Why Banks Need Interoperable Onchain Infrastructure

A corporate client asks its bank to make regular payments into a geography where the bank has little direct coverage. Today, that bank routes them through a fragmented chain of intermediary banks, each taking a fee and an FX spread, with a day or two of float and little visibility until the money lands. Building direct coverage only pays off at volume this corridor is unlikely to reach, so the client gets an uncompetitive quote that reflects the cost of routing through intermediaries — or the bank declines the corridor entirely. Blockchain is meant to fix exactly this problem: transact and settle with a regulated¹ stablecoin, and use a local partner for the last mile to reach your desired market, with no intermediary banks and no prefunded accounts.

It works, but only if a bank’s onchain infrastructure isn't another version of this same legacy fragmentation. There are many blockchains, many digital assets, many wallets and standards, and regulation that differs by jurisdiction. For bank leaders deciding whether to adopt blockchain, interoperability is the next practical question: can your rails connect with everyone else's, and how? 

Banks will run a mix of digital assets — plan for it now

It's not an either or. When you're talking about stablecoins and tokenized deposits, how can you transport across different chains in a way that gives you confidence?"

Alex Latorre, Principal in EY's Financial Services Risk practice

Chains are one axis of the decision; the digital asset is the other. A bank building onchain infrastructure chooses what to move as well as where to move it — stablecoins, tokenized deposits, tokenized money market funds, each suited to a different use case and a different risk profile. Alex Latorre's point is that the choice was never an either-or. A single chain or digital asset in a POC program makes sense, but no single instrument covers the full range of what a bank needs to do, and none ever will. A bank will most likely run a mix, picking the digital assets and onchain infrastructure that support their use cases, but the banks furthest along are planning for this mix rather than betting on a single instrument. To that end, interoperability is the determining factor as banks look to add assets and chains to their flow of funds, facilitating onchain growth as a competitive advantage rather than a new source of fragmentation.

Blockchain infrastructure impacts business reach

Beyond the use case, business leaders need to understand the reach and limitations of the underlying blockchain, and not wait for the engineering or IT team to raise it halfway through a project. Therefore, when selecting a blockchain, consider the markets and counterparties where your business operates (and wants to operate in the future), not just the technical features. The markets a bank can connect to — heavily influenced by the blockchains it runs on and where funds can connect to — set which customers it can serve, and which corridors to compete in. This means the choice is a commercial one, not a technical one, owned by the same people who decide which clients and markets the bank wants to pursue.

What good interoperability looks like for banks

Once a bank accepts that it will run multiple assets across multiple chains, the question naturally becomes how to connect them all, especially when not all connective infrastructure is equal. Three criteria are worth applying: 

• Trust: the connective layer should operate under globally regulated issuance and governance across every jurisdiction where the bank does business.
• Reach: the more blockchains and counterparties already connected, the less the bank has to build from scratch, which is the point of adopting shared infrastructure in the first place.
• Neutrality: the infrastructure should be open for development and innovation, not a walled garden controlled by a competitor 

When all three criteria are met, a bank can connect once to an existing network and transact with counterparties that it has no direct relationship with, rather than standing up corridors one at a time. Networks that don’t are simply recreating a fragmented system with newer technology.

Interoperability belongs on the business checklist

Some banks score interoperability as a technical feature — invisible until it becomes the limiting factor. We argue it belongs alongside cost, security, and compliance as a commercial priority, owned by the people accountable for geographies and markets the bank serves. The missing layer in global money movement has never been the technology on any single network. It has always been whether the networks work together. Banks that treat that as a commercial question, not an IT afterthought, are the ones positioned to reach new markets without rebuilding the path to get there.