Introduction
The digital finance ecosystem of India has grown remarkably over the last decade, amply supported by the pervasive adoption of UPI, digital wallets, account aggregation frameworks, and blockchain-based solutions. The host of fintech innovations has not only expanded access to financial services among retail and under-served groups, but catalysed efficiency, transparency, and inclusivity across the financial sector. Building on this momentum, the Indian government and regulatory bodies are now getting ready to launch Finternet-a digital public infrastructure for capital markets-that is expected to roll out from 2026. Finternet will be an integrated platform connecting traditional financial-market infrastructure with emerging digital technologies, including tokenized assets and decentralized financial instruments. Finternet is supposed to help connect traditionally fragmented capital markets with the innovations of Web3 and fintech.
What Is Finternet
The vision of Finternet is that of digital public infrastructure for the capital markets of India, meant for secure, transparent, and efficient trading, settlement, and custody of financial instruments. Its core objective is to modernize market infrastructure, allowing both traditional and digital assets to coexist on one platform while fostering innovation in the fintech ecosystem. In providing standardized protocols and interoperable systems, Finternet seeks to reduce operational complexity, enhance market access, and further improve regulatory oversight. Finternet draws inspiration from the model of successful digital public infrastructures in India like UPI and Account Aggregators.
Implications For The Fintech Companies
The rollout of Finternet opens up both opportunities and challenges for fintech companies operating within India’s capital-market ecosystem.
Opportunities
- New Fintech Services for Trading and Settlement: Finternet’s standardized infrastructure will open the way for fintechs to build innovative solutions around trading, settlement, and clearing, thereby creating value-added services for investors and other market participants.
- Increased Accessibility to Digital Capital Markets: By offering easier access, Finternet has the potential to include retail investors and SMEs in capital markets, adding more customers to existing fintech businesses.
- Innovation in Tokenisation and Programmable Finance: Support for tokenized assets on the platform opens paths to fractional ownership, smart-contract-based transactions, and programmable financial instruments that will allow fintechs to devise new investment products and expand their offerings.
Challenges
- Complying with Public Digital Infrastructure Requirements: This means that Fintech companies will operate under the set operation standards and regulatory protocols of Finternet, which could also mean more stringent requirements for compliance and reporting.
- Changing the Legacy Fintech Platforms: Technical upgrades to legacy fintech platforms for interoperability with the Finternet protocols will involve changes regarding compatibility with tokenization frameworks and digital settlement systems.
Tokenisation Of Assets
It will also be very important to allow for the tokenization of securities and any other financial assets, creating a single environment in which traditional instruments coexist with their digital equivalents. In this respect, standardized protocols for the issuance, recordkeeping, and transfer of tokenized instruments could facilitate processes such as fractional ownership, real-time settlement, and programmable corporate events. The infrastructure will most likely support the digital representation of equities, bonds, and units of mutual funds and possibly other asset classes. This, in effect, would enable market participants to issue and trade tokenised securities on a regulated platform, reducing settlement timelines and enhancing transparency. The infrastructure can also provide the capability for automated compliance checks and risk controls through embedded smart-contract mechanisms
Implications For Financial Market Infrastructure
Finternet will reshape the operational and technological landscape of the existing financial market infrastructure in India. Its implementation will require coordinated integration with established systems, introducing new standards for efficiency, resilience, and transparency.
- Integration with existing Clearing Corporations, Stock Exchanges, and Depositories: For Finternet to work, it has to integrate smoothly with the core institutions of the market infrastructure: stock exchanges, clearing corporations, and depositories. Presumably, this will mean syncing digital settlement rails with existing trading systems, ensuring that tokenized and traditional securities are compatible, while also ensuring auditability and regulatory oversight. The transition would require interoperability frameworks that are robust enough not to disrupt ongoing market operations.
- Standardization of Settlement and Risk Management Protocols: One of the main goals of Finternet is the establishment of standardized, technology-driven protocols pertaining to settlement and post-trade risk management. Precisely, this could include harmonized rules on trade validation, real-time reconciliation, digital custody arrangements, and automated management of margins or collateral. Standardization will increase predictability and lower levels of operational risk in the market ecosystem, especially for tokenised instruments and smart-contract-based processes.
- Potential Impact on Market Participants: Finternet could change the roles and responsibilities of key market participants:
- Banks will likely have to evolve their arrangements for settlements and custodial activities to include digital assets and automated settlement layers.
- The brokers would benefit from the higher efficiency of execution and clearing, yet would need to invest in infrastructure in order to meet new interoperability requirements.
- Custodians will be crucial in the safekeeping of tokenized assets and may, therefore, need to evolve new competencies around digital key management and recovery.
AMLEGALS Remarks
Finternet represents a big step toward modernizing the capital markets in India by integrating advanced digital infrastructure with existing financial systems. Enabling tokenized assets, streamlining settlement processes, and ensuring interoperability among market participants, it can change the way capital is raised, traded, and managed. The initiative also aligns with India’s broader vision to enhance digital public infrastructure and spur innovation in the financial sector. With the imminent rollout of Finternet, for example, fintech companies are in a position to innovate new products and services tailored to Finternet capabilities. Inextricably linked, however, is responsible innovation that would require an intense focus on compliance, investor protection, cybersecurity, and regulatory compliance related to evolving regulatory frameworks. This way, early preparation coupled with a forward-looking approach enables fintechs to play a meaningful role in shaping a secure, efficient, and inclusive digital capital-market ecosystem.
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