Imagine waking up one morning with the desire to acquire a house featuring a beautiful lawn. You go through your usual morning routine, sit down with your cup of coffee, and place an order on your phone. By the time you open your newspaper and finish page 1, an email has landed in your inbox. Your home loan is approved, the house registration is completed, your insurance company has cleared the necessary paperwork, and the seller has transferred the land ownership rights.
Did we mention that in this scenario, you are sitting in suburban Mumbai while the house you bought could be in Kumbakonam, Tamil Nadu, or even in Corsica, France? That's the kind of world being proposed by the Finternet.
In a paper presented to the Bank of International Settlements, Nandan Nilekani, Infosys co-founder and non-executive chairman, along with Agustin Carstens, Director General of the BIS and former governor of the Mexican banking regulator, propose that the global financial system is ready for its "Neil Armstrong moment."
Finternet encompasses a wide range of activities, including online banking, investment trading, digital payments, peer-to-peer lending, crowdfunding, and various other financial services conducted through digital platforms. The goal is to bring together the worlds of finance, technology, governance, and regulation through interconnected digital ledgers.
Assets would be tokenized and could be purchased with cash in the bank, through financing, or with a central bank digital currency. The financial ecosystem enabling the transaction would involve participants on digital ledgers communicating with each other, as would government departments and regulators.
Finternet proposes that these ledgers would meet—and perhaps surpass—today’s regulatory and supervisory standards while also being faster, cheaper, and more reliable than current systems.
"We are merging the best parts of the technology that is being made available with the best parts of the formal financial system and bridging both of those for different asset classes, within a sector, within a country or across countries," said Siddharth Shetty, who collaborated with the BIS team on the Finternet paper.
Shetty is also the Chief Technology Officer at Sahamati, a collective of the account aggregator ecosystem supported by Nilekani.
Some of the use cases that Shetty proposes include real-time payments for international users, equity financing for companies, financial inclusion, insurance products, and more.
In the current system, cross-border payments are routed through the SWIFT messaging platform, which incurs charges and processing time. With Finternet, users will be able to transact in any currency in real-time without additional charges, according to Kamlesh Nagware, co-founder of FSV Capital, which supports Web3, blockchain, fintech, and climatetech startups.
Here's how the Finternet ecosystem is expected to function:
A user would open a ledger account with any public ledger provider in the ecosystem. The user can then request to tokenize a part of their deposits with their bank, assuming the bank is compatible with the Finternet infrastructure.
The bank will tokenize this amount into a ledger account, acting as a token manager. The usage of this tokenized amount will be subject to adherence to financial regulations. Similarly, an investor can tokenize asset holdings in another ledger account.
Within the Finternet network, participants will include regulators, token managers, unified ledger providers, innovators, and more.
Depending on the needs of each jurisdiction, multiple ledgers could coexist. Application programming interfaces (APIs) could connect these ledgers to each other and other parts of the financial system outside of Finternet.
"Finternet is a global internet system for the financial system... For example, the RBI has a separate ledger to record all payments for every transaction—currency, government bonds, or any other asset class—which is the same for other central banks too. These ledgers will be interconnected, leading to a unified ledger as well. This will enhance interoperability," Nagware explained.
This could also facilitate faster disbursal of sector-focused grants, donations or aid by global financial institutions, Nagware added. Moreover, foreign investments into local debt or equities would be seamless with the use of Finternet.
"It will lead to a dramatic reduction in costs, but fundamentally, we look at it as a massive expansion of the market enabled by cost reductions. This would bring in a whole new ecosystem, which was previously limited to silos in some sectors of the economy," Shetty said.
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