality – and what that means for the future of banking.

Brought to you by Lloyds Banking Group. Visit https://www.lloydsbankinggroup.com/who-we-are/group-overview/tech-and-transformation.html to learn more.

Transcript

Welcome, dear listeners, to the third episode in our mini-series about digital assets. This particular episode will be talking about digital assets beyond digital money. So imagine what if we could tokenise the deed to a property, or what if we could tokenise contracts or digital wills, and how we could combine that on one blockchain with our digital money. And to talk about these concepts today I have Jana Mackintosh from UK Finance.

Hi.

Yes, thank you for having me.

And then we have Max North.

Hi Ron. Looking forward to it.

And I have my colleague from Lloyds Banking Group, Jayne Opperman.

Thanks for having me. Really great to be here.

As I said in the introduction, we have discussed in the two previous episodes more tokenisation of money, and all the use cases around that. But digital assets and smart contracts have a way broader kind of application area. Could you highlight this a bit?

When you get into the conversation about beyond just the payments, what we're really starting to talk about is where the value sits. And that's with the assets. It's the things that really matter to us, like your money in your bank account, your pension, your home that you own. And I think when you think about digitising that, effectively, what we're doing is we're putting a digital wrapper around that asset that then kind of allows a trusted, regulated digital record that represents your rights in that asset. And you can extend that into anything really, like art, like things that are of value to you, that you would want to be able to store and potentially in the future transfer in a safe and secure manner.

Because when you think just about payments, really, payments satisfy an economic fundamental truth, which is it's necessary for economic activity, but it's not sufficient in and of itself to create that value. When you start talking about that, you talk about the asset. So you don't wake up in the morning thinking, I'm really excited about making a CHAPS payment. You think, I really am excited about owning my home and the value that I'm going to get from having the rights in that home. So it's about that value and the way that we release that value, and not just the pipes that transfer that.

And to the point that you're making about value, we make it concrete for, let's say, the average UK citizen. Why would digitisation of assets, why would tokenisation create value?

You unpack that into a couple of things. If we build on the home that you want to own, when you digitise something, you allow that record to be trusted, but you also allow that record to attach rights to it. And the rights that you can attach to a record can include identity information like KYC. That makes it easier to prove that you own that asset. You can also attach data to that transaction and that asset and the way that you think about it. So for example, you can structure data and then include all the different parties that are involved in that. So you have one record of that transaction, but it also can include really great functionality that we don't have today. Like you can instruct the asset to do something. You can build programmability into it that automates things, for example, you can only execute the transaction at a particular time. So it takes the choreography of the home buying journey and kind of makes it simpler so that you can not worry about documents flying around. You know where they are, it's all in one place, but also you can potentially condense that whole process for a consumer that hopefully makes it less stressful as well. So you can focus on the value of that asset.

And I think Jayne will definitely have something more to say about that a bit later on.

With the kind of rise of Bitcoin in the previous decade, everybody started being excited about distributed ledgers and crypto, etc. Everybody started to do initial investments. But then it seemed to me, Max, a bit dying down. So why do you believe the adoption of distributed ledger technology, digital assets, has been limited so far?

Well, I think the use case at the moment has been relatively narrow and building upon the points that we've just made, I think actually there are three big customer problems. There is a problem around some of these processes being quite slow and quite friction-heavy, home buying being a really great example of that. Secondly, many of these assets have an affordability challenge around them. Again, property being a great example there. And then finally, many of these assets are quite challenging from an investability standpoint because they're quite illiquid. And what the beauty of this type of technology enables is actually it addresses each of those problems because it makes it much more transparent, much more friction-free, actually enables alternative ownership structures, which address some of those affordability challenges, and also can reduce the overall investment required or increase participation in the investment, which means that it should be much more appealing to a wider set of people in addressing those issues.

And isn't it a bit the case, basically for all of us, that the common denominator across many of the use cases is about trust and the lack of trust in a value chain and an ecosystem? And we have seen many kind of islands of initiatives where one particular institution or just a few were trying to create their own ecosystem. Isn't that part of the lack of wider adoption so far?

Yeah, absolutely. And maybe if we take an example, take the home buying journey. Why is there a lack of trust in that journey? Well, very, very high fall-through rates. Thirty-one per cent of all property purchases fall through. Very limited control and transparency of what's happening up and down a property chain. And actually, every single party has a vested interest in a different version of data associated with that transaction. And in those situations, it's very difficult to have trust. Moving something onto a blockchain where everyone's got a single reliable source helps to address that. And that is ultimately got to be a path if you can get the right participation around it to address many of those issues.

And what about, let's say, privacy? And in many DLTs or blockchains, when you post a contract, when you write a contract in a digital way, it's accessible for everybody on the blockchain. Isn't data privacy protection a bit of a limitation as well?

Yeah, absolutely. And I think that is obviously something that needs to be controlled for and managed so that everyone participating can trust it. And it's broader than just privacy. Cybersecurity would be another primary sort of barrier that you'd need to address in making the solution work. There have been past failures in previous versions of crypto and blockchain where money got stolen.

Exactly.

So, I think it's broader than just privacy, but privacy obviously is important.

Yeah. And part of that trust, I think, also stems from the fact that for a lot of people, some of these transactions that we are talking about, like your mortgage, it's a significant amount of money. For a lot of people, it can kind of amount to their life savings. So for you to send all of that money over to someone in one transaction requires a lot of trust. And we have seen where consumers get nervous, payments get intercepted, you get misdirected payments, fraud occurs and that ruins lives. People lose a lot of their life savings and their livelihoods. So I think that trust comes down to the fact as well that the technology can embed a lot of the factors, the data, the information that you need to feel more confident, and then you can execute things in a way when you feel comfortable that all that information is recorded, it's not tampered with in any particular way, and that execution can happen in the way that everyone expected it to.

And if you compare a bit to the world of AI. AI has been around since the sixties of the previous century, and it came in different waves, like expert systems, machine learning, what have you, cognitive computing, the Watson IBM thing. But then all of a sudden it exploded with the introduction of ChatGPT. Right? And everybody is now using AI. So how does that compare to blockchain? Because that has been around for not as long as AI, but at least a couple of decades now. And the adoption is still limited. Is it because blockchain DLT is tough? It's for techies. What do you guys think?

I think what ChatGPT and Gemini have done is create a really simple customer experience. So despite the fact that the technology underpinning these systems is highly sophisticated, actually the user interface is super simple. And I think the adoption has been driven from people starting to play with these things, being confident to, and then really seeing early value from the responses that they're getting. I think we will need to think through what's the customer experience across all of these types of digital assets. That will inevitably be a really important part of driving adoption, at least in the consumer space.

Now, I was talking to a lady the other day trying to explain what tokenised deposits would be, and I got a blank look like, but my money is already in a digital app, right?

So.

Exactly. Exactly. I mean, I think the one thing about adoption that we need to remember as well, tokenised deposits is a really good example. It is something that we all actually use because it's a deposit. Back to the point about this being about the asset that we own, it's familiar. It fits within the existing banking framework. You have a trusted relationship with your bank. It fits into a regulated framework that most people will understand. So for you to explain to people, and we have this in payments all the time, adoption in payments is a strange thing because consumers don't think about the payment. They don't think about adopting a tokenised deposit. They just want to use their money that they have in the bank account, and they don't really care what technology that runs on. And I think you can contrast that a little bit with, for example, a stablecoin where you do have to actually choose to use something new. You have to buy something new. Choose to adopt something new. And that's a very different adoption experience for a consumer.

Which it feels a bit like we introduce an additional friction instead of taking out one, right?

Hey, Jayne. The whole kind of tokenisation of property has been mentioned already a couple of times. You being responsible in Lloyds for everything lending and that includes mortgages. What's your view on the whole kind of home buying ecosystem?

Yeah. What I love about this conversation is home buying has already come up a number of times, because anybody who's ever tried to buy a house in the UK knows it is the worst process. It is horrible. And, you know, your failure rates, gazumping. The amount of time from when we actually give a customer a mortgage offer to completion can be three, four more months. And that ignores, you know, probably the years that have gone before that to save up a deposit. So it's a highly stressful, highly manual, complex journey that is ripe for disruption. And I do think that digital assets can play a role in helping us make the whole process less stressful, more streamlined. There's a massive number of third parties in that whole end-to-end process that add to the complexity that would be removed and streamlined, certainly fewer handoffs, fewer delays.

We've mentioned a few things. We've mentioned trust and transparency, which as you said, Jana, when you're playing with all the money you have in the world, it's really important to know at any one point who you're dealing with, where your money is. I think we know that the age of a first-time buyer in the last ten years has gone from mid-twenties to mid-thirties. So the concept of fractional ownership. So this concept of, through digital assets, being able to own part of a property. And that could be multiple properties, or it could be a way for people to partly own their own home, but alongside others as well as lenders. And I think it would speed up the whole process.

Hey, Jayne, and where are we in the life cycle? Are we talking about could we or will do?

Look, I think a lot of things need to change before we can see broad adoption, like regulation, legal frameworks, ownership rights. But I think where we are now, we're starting to do work in e-conveyancing. We are looking at these structures, single borrower, multiple proprietor. So we're starting to play with different types of products. We're starting to digitise, I would say, elements of the process. But broad adoption, I think, is somewhere away. A lot of that is to do with the legal constructs, the regulation. We're definitely, through various parts of the end-to-end process, making progress. I think the opportunity is end to end to pull all of that together, which isn't quite possible just yet.

Yeah, I'd agree with that. And if you look at other international markets that have slicker property processes like Australia, where it takes five weeks to buy a property, the sequence of events there was legislative change around dedicating timing around property transactions, and then some rules around what was and wasn't permissible during that transaction. And then technology became the enabler of that. And that's how the average came down so quickly. So I do think that one of the first domino effects does need to be some legislative change, as well as the technology itself. Otherwise, I fear that it's just not compelling enough for the ecosystem to be able to adopt it without.

Yeah. Isn't that a bit like there are so many parties involved today? If you would fully digitise and tokenise this journey.

If you were to do a time and motion study of what does a conveyancer spend their time doing, a lot of it will not be legal work. I think there's still intrinsic value in helping a customer make their biggest life purchase, advising them around the legality of it, advising them around the property, and actually, if they could spend more time doing that and less time coordinating a process, I actually think it could be a more fulfilling job and a more valuable customer activity.

I know the Australian market quite well. The other thing I would say is, you know, it's a massive industry. So you get a lot more turnover of the housing market. So if you put an offer in on a house, you have to pay ten per cent deposit on that day. I mean, that has massive implications. People don't tend to pull out and it speeds up the whole process. You had PEXA, so the e-conveyancing platform in place for quite some time, but the whole housing industry, more houses being bought and sold and built actually creates a massive job creation industry. And a lot of the problems that we have is, you know, people don't move or can't move. House builders are tied up in regulation. Releasing all of that and making that whole process faster is good for the economy. It's good for jobs.

And you would invest the jobs in growth instead of in—

Yes.

All the friction.

Exactly. Yeah, yeah.

Hey, since this now becomes a big lobbying challenge to change legislation, this is where you come in.

Yeah. Yes. Well, I do sometimes feel like I want to challenge the norm around this. I think when it comes to regulation, we need to do the same. We disrupt our business processes. We use the technology to think about different flows for customers developing new products. And I think we need to treat our regulation and our frameworks in the same way. It's less about what we know to be true about the regulation today, and more about what we need to be true and how we can shape it to be fit for purpose.

Again, if I use an example of tokenised deposits, you can do it in today's regulatory framework actually in the UK. We've got a really good legislative system. It enables quite a lot. The regulatory framework allows us to deploy the technology onto our current deposit base. And so it gives you that flexibility to enable you to do it.

So from a regulatory point of view, having that dialogue, kind of like saying, this is what we want to do with the technology and this is what we expect our regulatory frameworks to do to give us that trust, to give consumers the confidence and to enable us to manage what I think is more where regulators will come in, which is the impact of what we're doing. That speaks to how liquidity is going to change. It speaks to how operational challenges may arise. So how do we make sure that in this new world where we combine these technologies, things move faster, they execute autonomously? How do we make sure that we can retain that operational resilience, the security that we need? That's what really ensures the customer trust.

So I think we can challenge ourselves. It doesn't always apply in the same way. There are always things that we need the regulation to enable us to do, or would need to be refined to make sure that we don't have to compromise on some of the efficiencies that we really want to build into the system, but we should challenge that. We should think about what can be different, and how can we make sure that the regulation follows what we want to innovate on from a business point of view, and that it's not regulation that innovates because that never works?

Mhm. And are there lessons to be learned from, let's say, one of the more successful adoptions, I think, of blockchain has been in commodity trading, where you have shipping companies, warehousing companies, the initial owner, the destination, insurance companies play a role. I think that we have seen quite a bit of adoption of blockchain. Are there lessons to be learned from that, Max, that apply to home buying or digital wills or any consumer use cases?

Well, I think the advantage of that particular use case is that it's a smaller ecosystem and a smaller network effect that you need to enable. And potentially also less of a reliance on end consumer behavioural change. But what it does show is that once you've got a relevant set of actors participating on a blockchain, you can reduce friction and you can create commercial value and better outcomes for all parties involved. I think it's a useful proof point, but I think there's more to be done in a consumer context where you have a far wider net of people that you need to access to make it work.

And the other thing that's interesting on that example as well, it touches a little bit on the regulation again. For us, sometimes in a domestic market, it is relatively more flexible and easier for us to move. When you start thinking about some of these process flows, some of the use cases that run cross-border, the international context just makes it so much more complicated to make sure we've got that consistency in the way that you treat the processes, you treat the risks, you manage some of the consequences. So on the international side, I agree. And when we talk about this agenda, it is cross-border. That's where a lot of the efficiencies lie.

So how we make sure we address that is an interesting challenge. For faster payments domestically, we've got used to instant payments across the UK. But I mean this would unlock instant payments across borders, to your point.

Yeah. So with all that opportunity and future promise, let's go a bit more visionary. What does this mean for the role of banks in the future? Are we venturing into new parts of the value chain or are we made even less relevant? Well, what's your view?

Well, I might look at this on both sides of the balance sheet. So, you know, I definitely think it's going to mean a lot of change for deposits. And of course, that's our funding base. That's what we use to under-securitise our mortgages. But if our customers start to hold value in stablecoins, digital wallets, tokenised money, then those deposits become a lot less sticky, potentially. So the risk is that funding base that we've got very reliant on weakens.

So we would have to look at offering digital asset custody alongside our deposits. We'd have to make accounts more flexible, programmable, all the yields much more transparent. And then I think with that kind of offer, you could mitigate some of that risk.

And then on the other side, I think from a lending perspective, probably earlier, just still evolving. But one of the things we do in lending is we price risk. And there's a lot of know your customer and a lot of the work that we do on collateral, even tokenised collateral. The inherent skills and roles that banks play in that process, I think, don't go away. And I think in large scale lending, that disruption is likely to take longer.

I do think to your earlier point, Jana, the whole compliance, identity, AML, fraud monitoring in these types of transactions. I mean, those are the things that we do well and they become as important, if not more important, in a digital asset world. So I do think we will see change, but I think banks that evolve and really think about offering some of these products to their customers will mitigate some of the impact, but possibly not all of the impact.

Yeah. And the two things I'll add to that. We talked about trust. I think banks have an incredibly important role to play to leverage that existing trusted relationship that they do have with their customers. Because we can build on that to make sure that when they start engaging in this digital journey, when they start experiencing the benefits of some of these new products that evolve on the back of what we can do, that they can feel there's a relationship that they can leverage, that we can build on that trust. That existing kind of account-based relationship is so important when it comes to banking.

And I think the other thing that we always talk about on this agenda is pace. We're always going to say, oh, we need to move at pace because we feel like there is this urgency on this topic. And although I completely agree with that, what you just said, Jayne, speaks more to that purpose point. I always say it's not just pace, it is about purpose. And the purpose comes from the financial institutions that really think about what I can do with this, where I can innovate and provide extra value benefits to my customer. And then to show that leadership and develop that business case because it's hard. It's really difficult to make sure that you can create a sustainable commercial model that introduces the technology that's of benefit to the whole ecosystem and to you as a financial services organisation. So that business development, the commercial aspect of this technology, how we commercialise that, again I think banks have such an important role to play.

I mean I know there's work underway, but it's going to become essential that we integrate into the blockchain rails, that we embrace a lot of tokenisation type products and propositions, and we have those to offer to customers. And then I do think there's still a lot of work to do in what we were talking about before. If we want wide-scale adoption they need to be easy to use and the experience needs to be really simple.

Yes, yes, we've done that before, haven't we, where we for example developed open banking and we haven't thought about the customer experience.

We haven't thought about the product and we're still asking adoption. It's a brilliant capability but nobody uses it. Nobody. Perfect framework.

Max, your view on maybe not just banking, but how will this shift or move the value across the value chain?

Well, I would fully agree with Jayne's point earlier on the deposit side actually. And actually, if you couple some of that interoperability with AI and agentic capability where people actually get better management and distribution of their deposits based on individual preferences and market movements at any point in time, you could see some very different value pools emerging as people are not keeping their money in as sticky deposits as they might have done previously.

I think on the lending side it's quite interesting because actually, particularly things like fractional ownership, when you're lending against a fractionalised asset, what does that really mean in terms of the credit risk associated with that? And how do you think about pricing that type of product? And we've already got well-established known issues around intergenerational wealth transfer and again property affordability often being reliant on the so-called Bank of Family. If we start to introduce more and more of those concepts through fractional ownership, again what do the economics of products like mortgages start to look like? It will be quite fundamentally different.

So to draw the parallel with AI again, in AI there are these periods of what they call AI winters. If you apply that to the whole technology of DLT and blockchain and digital assets, it feels like we see a bit of spring coming up and some green shoots. And we are working in the UK on the GPTD, tokenised deposits. We are working on fractional ownership digital deeds. So I think it becomes even more relevant over the next couple of years.

There is a lot of knowledge and appetite around the table that I think we can conclude on. I think what we have learned is there needs to be clear purpose. So where do we create value? How can we take friction out of the value chain? We need to work on customer trust and relevance so we take it a bit out of the techie space where we had the examples of AI. And banks will still stay relevant. Are those the conclusions we share?

Nice summary, Ron.

Yes. Thank you. Well done.

So then thank you, Jana. Thank you, Max, and thank you, Jayne.

With that, we close this mini-series on digital money, digital assets, reminding you guys out there. Subscribe to our No Ordinary Tech podcast in general. And may I already remind you, after a short break, we'll be back with, guess what, AI.