Finternet: The Future of Finance is Faster, Borderless, and User-Centric

The following is a personal point of view on a concept called 'finternet' which hopefully makes it easier for novices like me to better understand what is being suggested. I have also tried to share my views on how it differs from the current financial system (taking a broad brush approach) and then I am even taking the liberty of suggesting (my views) on what all needs to change evolve to make 'finternet' a remote reality.

The concept of 'Finternet' was authored by Agustín Carstens, General Manager at the Bank for International Settlements & Nandan Nilekani, Non-Exec Chairman of Infosys. The full white paper and supporting content can be found here: https://www.bis.org/publ/work1178.htm

Introduction

The term Finternet refers to the future vision of a fully decentralized and interconnected financial system, built on the same principles that power the internet today—open, accessible, and borderless. If the internet connects people, ideas, and commerce globally without a central authority, Finternet aims to do the same for financial services.

The Finternet would be designed to empower individuals and businesses by placing them at the centre of their financial lives. The envisioned system leverages innovative technologies such as tokenisation and unified ledgers, underpinned by a robust economic and regulatory framework, to dramatically expand the range and quality of financial services. This integration aims to foster greater participation, offer more personalised services and improve speed and reliability, all while reducing costs for end users.

What does tokenisation and unified ledgers mean?

• Tokenization: In the context of Finternet, tokenization refers to creating digital representations of real-world assets—like money, stocks, bonds, or real estate—that exist on a programmable digital platform. These digital tokens allow assets to be securely traded, transferred, or managed instantly and globally without relying on traditional, slower intermediaries. Tokenization streamlines transactions, reduces costs, and enables new, flexible financial products.
• Unified Ledgers: Unified ledgers are shared digital platforms within Finternet where multiple types of tokenized assets, like central bank digital currency (CBDC), tokenized bank deposits, and other digital assets, coexist. Unified ledgers make it possible to execute transactions directly on the platform using smart contracts, which can automatically enforce rules. This integration reduces the need for external verification and settlement processes, enabling faster, more secure, and transparent financial transactions.

Most of the technology needed to achieve this vision exists and is fast improving, driven by efforts around the world. The paper provides a blueprint for how key technical characteristics like interoperability, verifiability, programmability, immutability, finality, evolvability, modularity, scalability, security and privacy can be incorporated, and how varied governance norms can be embedded.

Brief explanation of each of the technical characteristics mentioned above from the context of the #finternet:

• Interoperability: The ability for different financial platforms, ledgers, and systems to seamlessly communicate and execute transactions across borders and institutions, enabling a unified financial experience.
• Verifiability: Ensuring that each transaction and user identity within the Finternet is securely authenticated and verified, reducing fraud and enhancing trust.
• Programmability: The use of smart contracts that allow financial transactions to be automated based on predefined conditions, enabling complex, customized financial services.
• Immutability: The property that once a transaction is recorded on a ledger, it cannot be altered or deleted, providing a reliable, tamper-proof record of all transactions.
• Finality: The assurance that once a transaction is completed, it cannot be reversed, ensuring a secure and trusted outcome for users.
• Evolvability: The system’s ability to adapt and integrate new technologies over time, ensuring that Finternet remains future-ready as digital finance evolves.
• Modularity: A flexible design that allows different financial services and tools to be added, removed, or modified independently, promoting innovation without disrupting the entire system.
• Scalability: The capability to handle an increasing number of transactions and users without compromising performance, essential for a global financial ecosystem.
• Security: Robust measures that protect against cyber threats, ensuring that user data and transactions are safe from unauthorized access or attacks.
• Privacy: Mechanisms that protect user data, allowing individuals to control what information they share and with whom, while still meeting regulatory requirements.

Phew! Easier said then done, unfortunately!

How is Finternet Different from Today’s Financial System?

• Current System is Fragmented, Finternet is Unified: In today’s financial system, different countries, institutions, and even financial products operate in silos. A single financial transaction, like sending money overseas or buying a stock, involves multiple intermediaries such as banks, brokers, and clearinghouses, leading to delays and extra costs. The Finternet envisions a unified system where these intermediaries are reduced, and transactions are executed almost instantaneously on shared digital platforms known as unified ledgers. These ledgers will securely manage and record transactions in real-time, providing transparency and reducing inefficiencies.
• Centralized vs. Decentralized: The existing financial system is highly centralized, controlled by banks, governments, and financial intermediaries. They manage the flow of funds, determine who has access, and ensure compliance with regulations. Finternet shifts this control to the user by using decentralized technologies like tokenization, where ownership and transfer of financial assets (such as money, stocks, or even real estate) are encoded into digital tokens. Users interact directly with these tokens on programmable platforms, cutting out many intermediaries and making transactions faster, cheaper, and more secure.
• Global Borders vs. Global Access: In today’s world, cross-border transactions are often slow, expensive, and fraught with regulatory hurdles. Finternet aims to eliminate borders within finance. Whether you’re in the United States or Kenya, transferring assets or paying someone would happen with the same ease as sending an email. This new system is underpinned by tokenized assets that can be moved across borders instantly and without friction.
• Slow and Costly vs. Instantaneous and Cheap: Financial transactions today can be slow—international transfers, for example, often take days to clear. Additionally, these services are costly due to the various intermediaries involved. Finternet would reduce this complexity by using unified ledgers, which store not only the transaction data but also the rules for executing transactions (such as compliance checks). This will enable “atomic settlement,” where transactions occur instantly, securely, and at lower costs for everyone involved.
• Limited Access vs. Universal Participation: The current financial system still excludes about 1.4 billion people globally who don’t have access to basic financial services. Finternet aims to change that by making financial services accessible to anyone with a smartphone or internet connection. By lowering costs and simplifying participation, Finternet can empower individuals in underserved regions to access banking, lending, and investment opportunities they otherwise couldn’t.

What Needs to Evolve for 'Finternet' to Become a Reality?

• Technology: The backbone of the Finternet will be technologies like tokenization, which turns real-world assets into digital tokens, and unified ledgers, which act like a shared platform for various financial transactions. These technologies already exist but need to evolve to handle larger volumes, ensure security, and function globally.
• Regulatory Frameworks: One of the biggest challenges is aligning global regulations. Different countries have their own rules about financial transactions, and for Finternet to work, there needs to be a unified regulatory framework that can govern transactions across borders while ensuring compliance with local laws and regulations.
• Interoperability: Just like how different websites and applications on the internet can interact, Finternet requires that different financial platforms, assets, and services work seamlessly together. Unified ledgers must support various types of transactions—from sending money to buying property—all on one platform, across different regions.
• User Education and Trust: For Finternet to be widely adopted, users need to trust the system and understand how it works. Educating people on how to securely manage their digital assets and interact with decentralized systems will be key to gaining widespread acceptance.
• Collaboration Between Public and Private Sectors: Governments, central banks, and private companies will need to collaborate closely to make Finternet a reality. Public institutions will help create the foundational infrastructure (such as digital IDs and central bank digital currencies), while the private sector will innovate on top of this infrastructure to create user-friendly financial products and services.

Realistically speaking, will #finternet ever become a reality?

While there is little doubt that the concept of Finternet represents a bold reimagining of how financial systems should work and the vision which offers an exciting blueprint for a global, decentralized financial system, its journey to reality will be at best both gradual and complex.

On the positive side, the foundational technologies such as #tokenization, #unifiedledgers, and programmable assets are already making headway (and we will hear more and more about it in the coming days, weeks, months and years) however, realizing the concept at scale will require unprecedented collaboration between governments, financial institutions, and technology innovators to overcome regulatory hurdles, interoperability issues, and security concerns.

In the near term, we might see “mini-Finternets” in financially forward-looking jurisdictions (closed wall gardens) where unified digital ledgers and tokenized assets are already gaining traction and there is some level of regulatory harmonisation and geo-political alignment. Over the next decade, as technology and regulatory alignment progress (this is a major assumption which comes with a large pinch of salt!), the possibility of a globally interconnected financial system that fulfills the Finternet vision might be within reach — but it will demand sustained commitment at many levels (not the least, right at the top of the Political ladders of each country) to building inclusive, adaptable, and secure infrastructures which is shared by multiple jurisdictions.

The biggest obstacle to Finternet becoming a reality is achieving global regulatory and ge-political alignment (both of them are interconnected). Many governments and regulatory bodies, rightly so, prioritize their own stability, security, and consumer protection, often making them wary of widespread changes to traditional financial infrastructures (especially if its been driven by forces beyong their country and are external in nature). Achieving alignment requires a collaborative global framework (kudos to BIS for constantly striving to achieve this for a number of initiatives) that accommodates the decentralized and cross-border nature of Finternet while meeting each country's regulatory (and geo-political) needs. Without this, differences in legal standards, compliance protocols, and data privacy laws could fragment the system, creating isolated "financial islands" rather than a unified Finternet (not dissimlar to what already exists if powered by new age technology). Addressing these challenges demands cooperation, transparency, and innovation among public authorities, financial institutions, and technology providers worldwide - whether this a hopeless dream or can become a reality is beyond my imagination so I leave to the better people than myself to determine the long term outcome.

I look forward to participating at the roundtable on this very topic during the Insights Forum in early November at the Singapore Fintech Forum.

Glossary (extracted directly from the white paper)

• Atomic settlement: instant exchange of assets, such that the transfer of each occurs only upon transfer of the other.
• Auditability: the property that allows digital transactions and activities to be independently verified and audited for integrity, accuracy and regulatory compliance.
• Composability: the capacity to combine different transactions or operations on a programmable platform.
• Central bank money: money issued by the central bank, such as banknotes, coins, central bank reserves or (more recently) tokenised central bank money.
• Commercial bank money: money issued by commercial banks in the form of deposits.
• Confidentiality: the assurance by a system that sensitive information is disclosed only to authorised users, safeguarding data privacy and security.
• Counterparty risk: the risk that one or more participants will not provide the money or financial assets to deliver on their side of the transaction.
• Cross-border payment: a payment in which the financial institutions of the payer and the payee are located in different jurisdictions.
• Detokenisation: the process of converting recorded claims (represented as tokens) on a programmable platform back into their original claims on financial or non-financial assets within a traditional ledger.
• Digital-first approach: a method for developing payment and other systems that starts from digital technologies and puts these at the centre of all business operations and customer interactions.
• Digital identity: a set of information about a person or company that can be found and used online.
• Digital public infrastructure: interoperable, open and inclusive digital systems, supported by technology to enable the use and provision of essential, society-wide, public and private services.
• End users: individuals, households and firms that are not participants in a platform or payment system.
• Enforceability: the mechanism by which a system can automatically ensure adherence to legal agreements, policies or regulatory requirements, reducing the need for manual enforcement.
• Fast payment system: a payment system in which the transmission of the payment message and the availability of final funds to the payee occur in real time or near-real time and on as near to a 24-hour and seven-day (24/7) basis as possible.
• Finality: the moment at which funds or assets, transferred from one account to another, officially become the legal property of the receiving party.
• Financial health: the extent to which a person or family can successfully manage their financial obligations and have confidence in their financial future.
• Financial inclusion: access to and use of transaction accounts and related financial products such as savings, payment cards, loans and insurance.
• Finternet: interconnected financial ecosystems that place individuals and businesses at the centre of their financial lives, powered by open, interoperable technologies and protocols.
• Infrastructure services: existing national or sector-specific infrastructure, including identity systems, digital signature certificate systems, connectivity, registrars and registries, and digital public infrastructure, along with any other reusable services available within a country.
• Interoperability: the capacity of diverse digital systems, platforms and applications to seamlessly exchange information, ensuring compatibility across varying technological frameworks
• Immutability: the characteristic of a system that prevents alteration or deletion, ensuring permanent and tamper-proof record-keeping.
• Ledgers: record-keeping systems that guarantee finality and immutability by ensuring that once transactions are recorded, they cannot be altered, deleted or reversed.
• Network of networks: a set of networks where each of these is dedicated to distinct domains and equipped with unique technological infrastructures, governance protocols and user ecosystems.
• Non-repudiability: a security characteristic ensuring that users cannot deny the authenticity of their actions, supported by irrefutable evidence such as digital signatures or tamper-proof transaction logs.
• Observability: the characteristic of a system that provides visibility into necessary transactions and operations, essential for policymakers, regulatory agencies and participants to effectively monitor for operational efficiency and compliance, detect fraud and ensure accountability across the ecosystem.
• Programmability: a feature of platforms and other technologies whereby actions can be programmed or automated.
• Programmable platform: a technology-agnostic platform that includes a Turing machine with an execution environment and a ledger and governance rules.
• Smart contract: self-executing applications of programmable platforms that can trigger an action if some pre-specified conditions are met.
• Token: a digital representation of value in a programmable platform. Tokens can be tokenised, ie derived from claims in traditional ledgers, or can be issued natively in the platform, ie “native” tokens.
• Tokenisation: the process of recording claims on real or financial assets that exist on a traditional ledger onto a programmable platform.
• Tokenised asset: a digital representation of a claim on an asset in a programmable platform.
• Tokenised central bank money: a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank.
• Tokenised deposit: a digital representation of a bank deposit in a programmable platform. A tokenised deposit represents a claim on a commercial bank, just like a regular deposit.
• Token manager: an institution that is responsible for the issuance (tokenisation, detokenisation), management and synchronisation of a token with their private ledger.
• Tokenised network: a platform that operates, clears and settles with tokenised money, tokenised deposits, tokenised assets or any other form of token.
• Turing machine: a finite automaton that can read, write and erase symbols on an infinitely long strip of tape.
• Unified ledger (UL): a digital platform that brings together multiple financial assets as executable objects on a common programmable platform.
• Unified Interledger Protocol (UILP): set of open protocols that defines the messaging specifications between different unified ledgers to ensure interoperability and finality of transactions between them.
• Verifiable identity: a digital representation that enables verification of an individual’s or entity’s identity through digital means, employing cryptographic methods.