Buoyed up by the success of Digital Public Infrastructure (DPI) in India, Nandan Nilekani teamed up with Agustin Carstens of BIS (Bank for International Settlement) to prepare a blueprint for a new digital global financial system and they christened it — FINTERNET (Financial Internet). This is designed to be user-centric, universal and unified.

This attempts to unite the foundations of economics, finance and commerce with technological innovation. Multiple ecosystems would be connected so as to deliver universal and unified access to high quality financial services.

At a higher level they would like the proposed financial system/asset transfers to be as easy as making a phone call to anyone across the globe irrespective of device, network or service provider. And much like booking accommodation or renting a cab across the globe. They seek to remove friction and make transfers less costly, faster, instantaneous and secure and make the system more efficient. On the face of it, the project looks ambitious, if not audacious. This is a planet scale project that is touted to touch 8 billion-plus people.

How it works

Tokenisation and unified programmable ledgers are the twin pillars of the technology architecture of FINTERNET. All the financial assets including bank deposits, stocks, mutual fund units, all kinds of securities and physical assets (land, cars, works of art, etc) would be tokenised and reside on programmable unified ledgers.

The tokens may represent assets whether registered/ unregistered, attested/ unattested, regulated/ unregulated, fungible/non-fungible, bearer/non bearer, block chain enabling/non-enabling. Thus, it is tech and asset agnostic platform. These tokens are transferable on unified ledger and programmable platforms instantaneously and in a secure manner. It is beyond portability.

These tokens, digital representation of assets, will contain information like ownership, rules and logic governing transfer. This will avoid lengthy messaging system between institutions and stakeholders. The clearing and settlement system may be compressed or eliminated. This will reduce costs and transfers would be faster and secure and even instantaneous.

The collaborators of the project have made some smart moves to gain acceptance by the regulators and incumbent institutions. Firstly, central bank governors of Brazil, South Korea and Brazil were roped in as panellists in the first round of conference on FINTERNET and some of them may emerge as partners. Secondly, to get acceptance from incumbent institutions, assurance has been given that the project will not disturb or demolish their intermediary role and structure. The high-performance transaction engine comprising tokens and unified ledgers would be ‘airdropped’ — that is, without disturbing the existing institutional structure. But banks have to redefine their business/operating models.

Unintended consequences

Many digital lenders/apps have designed products and processes to remove frictions and make borrowing easy and faster. But this has pushed many small-time borrowers to over-leverage and the RBI raised the red flag. It is not hard to see similar unintended consequences in social media and even concentration in UPI. We need to be mindful of unintended consequences.

Trust is very important. A well-functioning real-time grievance redressal and dispute resolution mechanism is a key element that inspires trust. So also, the need to mitigate ever increasing cyber security threats/frauds. This needs new governance mechanisms and laws. Regulators and supervisors need to write new rule books.

Way forward

India is not new to successfully and securely operating large-scale platforms. As the global financial regulator (BIS) is the collaborator, it opens the doors at several places globally. Now the ball is set rolling, it is party time for high impact citizen-centric fintech innovations at various layers of the new architecture. It is a once-in-a-life-time opportunity and some unicorns may emerge.

Use cases is a critical success factor. It would be interesting to see response of other stakeholders, particularly regulators in legislating enabling laws and regulations. Over 100 central banks have already initiated, or are operating, projects to tokenise their fiat currencies. BIS innovation hub is super active with several cross-border payment use cases through tokens. This combined with tokenisation of commercial bank money augurs well for the FINTERNET.

A big bang approach would be difficult and it may find its own legs as experience and benefits evolve. Look for low-hanging fruits. Turf wars are sure to flare up and need to be doused.

Will it amplify or attenuate the next global financial crisis or financial instability. Will it alter macro financial theories? One may not be faulted to assume that with involvement of global regulator BIS, these issues would receive greater attention and scrutiny.

The government may constitute a FINTERNET council with majority participation of the private sector.

Bill Gates had predicted that agents will replace apps. This could emerge as an important element in FINTERNET. Will India bite the bullet and showcase to the world, a la UPI?

The writer is a former chairman of a commercial bank, and Director and CEO, IDRBT