Heading: Embracing the Future: The Dawn of the “Finternet” Era
The financial landscape stands on the brink of a monumental transformation, poised to venture into uncharted territories. The future envisions a world where securing a mortgage or acquiring a small business loan could be as straightforward as sending a text message or making an online hotel reservation.
The advent of mobile payment applications signals a move towards this new era, yet a complete overhaul of financial services is necessary to parallel the communication advancements brought about by the internet and smartphones. Given the computational power of today’s mobile devices, it’s imperative to fully leverage their capabilities.
In pursuit of this vision, we’ve combined our expertise in economics and technology to sketch out a blueprint for what we term the “Finternet” – a network of interconnected financial ecosystems. This concept imagines a world where individuals and businesses can effortlessly transfer any financial asset to anyone globally, with transactions that are affordable, secure, instantaneous, and universally accessible.
Such an innovation holds particular significance for emerging and developing economies, where financial service access remains sporadic, especially for those in remote or low-income areas. Even where financial products are accessible, their use is often marred by high costs and inefficiencies.
Recent advancements, such as tokenization and programmable ledgers, have laid the groundwork for the Finternet. Tokenization can uniquely identify digital asset ownership and its rules, while programmable ledgers merge traditional database functionalities with necessary governance frameworks.
To realize the potential of financial innovation and create a seamless network, it’s crucial to dismantle the existing financial system’s barriers. Integrating different tokenized assets on unified programmable ledgers could eliminate the cumbersome processes of messaging, clearing, and settlement, thereby reducing costs, saving time, and expanding access to credit and other financial services.
Unified ledgers could also facilitate “smart contracts” that execute transactions, like transferring property ownership, when certain conditions are met. This could streamline processes such as property transfers, where payments and compliance checks occur simultaneously, drastically reducing the time required from weeks to seconds. These ledgers are envisioned to meet or exceed current regulatory standards while being more efficient, cost-effective, and reliable.
However, technology alone isn’t sufficient. Central banks play a pivotal role in this new financial architecture, with digital currency forming the foundation of the Finternet. Commercial banks will also be key, especially in offering tokenized deposits that will be crucial to the Finternet’s monetary ecosystem.
A strong regulatory framework is essential to ensure the Finternet’s integrity, maintaining safeguards like deposit insurance and public oversight to protect consumers and ensure the uniform value of money, whether issued by central or commercial banks.
Leveraging new technology could simplify compliance, fostering the development of new products and preventing misuse by malicious actors. Realizing the Finternet will take time, but the journey must begin now. The technology is ready, and the opportunity to escape the constraints of existing institutional frameworks and monopolistic service “walled gardens” is ripe.
This is a unique chance to reimagine the financial system’s structure, urging us to think broadly and creatively. We have the vision and the tools; now, the global financial system awaits its transformative moment, akin to a “Neil Armstrong moment” for mankind.
Authored by Agustín Carstens, General Manager of the Bank for International Settlements and former Governor of the Bank of Mexico, and Nandan Nilekani, Co-founder and Chairman of Infosys and Founding Chairman of the Unique Identification Authority of India (Aadhaar).
Copyright: Project Syndicate
