Fintech and sustainability are the two major drivers of change in the financial sector. There isn’t a financial institution that’s not involved in it. There isn’t a startup that does not derive its right to exist from it. What is striking about this, however, is that the combination is rare. Fintech is usually primarily a way of organising the existing financial practice more efficiently. But what is the role of fintech in creating a financial sector that includes green and social values.
FinTech roles in creating a financial sector that includes green and social values
Fintech is usually primarily a way of organising the existing financial practice more efficiently. The main functions of the financial system presents a world of opportunities.
- Financing for social projects through crowd funding by calculating the creditworthiness of companies focused on CSR. Customers can subsequently choose what to invest in.
- Shared payment data to give customers, in addition to their savings account and outstanding credits, insight into their CO2 emissions with aim is to help customers reduce their energy, water and detergent consumption.
Fintech innovations are now driving financial inclusion strategies.
Technology drove many of the advances in financial inclusion in 2016, from the proliferation of smartphones to new digital solutions for small merchants. Experts have recently noted that Myanmar has leapfrogged ahead of others interoperability, as mobile telephony and mobile money are being introduced at the same time, along with a regulatory framework.11 In addition, Mexico made progress in supporting small stores in accepting small digital wallet payments.
This combination of fintech innovations could have long-term societal implications.
As the recent UN Environment Inquiry report “Fintech and Sustainable Development: Assessing the Implications” argues, blockchain technology (blocks of transactions and ‘smart contracts’ on an immutable distributed ledger) coupled with machine learning and artificial intelligence (AI – the use of advanced computer science to recognize complex patterns in data) and the ‘Internet of Things’ (IoT – low cost Internet-connected sensors contained in everyday objects) will lead to revolutionary innovations. Such innovation could build trust, incorruptibility, transparency and traceability in transactions in both the financial system and in the real economy – through entirely new business models such as asset financing models based on real-time accumulated risk versus fixed terms.
Fintech through a Green Lens – an Opportunity to Advance Sustainability
Developing Countries – Leading the Way- The digital finance revolution promises a new world – but can it make this new world green and sustainable? Fintech innovations have already demonstrated their disruptive power in many sectors, such
as expediting and enabling low-cost financial inclusion. Although in the early stages, this power is now being harnessed to build bridges between financial and environmental benefits, and provide a foundation for identifying and creating profitable green savings and investment opportunities. Fintech is therefore not just another topic in the green finance space – it is a lens on the future of the financial system itself. Indeed, fintech could potentially speed the development of green and inclusive financial markets, and help realign the financial system toward sustainable development.
The transformative potential of fintech for sustainable development is increasingly understood and appreciated. It could help overcome some of the pervasive barriers to deploying private finance for the wider good and improve environmental outcomes. On the supply side, digital finance reduces costs and increases speed. Trine, a Swedish tech start-up, enables savers in Stockholm to profitably fund distributed solar energy systems in rural sub-Saharan Africa. On the demand side, similarly, reduced financing costs and pay-as-you-go access to clean energy opens up new markets, particularly for poorer
Developing countries are leading the way on fintech and green finance. Many innovations have emerged in developing nations such as Kenya, Bangladesh, Mongolia, Colombia, Chile and Peru, rather than wealthier developed nations. A growing number of potentially scalable cases of fintech-powered financial services are under way:
- Payments: In developing countries, the lack of infrastructure has helped mobile phones become the preferred devices to communicate, get information and transfer money.
- Energy: M-Pesa assisted the rise of M-KOPA, which sells household solar lighting systems through an instalment plan paid for via mobile.
- Insuring Risk: By 2015, over 800,000 farmers in Kenya, Tanzania and Rwanda were insured by the Agriculture and Climate Risk Enterprise (ACRE) and similar vehicles against a variety of weather risks. Scaling this technology through a combination of IoT, blockchain and artificial intelligence could help provide risk coverage to an estimated 1.5 billion smallholder farmers in the developing world against increasing weather volatility.