Discovery doubles down on digital assets

In 1878, the chief engineer of the British Post Office, Sir William Preece, noted: “The Americans have need of the telephone, but we do not. We have plenty of messenger boys.”

It is one of those quotes often cited as a spectacular failure to recognise a technological revolution, along with classics like this one, from 1903, by a bank president advising Henry Ford’s lawyer not to invest in the Ford Motor Company: “The horse is here to stay but the automobile is only a novelty – a fad.”

We can laugh, but the future is a very difficult thing to predict. Until it isn’t. The most significant technological revolution taking place in the financial world is the mainstream adoption of blockchain technology and the digital asset solutions it enables. Much like the telephone and the Model T, digital assets and their underlying technology were initially scoffed at.

When we look at the global stage, data shows that the large-scale institutional adoption of digital assets is already happening. In October, a comprehensive report by US custody bank State Street found that more than half of surveyed institutions in the US expected their exposure to digital assets to double over the next three years. This comes after an EY survey earlier this year found 85% of institutional investor respondents in the US increased allocations to digital assets and digital asset-related products in 2024, and 59% planned to allocate more than 5% of their assets under management to cryptocurrencies.

Increased institutional investment in cryptocurrencies is just the first step of digital assets’ maturation as technology. More significant proof that it is here to stay as a lasting transformation is actually the second step: the large-scale co-operation currently taking place between traditional financial institutions and digital asset service providers. This collaboration is underreported.

A maturing market

Luno, South Africa’s oldest cryptocurrency exchange, has in the past year become as much an institutional partner to financial institutions as it is a retail platform for individual investors.

In South Africa, traditional finance and digital finance are converging at pace, reflecting the maturation of digital finance.

At the heart of this maturation are digital asset service providers, which are reshaping how banks, insurers, asset managers, pension funds, and many other financial operators, interact with blockchain-based instruments.

What are digital asset service providers’ role in modernising traditional finance? It gets somewhat technical, but there are a number of concrete meeting points between “TradFi” and decentralised finance.

In one practical example, Discovery Bank’s integration of the cryptocurrency investing into its mobile banking platform, giving more than 1-million banking customers direct access to digital assets, underscores how cryptocurrencies are moving into the financial mainstream.

Bank CEO Hylton Kallner highlighted in the recent announcement that “the financial world is evolving fast, and crypto assets have matured to become an accessible, mainstream asset class”.

Discovery Bank is the first in Africa to embed cryptocurrency investing directly into its app, allowing customers to switch between traditional and decentralised investing as digital investing joins stocks, bonds and property as just another asset class.

Leapfrogging constraints

Change is also afoot elsewhere. Digital asset service providers also are enabling the tokenisation of traditional assets (ranging from bonds and equities to even real estate and carbon credits), allowing for more efficient settlement and fractional ownership. Tokenisation is when a traditional asset, such as equities, is converted into a digital token, allowing it to be traded on the blockchain 24/7 without waiting for markets to open or close.

Importantly, payments are also being reimagined with, for instance, stablecoins offering faster, cheaper and more transparent payment alternatives to legacy systems.

A stablecoin is a digital asset backed by an underlying asset, usually fiat currency. Because stablecoins are on a blockchain, a decentralised ledger, enable instant settlement, and reduce intermediaries in payments, they save businesses (and therefore end consumers) money, while making transfers and cross-border payments much quicker.

South Africa’s financial institutions are generally well-capitalised and technologically advanced, but they face a changing landscape. Clients want speed, low cost and access to high-growth asset classes like bitcoin. They want quicker payments and lower costs through stablecoins. Digital asset infrastructure offers a way to leapfrog constraints through cost-saving, increased efficiency, easier accessibility, and company growth through new customer offerings and brand relevancy.

In South Africa and across the globe, cryptocurrency exchanges have become infrastructure providers, allowing institutions to offer cryptocurrency trading, modernise their payment systems, and make life cheaper and more efficient for customers. What was once considered a fringe technology is now providing an entire structure on which a secure financial future is being built.

We’ve seen this happen with many technologies before.

Marius Reitz is the general manager for Luno Africa and Europe.

_{Top image: Freepik.com.}