Now encapsulating a focus on societal impact and the environment, the term ‘fintech for good’ has evolved from its initial meaning of charity. But it doesn’t stop there. This July, we are on the hunt to find out how the fintech industry is doing ‘good’ for local communities and the world, revealing current and future plans to make change.
Greenwashing, providing incorrect information to the public about the ethical and environmental impact of a firm, was one of the biggest challenges facing fintechs at one point. There used to be a lack of transparency, however, over the last couple of years, this has been sternly dealt with, resulting in more accurate news-sharing about ESG (environmental, social, governance) goals and how they are being met.
Nonetheless, challenges still persist, so we spoke to the industry to find out what fintechs are still struggling with.
Don’t forget the ‘S’ in ESG
When discussing ESG, it is very easy to get caught up in environmental impact. However, organisations must ensure they are focusing on social and governance too according to Sundip Patel, co-founder and CEO of Avana Companies, the fintech driving social and environmental change.
“One of the biggest challenges is measuring social impact. It’s important to be deliberate about collecting data and be clear about what intervention or activity your firm can take to create and measure social or environmental impact. Another challenge many companies face is getting an entire company to align social impact with business goals if profit has been the primary motivator for years.
“As a leader, it is important to understand that changing minds think about both profit and purpose takes time and resources. Using existing frameworks like the United Nation’s Sustainable Development Goals (SDGs) can help operationalise impact measurement and alignment. Although it can be challenging to implement SDGs into initiatives it ultimately does add to business success.
“A third challenge that company leaders run into is trying to meet too many SDGs at once and then struggling to maintain them. Leaders need to take SDGs and social impact goals one step at a time. For fintech’s consider the ones that align best with your company’s mission, like financial inclusion.
“Just start somewhere – think of ESG or SDG goals as a continuum. It can be challenging to try to set up big goals all at once. It’s a journey that takes a conscientious effort, so take on the tasks slowly and deliberately. Eventually, the company will have met and changed its course towards prioritizing social impact and profit.”
Genuine values must make up a company’s bedrock
Francois Terrade, global head of structuring at Demica, the supply chain finance platform notes that many firms would not have as many challenges integrating ethical values if they had them embedded into the company’s core.
“Fintech firms are often looking to raise finance that will be earmarked to specific projects that will only become profitable after a number of years.
“In this context, short-termism may be a temptation. ESG considerations may have a lower priority and business decisions may ‘cut corners’: get software developed in countries without adequate social protection or create a work environment that promotes internal competition and short-term gains, recruiting people with similar backgrounds.
“To stay relevant and scale fast, fintechs must affirm a strong set of genuine values as the bedrock of their vision. Fast-growing fintechs are more diverse and have strong values, enabling them to see opportunities faster and be more agile to implement them with highly motivated employees. Values and corporate culture that incorporate ESG principles will attract and retain talents, clients and investors.”
Ensuring a good reputation
Shawn Carpenter, chairman, CEO, StockAlarm, the stock market app, also highlights the importance of establishing an ethical culture. However, he also goes on to note how data privacy and security can be challenging.
“Despite the potential benefits, fintech firms face challenges when implementing ESG initiatives.
“One big problem is there are no same rules and ways to report numbers. ESG includes many different things, so without clear guidelines, companies find it difficult to measure how they perform and compare with others correctly.
“Data privacy and security are also very important. Fintechs use lots of data, so keeping it private and safe is a must-do. Any violation can harm trust and reputation, so it is very important to balance data use with strong security steps.
“Moreover, staying current with technology and regulatory changes is challenging. Fintech companies need to continuously adjust to new laws and public expectations, which demands regular investment and adaptability.
“Lastly, creating a culture that focuses on ESG can be difficult. It involves changing from seeking quick profits to aiming for long-term sustainability—a change in thinking that requires time and dedication.
“In general, even though fintech can bring big positive changes for ESG, it is important to overcome certain difficulties. By facing these challenges directly, the industry has a chance to guide the creation of a more sustainable and responsible financial future.”
Keeping customer trust intact while building towards ESG goals
Erik Severinghaus, founder and CEO, Bloomfilter, the AI-driven process mining for software development firm, identifies that as firms look to find the perfect balance between profitability and being ‘good’, other issues are emerging like data privacy and security.
“When talking about ESG issues, fintech companies face many challenges. The absence of uniform ESG reporting and analytics frameworks is a big issue. It is difficult to track and talk about ESG performance in a steady manner without shared rules for everyone to follow. Stakeholders get confused as a result.
“It is not easy to put ESG factors into current company models while still making money. Many fintech companies have a hard time finding the right balance between earning profits and acting ethically. The desire to show fast financial gains often goes against the long-term goals of putting money into ESG. This creates difficulty in finding a good balance between these two aspects.
“Data privacy and security are now very big concerns. As more fintech companies use AI for ESG projects, it is very important to ensure customer data used correctly. Strong data protection measures are very important to prevent breaches and misuse, which keeps customer trust intact while also helping ESG goals make progress.”
Regulatory hurdles
While data privacy and security are some key challenges, Pat Patel, executive director at Elevandi, the fintech offering programmes and forums, points out why regulations can cause hurdles and how education is needed to overcome these.
“Fintech firms face a slew of ESG challenges, including regulatory hurdles, technological barriers, and resistance to change. The regulatory landscape can be tricky and varies widely across different jurisdictions, making compliance a real challenge. Technological barriers are another issue, especially in regions with limited internet access and lower levels of digital literacy.
“Overcoming these challenges requires significant investment in education and infrastructure to make tech solutions accessible to all. Also, there’s often resistance from organisations and stakeholders who are used to traditional methods and may be sceptical about new technologies. Tackling these challenges is crucial for the successful implementation of ethical fintech solutions.”
Energy sources, inclusion and regulations
Roman Eloshvili, founder and CEO of XData Group, a B2B software development company breaks down each part of environmental, social, and governance, explaining the challenges found within each part.
Environment
“Data centres and energy consumption: Fintech firms handle large volumes of data, necessitating significant computational power and leading to substantial energy consumption. Data centres require constant cooling and power, which can result in high carbon emissions. Managing the environmental impact of this energy usage is a major challenge.
“Renewable energy sources: While adopting renewable energy sources is a desirable option, they can be expensive and may not be consistently available in all locations, leading to reliance on non-renewable energy to maintain operations.
Social
“Financial inclusion: Ensuring that fintech services are accessible and affordable to diverse populations is a significant challenge. Many underserved communities lack access to traditional banking services. Fintech firms must design inclusive products that cater to the needs of various demographic groups.
“Safety and privacy: Protecting customer data and preventing fraud are also critical concerns. Fintech firms must implement robust cybersecurity measures to safeguard sensitive information from breaches and cyberattacks.
Governance
“Regulatory compliance: Navigating the complex and ever-changing regulatory landscape is always a major challenge for fintech firms. Regulations are continually evolving, with new areas becoming regulated and existing regulations being updated. Fintech firms must stay informed and compliant with these changes to avoid hefty penalties and maintain operational integrity. The cost of mistakes in this field can be extremely high, both financially and reputationally.”
