- Finternet is the Evolution of the Financial System
- A connected future is anticipated, where various financial ecosystems work together seamlessly, much like the Internet.
David Vélez, the founder of Nubank, recently discussed the concept of Finternet at an industry event. However, it was Indian entrepreneur Nandan Nilekani, co-founder of Infosys, who coined the term.
“Finternet is a new approach to global finance defined by the three ‘Us’: it is user-centered, unified, and universal, keeping the user at the core and considering all types of assets,” stated Nilekani.
In a recent paper published by the Bank for International Settlements (BIS), Nilekani proposes Finternet as a vision for the future financial system. “Multiple interconnected financial ecosystems, very much like the Internet. Finternet will empower individuals and businesses, placing them at the center of their financial lives, allowing them to access a wide range of services more efficiently, securely, and personally. Unified ledgers are a promising vehicle to realize this vision.”
Finternet: Key Elements of an Integrated Model
The Finternet model combines the best of the regulated world with the advantages of tokenization technology. It leverages the versatility of tokens, universal interoperability, and composable banking.
- Total Tokenization
Tokenization is the process of converting rights to an asset into a digital token on a blockchain or similar technology. From savings accounts and real estate to works of art, all assets can be tokenized. This process simplifies ownership, transfer, and trading.
This will be especially crucial for real estate. Currently, buying and selling properties can be a complicated and often inaccessible process for many. With properties fractionally tokenized, individuals can invest in real estate without needing to purchase an entire property—allowing them to buy a fraction instead. It creates a smooth, frictionless process.
- User-Centric Approach
The Finternet model prioritizes users, ensuring total control over financial assets—be they deposits, real estate, or non-fungible tokens—as a non-negotiable standard. Better control over finances is part of the rights consumers are demanding.
- Global Interoperability
The technological foundation for realizing Finternet lies in the use of unified ledgers. These unified ledgers promise not only to improve current financial transactions but also to enable new financial products and services that were previously unimaginable.
Nandan Nilekani envisions a vast Internet architecture where tokens can be bought and sold through a global interoperability system, allowing blockchains to communicate and process transactions from anywhere in the world without needing to convert tokens or go through multiple intermediaries.
Benefits of the Finternet Model
The Finternet model offers several key advantages to enhance the current financial system:
- Operational Efficiency: Centralizing multiple financial assets in a single ledger reduces the need for lengthy and complex messaging and settlement processes, leading to faster and more reliable transactions with lower error margins.
- Cost Reduction: By eliminating unnecessary intermediaries and optimizing the underlying infrastructure, operational costs would decrease significantly for both institutions and users.
- Personalization: A user-centered approach would enable more personalized financial services tailored to the specific needs and preferences of individuals and businesses.
- Innovation and New Products: Tokenization and unified ledgers would pave the way for new financial products that not only improve existing ones but also create unprecedented opportunities in areas like investment, insurance, and payments.
- Accessibility: A core pillar of the proposal is financial inclusion, aiming to ensure that more individuals and businesses can access quality services, regardless of their circumstances.