Many point to the 2008 financial crisis as the birth of the current fintech movement. At a time of economic turmoil, innovators and new entrants stepped in to rebuild trust and resilience in the financial sector and provide better, easier, and cheaper services to the end consumer.
Nearly 15 years later, the world is facing three new challenges which will once again require the agility, flexibility and innovative mindset of the fintech community to successfully tackle them: a climate emergency, a cost of living crisis, and a drop in business trust. It is imperative that the ecosystem – the financial innovation industry, government and regulators – come together to address these issues head on and secure a better future for consumers everywhere.
Environmental: Addressing a Climate Catastrophe
Technology plays a key role in making financial services greener and more sustainable, and the UK is a global leader in the green finance space. Tackling climate change depends upon rewiring finance in order to direct capital to activities aligned to Net Zero, which will be achieved by combining finance with data that measures real world outcomes. This is precisely what fintechs excel at: using data to provide new and better products and services for consumers, businesses, and institutions.
There is an increasing focus on providing data to measure climate change impact and guide decision-making, and fintech has the opportunity to lead the way in filling data gaps. Policymakers can help facilitate this forward progress by working with fintech leaders to implement reporting frameworks and common definitions to enable inter-operable, consistent and trusted data.
Social: Tacking the Cost of Living Crisis
Providing consumers with tangible solutions to help them in their everyday lives is at the core of many fintechs’ propositions. Fintech enables people to better understand, grow, and manage their money, often in an easier, cheaper and more transparent way.
According to the consumer group Which?, in 2022 alone 2 million households will have missed a bill payment every month as people struggle to keep up with costs. fintechs have an important role to play here in driving down this number, by enabling individuals and SMEs to take control of their finances through providing a complete picture of household income and outgoings; forecasting possible future scenarios during a time of volatile prices, energy costs and interest rates; and potentially providing advice on ways of managing finances and signposting to further help.
Fintechs can both provide these tools directly to the end consumer, and also enable other financial services to support their customers. Companies such as Minna Technologies have implemented innovative solutions for consumers to monitor their subscription spend; Snoop provides a free money management and budgeting app; and TotallyMoney helps people see, manage and improve their credit score. These Innovate Finance members are all using open banking to enable people to take control of their data and, from that, their finances. We are talking to firms, government, regulators and organisations like Citizens Advice about what more can be done, particularly if the rules on open banking can be extended to bring in new sources of data (such as mortgages) and provide small firms with cheaper payment processes. There is also an opportunity to work with the regulator to agree how we can widen access to financial advice through data and tech-enabled robo-advice.
Governance: Rebuilding Trust in Business
Fintech is the crown jewel of the UK tech and financial services sectors, and consumer trust has been key to its success to date. The Fintech community’s approach to transparency and its focus on the customer has paved the way for its growth.
We know that trust in businesses across all sectors and industries around the world has been dropping. According to Edelman’s 2022 Trust Barometer, over half of consumers globally believe that businesses are not doing enough to tackle societal issues such as climate change. Many fintech founders are driven by the desire to create a fairer, more equitable, and more inclusive financial services sector that works better for all. As our fintechs scale and grow, finding ways of maintaining and renewing this sense of social purpose becomes all the more important. In the same vein, it is critical that this sense of positive purpose is reflected internally, through ensuring a company acts ethically and responsibly, and driving a diverse and inclusive workforce. Proper governance is the foundation of this.
The way forward
We have seen a maturation of the fintech industry in recent years, as companies which were once considered new entrants are now integral players of the financial services sector with substantial market share, partnerships between established firms and startups are growing, and new entrants are driving even greater transformation and democratisation across the industry. Fintech is redefining financial services and what it means to the consumer. If we are to achieve our goals around ESG, we must continue to support this sector and allow innovation across financial services to thrive.