At its core, the Finternet concept centers on users—both individuals and businesses—placing them at the heart of their financial ecosystem. It further envisions a network of interconnected financial ecosystems leveraging cutting-edge technology to provide seamless, efficient, and inclusive financial services. This vision resonates strongly with ideas proposed by Lawrence Lessig in his influential work “Code: And Other Laws of Cyberspace.” Lessig argued that “code is law” in digital environments, meaning that the architecture of digital systems can be as influential as traditional legal structures in shaping behavior. The Finternet builds on this concept by proposing a financial system where regulatory compliance, user protections, and identity management are embedded directly into the technological infrastructure.
A key aspect of the Finternet vision is that most of the necessary technology is already in place and progressing rapidly.
Unified Ledgers: Digital platforms that consolidate multiple financial assets, enabling fast and secure transactions without complex intermediaries.
Tokenization: The representation of various assets digitally as tokens for more efficient trading and management.
Interoperability: Ensuring different financial systems can work together seamlessly.
Enhanced Security and Privacy: Leveraging advanced technologies like cryptography, distributed ledgers, Zero-Knowledge Proofs (ZKP), and Multi-Party Computation (MPC) to ensure both security and privacy in financial transactions.
Inclusivity: Expanding access to financial services, especially in emerging markets and developing economies.
A crucial element of the Finternet vision is the integration of self-sovereign identity (SSI). SSI is a model that gives individuals control over their digital identities without relying on centralized authorities. In the context of the Finternet, SSI could revolutionize interactions with financial services by:
User Control: Allowing individuals complete control over their personal information, deciding what to share and with whom.
Privacy by Design: Enabling selective disclosure, where users can prove specific attributes (like age or credit score) without revealing unnecessary personal details.
Portable Identity: Allowing users to carry their verifiabke credentials across different financial platforms and services, streamlining onboarding processes.
Reduced Fraud: Utilizing cryptographic proofs to significantly reduce identity theft and fraudulent activities in the financial sector.
Global Accessibility: Providing a pathway to financial services for the unbanked, who often lack traditional forms of identification.
The implementation of the Finternet, powered by SSI, promises numerous benefits:
Faster Transactions: Near-instantaneous settlement of financial transactions.
Lower Costs: Streamlined processes that reduce the need for intermediaries.
Increased Access: Expanding financial services to underserved populations.
Innovation: Spurring the development of new, user-centric financial products and services.
Improved Compliance: Simplifying KYC (Know Your Customer) and AML (Anti-Money Laundering) processes while maintaining high standards.
Enhanced Privacy: Giving users granular control over their personal and financial data.
While the Finternet vision is compelling, several challenges remain, particularly when examined through the lens of Lessig’s four regulatory forces: law, architecture (code), market, and social norms.
1. Law (Regulation):
2. Architecture (Code):
3. Market:
4. Social Norms:
Cross-cutting challenges include governance, adoption, interoperability, and financial inclusion. Addressing these issues will require coordinated efforts from regulators, technologists, financial institutions, and society.
US regulators would need to get behind a framework for the Finternet that maintains or enhances the safety and soundness of the banking system. This framework might include more guidance on tokenized assets, SSI implementation, and interoperability standards, all designed to ensure the stability and reliability of the financial system. By endorsing such a framework, regulators can provide the necessary support and legitimacy for the Finternet’s development while preserving their crucial oversight role.
The Finternet could potentially democratize financial services in America, allowing smaller institutions and new entrants to compete more effectively with large banks. Americans might need to adapt to new ways of thinking about their financial identities and data. The concept of a bank account could evolve into a more holistic digital financial identity. At the same time, the longstanding expectation of bank stability and trustworthiness would need to be maintained and potentially reinforced in this new digital context.
Ultimately, the Finternet represents the future direction of global finance, with its emphasis on innovation, inclusivity, and user empowerment. To stay at the forefront of this transformation, the U.S. banking system should take a leadership role in shaping and implementing these advancements, ensuring it adapts to the changing landscape and sets the standards for the financial systems of tomorrow.