Across the first half of November 2021, the 26th United Nations Climate Change Conference (COP26) brought together world leaders and climate experts to agree on measures needed to tackle climate change and keep below a 1.5°C temperature increase. As highlighted by the COP26 objectives, there is a clear overlap between Finance, Sustainability and Technology. This convergence can be defined as Green FinTech and it’s going to play a significant role in achieving environmental sustainability.
At this year's summit, several goals were established which included a) Mobilising finance to guarantee US$100bn of ‘climate finance’ to developing nations per year, and b) Working together to accelerate action to tackle climate change through governments, businesses and civil society. Numerous activities that fall under the Green FinTech umbrella, such as green bonds, green investment funds or large institutions taking out climate risk insurance, prove to be crucial toward combating climate change.
There have already been clear indicators as to where Green FinTech is headed, perhaps most notably when Tesla stopped accepting Bitcoin payments in May 2021, citing its negative environmental impacts. A 2020 EY report found that 52% of banks see both climate change and environmental as emerging risks over the next five years, up from 37% in 2019. With this in mind, let’s look at how FinTech is already making efforts towards tackling climate change and what the future holds in store for Green FinTech.
FinTech is innately a more environmentally friendly alternative to the traditional finance sector. In the revolutionised world of digital banking, gone are the days of a road trip to your bank branch to print out a paper bank statement or having it mailed and delivered to your home. This move to digital is a continuing trend: in 2020, 76% of the UK regularly use online banking, up from 42% in 2010.
The benefits for the consumer are plentiful: increased convenience, reduced carbon footprint and more clarity in personal finance management. As highlighted by Deloitte, the average consumer is growing more environmentally conscious and some FinTechs are jumping at the opportunity. Aspiration, an LA-based green banking start-up, are planting more trees than there are in New York’s Central Park every day, as a result of their initiatives. There are also a wide variety of mobile applications, such as Clim8, a sustainable investing app, that enable the consumer to invest savings into causes that are revolutionising access to clean energy, water, sustainable food and more.
FinTech is already taking advantage of the consumer’s desire for greener products, and it will continue to invest in green initiatives to grow its market share in the competitive finance landscape of today.
The legacy systems and hardware the traditional incumbents rely on are less environmentally friendly than the agile technologies typically utilised by FinTechs. On-site data centres require a significant amount of energy to run, as well as requiring additional hosting infrastructure and regular maintenance.
FinTechs are taking advantage of the prevalence of cloud technology and cloud vendor services, such as AWS and Microsoft Azure, that are leading the charge when it comes to reduced carbon emissions. A report in October 2019 found that moving to the AWS Cloud can help companies reduce the carbon footprint of their IT operations by up to 88%, due to benefitting from environmental economies of scale.
The significant cost and environmental impact of establishing an in-house data centre are further exacerbated when considering the rapid pace of technology innovation in the finance industry, with new technologies replacing old legacy stacks at a rapid pace. FinTechs are already taking advantage of cloud technologies to accelerate growth and scalability whilst significantly reducing its carbon footprint.
Tandem Bank, aiming to become the UK’s first green digital bank, has been leveraging cloud technologies for many years now with the help of intive as a long-standing technology partner. Recently, the bank overhauled its platform together with its revolutionary digital app, reflecting the bank’s commitment to a greener digital banking proposition.
With Bitcoin being first introduced in 2008 as the first application of Blockchain technology, it is no surprise that Blockchain is being described as one of the most disruptive technologies of the 21st century. Although the emerging technology is best known for its crucial role in cryptocurrency systems, the applications are more widespread and significant.
In short, a Blockchain is a more secure and decentralised record of transactions. Using this technology, ‘See-through supply chains’ are a possibility: transactions throughout the supply chain can be recorded in a Blockchain, allowing for full traceability and transparency of products from their source to store. This has the potential to transform how suppliers, purchasers and regulators manage supply chains.
When reconsidering the environmentally conscious consumer, Blockchain technology allows the consumer to clearly track where their green investments are being spent and how they’re being used.
With several FinTechs already utilising Blockchain technology and finding new use cases, the potential for partnerships in this space are significant. We are already seeing some examples of this within FinTech: Everledger, a digital transparency company, are utilising this technology to provide Blockchain-backed product authentication for high-risk assets, such as Diamonds and Art. Provenance, a supply chain transparency start-up, recently completed a pilot using Blockchain technology to track responsible sourcing of tuna in Indonesia.
The future of Green FinTech is certainly one to watch: Blockchain innovation is a key area of growth and investment as the implication of the technology, when used effectively, are significant. The FinTech sector is well-positioned to play in this space and continue to make significant efforts to reduce environmental impacts, for the better of the people and our planet.
It is still sensible for the average consumer to consider where their money is being invested and how it is being used; greenwashing, when a company misrepresents their products’ environmental credentials, continues to be a prevalent concern. But, as previously described, Blockchain is a potential answer to the threat of environmental ambiguity.
At intive, we utilise ready-to-use cloud solutions to push time-to-market for emerging FinTech organisations. With our recent acquisition of SimTLiX, a US-based digital transformation partner, intive has strengthened its FinTech value proposition in areas such as Cryptocurrency, Blockchain, Digital Wallet & Payments.
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