Finternet: Redefining Financial Services through Digital Innovation By Nandan Nilekani, Co-Founder and Chairman of Infosys Technologies

Finternet: Redefining Financial Services through Digital Innovation

Nandan Nilekani, Co-Founder and Chairman of Infosys Technologies

At the Global Fintech Fest (GFF) 2024, Nandan Nilekani, Co-Founder and Chairman of Infosys Technologies described an interesting and innovative future for financial services based on what he called the ‘Finternet’. The Global Fintech Fest (GFF) is one of the biggest conventions of financial technology solutions, held by the Payments Council of India (PCI), the National Payments Corporation of India (NPCI), and the Fintech Convergence Council (FCC). The following are the insights from his address.

The future of financial services is in the “Finternet.” This is going to be the new look of financial services across the globe whereby the users will be able to access an integrated financial environment through technology. Being constructed on the ground of tokenization, cryptography, and implementation of standard protocol, the Finternet is designed to eliminate current barriers and fragmentation inherent in the current financial system and pave the way to a unified and efficient financial world.

The Current Landscape: Siloed Systems and Fragmented Innovation

The financial services industry has experienced significant development in the last few decades, especially in payments, credit, data, and open banking. There are many examples including India’s NPCI and UPI, Apple Pay, Brazil’s Pix, and many others including giants such as Stripe and Visa. But even with all these developments, the global financial system is still highly segregated. Today’s users require more control, choice, and simpler access to resources but the current infrastructure does not support this. The system is encumbered by slow, costly, and siloed solutions, most of which are designed for particular applications, resulting in costs and time overruns when making cross-border and cross-asset transactions.

The Power of Convergence: Learning from the Internet's Evolution

Taking the perspective from where we are now in the world of financial services looking at the world of the internet before TCP/IP, it is clear that there were multiple communication technologies that were not integrated as they are today, and similarly the financial systems of today are also disparate and incompatible. Technologies such as TCP/IP and SMTP transformed communications bringing a universal platform that made interactions across the world possible. In the same way, the integration of several devices’ features in a single device such as a smartphone altered the way people used the devices. The financial sector is on the verge of such a convergence where a single global financial system powered by the Finternet can exponentially unlock the value by integration of various financial instruments and services.

The Finternet Framework: User-Centric, Unified, and Universal

At the heart of the Finternet are three guiding principles: user-centricity, unification, and universality. The system aims to provide the individuals or businesses as the users of this system to be in the central position to manage their financial resources and operations. The Finternet is designed to integrate all forms of assets including deposits, bonds, real estate, NFTs, etc. as a single system. This will create a universal structure that will allow the participation and control of assets across the global financial markets as the internet allows for communication and exchange of information across the world.

Tokenization: The Key to a Unified Financial Ecosystem

Tokenization is one of the key aspects of the Finternet since it allows for the formation of individual packets in which different assets can be presented. These tokens, driven by the development of cryptography and the blockchain, are immutable, safe, and credible. In contrast to cryptocurrencies which are not part of the traditional financial system, Finternet tokens will be compatible with the AML, KYC, and other regulations. It is still possible to have the benefits of tokenization without having to go fully decentralized while also having the benefits of regulation of traditional financial systems.

Building Trust and Governance into the Finternet

Another important feature of the Finternet is the two-tier trust model. The first layer is practically embedded in the tokenization process since the tokenization process is underpinned by the immutability and security of the tokens. The second layer is from trust service providers who validate and attest to the origin of the assets, be it art, real estate, or financial products. The two-tier trust mechanism also guarantees that the Finternet transactions are safe, credible, and auditable to create trust from the users as well as the regulators.

The Finternet Architecture: A Unified Ledger System

The Finternet architecture is based on a single ledger in which all tokenized assets, including deposits, equity, and real estate, are registered. This single ledger is not one but a network of ledgers that are integrated to work with each other and have the ability to handle different technologies and protocols. Inter-ledger transactions enable assets to be moved from one ledger to another thus creating a high-volume and low-cost transactional platform that can accommodate billions of transactions on different assets. The Finternet also standardizes the process of token creation, transfer, and management which minimizes friction in the financial system and opens up new levels of market usage.

Real-World Applications: The Finternet in Action

It is important to understand that the Finternet is not just an abstract concept that has been developed to explain some phenomena; it is actively used in practice nowadays. For example, a business person can use blockchain to tokenize his or her property documents to access a loan without physical documentation. Likewise, she can tokenize her invoices to get insurance or tokenized grants and carbon credits within the Finternet’s tokenized environment. It also makes the transactions easier while at the same time guaranteeing that all assets are well protected to minimize cases of fraud and contract disagreements.

The Future of Dispute Resolution: Efficient and Transparent

Another strength of the Finternet is that it has the capability of changing the world of dispute resolution. Currently, a large part of the judicial practice of India is associated with the financial dispute, especially with checks. Due to the Finternet’s tokenized system, where the origin of a digital asset is apparent and cannot be changed, the number of such disputes will be significantly lower, thus allowing the implementation of online dispute resolution that is faster, cheaper, and more efficient. It can be seen that this can precipitate a significant change in the cost and effectiveness of the financial system as a whole.

The Road Ahead: Implementing the Finternet Vision

Thus, the Finternet is a great idea and its deployment process has already started. Labs, hackathons, and local ecosystems all around the world are progressing with the development of the components of the Finternet, including user applications and ledgers, as well as programmatic compliance systems. Thanks to the open-source concept of the Finternet, the vision of the integrated, global, and interoperable financial system is under development with the help of developers, financial institutions, and regulators all over the world.