| |DECEMBER 202319CIOReviewservices from different institutions, essentially creating their own bank tailored to their needs.Countries such as the UK, Australia, and Brazil are already seeing the benefits of open finance, using technological standards such as FAPI (Financial grade API). It is estimated that more than 80 countries are now conducting open finance initiatives, including Canada, Mexico, and the United Arab Emirates.Instant PaymentsThe private sector has been building payment networks for many years. However, regulators have observed that fragmented payment networks can lead to interoperability costs, while concentration in a single provider can create competition concerns.To address these challenges, financial regulators have led initiatives to create retail instant payment networks such as PromptPay in Thailand, UPI in India, PIX in Brazil, and FedNow in the US. In Brazil, for example, PIX, which has been in operation for less than three years, has allowed 50 million Brazilians to make their first bank transfer, generating benefits of around US$5.7 billion for businesses and citizens in its first year of operation.Instant payment systems require financial institutions to operate 24/7 with high levels of availability and scalability to process transactions in a matter of seconds. This requires investment in new technology infrastructure, cybersecurity, and IT processes.In some countries, such as China and the Bahamas, so-called CBDCs have been used to build an instant retail payment system accessible to the entire population. However, in addition to technological challenges, this approach raises concerns about financial intermediation.Central Bank Digital CurrenciesIt is important to note that some countries, such as Brazil, France, and Singapore, are taking a different approach to CBDCs. Inspired by the technologies used in cryptocurrencies, such as distributed ledger technology (DLT) and smart contracts, these initiatives aim to provide their respective financial systems with a platform for developing innovative financial services models.The decentralized finance (DeFi) environment, mainly available on the Ethereum platform, is an example of a platform with this approach. However, as these platforms are not subject to the regulatory perimeter of the financial system in many countries, they pose problems of governance, security for users, and mechanisms to prevent money laundering and terrorist financing.On the other hand, a platform with such technological capabilities, provided by a financial regulator and based on the national fiat currency, would allow for the emergence of more accessible financial services, such as the fragmentation of tokenized financial assets, which would make investments more accessible to the population. The advancement of these initiatives will depend on overcoming the technological challenges inherent to the low maturity of DLT technology, such as privacy, scalability, and interoperability.ConclusionIn this rapidly changing environment, financial IT leaders must not only have a technical understanding of these technologies, but they must also be able to assess the impact and changes they will bring to their businesses. They will need to deepen their partnerships with business units to create and develop new business models. This change will start with financial regulators and filter down to the way each IT leader acts. In this rapidly changing environment, financial IT leaders must not only have a technical understanding of these technologies, but they must also be able to assess the impact and changes they will bring to their businesses
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