State Street Turns to Tokenization in an Unguarded Digital Era

In a recent survey by the quantitative analysis firm Oxford Economics, 94 percent of State Street clients hold digital assets or some form of related digital product, for example as bitcoin futures. These survey results come on the heels of a growing asset tokenization industry which began as far back as 2001 when TrustCommerce created the concept

Today, a growing number of leading financial institutions and key market players have been vying to get in on the action. A report published by Research and Markets in December 2019 expects the global tokenization market to reach $2.25 billion by 2020. According to the same study, the factors contributing to the expected growth in tokenization are vast and varying.

For one, there's a growing need to protect cardholders’ data by following PCI DSS guidelines, which many still consider at risk even as key and identity management solution markets continue to expand. There is also a concern of increased fraud payments that are still left unprevented.

Notedly, 38 percent of respondents to State Street's most recently released survey also indicated they will increase their allocation of digital assets in 2020. However, the lack of knowledge about security tokens among end-users is still a concern for many financial institutions looking to provide much-needed fintech solutions to growing customer demand.

While State Street has yet to release full-fledged products to support such a growing market transition, the majority of asset managers working with State Street that are interested in digital assets such as bitcoin haven't asked the global custodian to store them yet.

According to Jay Biancamano, Managing Director of State Street’s Global Technology Services, the firm will have a better idea of what it will do with digital asset custody in 2020. "After custody, State Street is interested in looking at fund administration, private placements, issuance, and trading of digital assets," he said at an event in New York last Thursday.

Along with State Street, many financial organizations lack the infrastructure and resources needed to provide a robust tokenization solution for customers. This is the primary reason the tokenization market is expected to experience restrained growth in the coming years, even as clients and investors line up to tokenize their assets in what has been the fastest-growing financial trend of 2019.