Solving the internet of finance’s inclusion challenge

The digitisation of global finance promises to accelerate the inclusion of millions of financially excluded people into the formal banking system.  

In a Bank for International Settlements white paper, BIS General manager Agustin Carstens and Nandan Nilekani, co-founder of tech consulting giant Infosys, lay out the case for what they have dubbed the “Finternet” – a seamless online environment that dramatically eases poor people’s access to formal financial services, increases transaction speed and security, and cuts costs dramatically.  

We recently convened a roundtable discussion on the topic at Singapore’s Fintech Festival, alongside some of the top minds thinking about financial technology: Dr Pramod Varma , one of the architects of India’s tech stack; Vincent Pek of Singapore’s MAS; and Pradyumna Agrawal of Temasek, to name a few.  

The Finternet would give a big boost to emerging economies. Take cross-border remittances, which are particularly important to many developing countries with large emigrant populations. At present the World Bank estimates that sending a remittance on average costs 6.35% of the amount sent. One of the United Nations’ sustainable development goals is to cut this to 3% by 2030. A “finternet revolution” would be prerequisite to hitting that target.  

There are similar savings to be found across the spectrum of transactions, from equities to trade finance to bonds. As we have seen in India and China, digitisation of payments cuts costs for small businesses, making it easier for them to compete at home and abroad. 

There are security benefits as well. Programmable money linked to smart contracts can be made harder to steal or misuse. Digital currencies can also be used to precisely target government support, reducing the risk of unintended inflation spikes.  

Given these benefits it is unsurprising that emerging markets are enthusiastic. Brazil’s Drex platform is a step in this direction, as is the so-called “India Stack” – the country’s collection of digital public goods organised around public APIs and a digital identity called Aadhaar. HSBC is working on the problem too, exploring tokenisation of payments, assets and deposits.  

One of the biggest challenges to implementing a Finternet is how to validate who you are transacting with, especially across borders. To some, the idea of a unified digital identity sounds ominous and intrusive. Governments concerned about protecting privacy and ensuring economic security will need to be assured these new technologies and processes put neither at risk. 

So HSBC is researching how to develop a system that enables cross border identity validation without requiring disclosure of sensitive personal data. One concept is HSBC Trusted ID, which uses digital signatures and decentralised ledger technologies to allow digital identities to be issued securely. Zero Knowledge Proof allows users to selectively share verifications without disclosing personal information. Together the concepts won a coveted Red Dot design award in 2024.  

While there is much more work to be done, I believe we are on the right track. We can strike a balance between trust and privacy if we work together on a multilateral basis to develop a system everyone can use. The reward will be a connected, secure, more prosperous and inclusive world.