Talk with Prof. Dr. Fabian Schär, Professor of DLT (Blockchain) and Fintech und Managing Director Center for Innovative Finance at the university of Basel

Open banking is attracting a lot of attention in professional circles. How practical is it for individuals?

Open banking and open finance are primarily about standardization and interfaces. As such, it’s generally not of interest to the end user. However, the implications are very exciting and relevant, as a consistent open financial architecture can promote transparency, lower barriers to entry, and increase competition. Open interfaces would make it much easier for customers to get an aggregated view of their assets or to combine services from different providers. But there’s still a long way to go.

It is said that open banking and integrated services together will revolutionize the financial sector. How far away are we?

Interfaces and standards are complex. Especially for systems that have been developed separately over decades and have largely operated in isolation. These are difficult issues – from both a technical and a business perspective. In addition, the combination and integration options are limited with a pure interface solution. For example, when multiple databases are involved, the truly atomic processing of cross-database transactions that is possible with a public blockchain cannot be guaranteed.

You once wrote that decentralized finance (DeFi) is the logical evolution of open finance. But the latter tends to produce centralized services. Is that a contradiction?

Contrary to what the name suggests, many DeFi applications are centralized. In a recent paper published in the Journal of Financial Regulation, I discuss these dependencies together with Katrin Schuler and Ann Sofie Cloots. By DeFi, I mean less the (de)centralization of individual protocols or services, but rather the idea of a neutral platform that enables composability and smooth switching between different applications. In addition, many commercial banks are showing great interest in the world of blockchain finance, and some of them are also working with public blockchains.

DeFi allows direct interaction without intermediaries. This is an advantage in countries with a weak banking sector. But where’s the big potential in Switzerland, where almost everyone has a bank account?

DeFi offers options. Where banking services are unavailable or too expensive, DeFi offers the option of holding the assets yourself and interacting directly with the financial protocols based on smart contracts – with all the benefits and disadvantages that this entails. In practice, few will want to do this in this extreme form. Nevertheless, the architecture offers great advantages because the options create a certain pressure for innovation and competition. In my opinion, a financial system in which you cannot store or transfer your assets yourself is not ideal.