What is Finternet?

What is Finternet

The concept of Finternet, as detailed in a recent BIS Working Paper by Agustín Carstens and Nandan Nilekani, represents a visionary shift towards a more interconnected and technologically advanced financial system. The main benefits of Finternet, as outlined in the document, include:

• Increased Interoperability and Connectivity: Finternet envisions a financial ecosystem where multiple financial platforms are interconnected, similar to the internet. This connectivity aims to lower barriers between different financial services and systems, facilitating smoother and more efficient transactions across various financial networks.
• User-Centric Design: The system places individuals and businesses at the center of their financial transactions. It emphasizes user empowerment, giving users more control over their financial assets and enabling them to manage these assets more effectively and securely.
• Enhanced Access and Inclusion: By integrating advanced technologies and reducing systemic barriers, Finternet seeks to broaden access to financial services. This is particularly beneficial in emerging market and developing economies (EMDEs), where traditional financial services are often limited or non-existent. The system aims to provide universal access, ensuring that financial services are inclusive and accessible to all segments of the population.
• Cost Reduction and Efficiency: Finternet leverages digital innovations to reduce the costs associated with financial transactions. By simplifying processes and eliminating redundant steps (such as lengthy clearing and settlement processes), the system can offer faster and cheaper financial services, benefiting both consumers and businesses.
• Improved Security and Reliability: The proposed system incorporates advanced security measures, such as tokenization and unified ledgers, to enhance the security and reliability of financial transactions. These technologies help in safeguarding against fraud and ensuring that transactions are executed accurately and securely.
• Scalability and Flexibility: The architecture of Finternet is designed to be scalable and flexible, allowing it to adapt to the growing and changing needs of the global financial landscape. This adaptability ensures that the system can handle increasing volumes of transactions and accommodate new types of financial services and products.
• Regulatory and Legal Framework: Finternet is underpinned by a robust economic, regulatory, and legal framework that supports its operation and ensures compliance with relevant laws and regulations. This framework helps in maintaining the integrity of the financial system and protecting the interests of all stakeholders.
• Innovative Financial Products and Services: The integration of new technologies within Finternet opens up possibilities for innovative financial products and services that are more tailored to the needs of users. These innovations can lead to more complete financial markets and improved financial well-being for individuals and businesses.

Overall, Finternet represents a transformative approach to the financial system, aiming to make it more inclusive, efficient, and responsive to the needs of its users. By leveraging digital technologies and fostering greater connectivity and interoperability, Finternet seeks to overcome the limitations of the current financial systems and pave the way for a more dynamic and accessible financial future.

Finternet: the financial system for the future
Authors: Agustín Carstens, Nandan Nilekani
From: BIS

Brazil’s Pix: a first step towards Finternet

Platforms that enable instant money transfers at zero cost for the consumer have already been launched by different companies: Zelle in the U.S., Swish in Sweden, and UPI in India. But none of them has been as successful as Pix in Brazil which, unlike the other three, was launched by the Banco Central do Brazil in November 2020. Pix integrates over 700 financial institutions, allowing real-time money transfers via a mobile interface using just a phone number or QR code, enhancing market efficiency and competition. Since its inception, Pix has experienced rapid adoption, with about 80% of Brazilian adults using it, surpassing traditional credit card transactions. It has also fostered financial inclusion, adding over 40 million bank clients and enabling 50 million Brazilians to make their first digital payments. Pix transactions are cost-effective, charging significantly lower fees compared to traditional card payments, both domestically and internationally. The success of Pix mirrors the global trend where fast payment systems are increasingly adopted, particularly in emerging markets, where digital payment usage rose from 35% to 57% between 2014 and 2021.

We find that a 1 percentage point increase in digital payments use is associated with increases in growth rates of total factor productivity by 0.04 percentage points, and in growth rates of GDP per capita by 0.10 percentage points. Insofar as the reported share of the population making digital payments ranges from nearly 0 to 100%, this is a substantial amount.

Digital payments as a boon to financial inclusion
By: Alexandre Tombini – BIS