Global warming and climate change are some of the biggest issues that our planet has been facing in the last 30 years. The negative impacts of climate change have been increasing day after day, reducing the quality of life. Implications of global warming pose significant risks to economic and political development globally.
In order to create sustainability, reduce carbon footprint, and build a green economy environment, technology companies have rolled up their sleeves. As in every industry, environmentalist and eco-friendly technology approaches, also known as Green Tech, have become a rising value in the field of finance and are directly reflected in financial technologies. With that, a new concept has recently emerged as “Climate FinTech.”
In this article, we will talk about how FinTech solutions are applied in the banking industry. But first, let’s take a quick look at what “Climate FinTech” means.
What is Climate FinTech?
Climate FinTech, also known as ”Green FinTech“ and “Sustainable FinTech” is the digital technology solution method to convert the financial industry into a more sustainable environment. This is done through catalysing decarbonisation by combining three sectors: climate, finance, and technology.
Climate FinTech solutions are innovations, platforms, and applications that could potentially evolve organisations’ savings, spending, and investments by putting the planet that we live on first.
The terminology on its own is quite young but the movement it leads is increasing its value where FinTech companies are shaping themselves into this sustainable transition from planting trees through service to offering fossil-free investment solutions. For instance, TreeCard is a FinTech startup focused on European clients. They make credit cards out of recycled plastics and sustainably sourced cherry wood. Unlike other FinTechs, 80% of its profits go to reforestation and climate investing.
Thus, the interest in Climate FinTech solutions is consistently increasing with technologies and innovations across eco-friendly, technology-driven services and products.
Why is Climate FinTech Important?
FinTech makes life easier for both financial organisations and customers in the ways of handling particular processes. Thanks to FinTech, customers no longer have to make a trip to their bank branch. According to research, 76% of the UK regularly uses online banking, so it is clear how beneficial this is to increase consciousness towards the environment in many areas, such as reduction of paper waste and carbon footprint.
Therefore, financial institutions are in need of converting to an eco-friendly outlook. One of the biggest reasons for this is that customer demands have also evolved in this direction. This is where Climate Fintechs come to the rescue and take the industry to the next level.
According to research, climate fintech startups raised around $1.2B in 2021, tripling its size of all past years combined.
What are the Benefits of Climate FinTech?
Climate FinTech serves as a vital force in financial services to mobilise capital and change consumption behaviours. Now, Climate FinTech allows customers to make conscious decisions in their shopping and also helps investors to build more climate-integrated assets for their clients.
Climate FinTechs also provide comprehensive tools to monitor and measure organisations’ impact on the planet by underlining certain methods. Some of those methods include:
Changing Consumer Behaviour
Credit/debit card payments and conducting digital banking processes reduce carbon footprint compared to traditional cash payments.
When you choose to pay with a card or directly from your device, you are saving paper and helping the environment by preventing further carbon emissions by a simple choice. Most businesses are even encouraging their clients to choose these environmentally friendly alternatives.
Investment Habits
There has been a significant shift towards decarbonisation. The demand for lower fees, better performance, and regulatory pressure are some of the reasons for the uptrend towards environmental, social, and governance (ESG) investments.
With that, younger generations are more concerned with environmental issues than previous ones. Therefore, investment capital is transforming into building climate-focused portfolios.
Risk Analysis
FinTech allows the analysis of both current and future changes towards the planet and its environment. With the increasing use of artificial intelligence (AI), information about all sorts of issues from greenhouse emissions to deforestation can be collected easily.
This bulk of data and knowledge leads to a better understanding of potential risks for economies, businesses, and communities to take the necessary steps forward.
Which Technologies are Contributing to Climate FinTech?
Many different methods are in use for all intents and purposes to transform the banking industry towards a greener outlook. It has definitely become a necessity to use technologies that minimise human activities that may affect the environment.
Climate FinTech’s mission is to reduce global warming’s effects, so in order to achieve this goal, some steps need to be taken. Below is a list of some of the top technologies that can contribute to Climate FinTech:
Big Data
Big Data in the financial industry is utilised by financial institutions and organisations to predict and mould consumer behaviour. It also optimises the services an organisation provides, such as sales, marketing, security, and more, to provide maximum satisfaction to their clients. Thus, those customer behaviours can be transformed into eco-friendly methods with the right lead.
On top of that, Big Data, with all the information it acquires, provides feedback and information to optimise business processes and human effort for a more efficient workflow. Core operations like risk assessment, loan servicing, and even the legal departments of a particular organisation, can benefit from Big Data.
Considering the entire financial industry is creating large amounts of data, FinTech solutions can mix and match the entire database and assist banks in providing sustainable and eco-friendly solutions to their customers.
Artificial Intelligence (AI) and Machine Learning (ML)
Among all the technologies offered by FinTech in the banking sector, Artificial Intelligence (AI) and Machine Learning (HL) stand out most with their solutions that can replace human labour. In this manner, the ability of AI and ML is moving in a synchronous manner to build a sustainable financial system in many ways.
AI and ML technology is going to optimise all processes, including filling out paper forms and invoices and entering data manually. Therefore, it can accommodate various transactions that cause environmental harm in the long term through a digitised format by minimising human labour in the most sustainable way.
Blockchain
Blockchain technology, sooner or later, can and will change our planet into a better place. This is very certain since blockchain technology allows for innovation in the ways that we process transactions on a daily basis. Thanks to this, we’re able to create and use decentralised cryptocurrencies that, when widely used, can help fight against the global warming crisis.
According to KWM’s report, the use of blockchain will change traditional financial transaction flows and create economic return while supporting climate action. For example, this will be achieved through improved carbon emissions trading, green bonds issuance, and better tracking and reporting of greenhouse gas emissions reduction.
FinTech Can Transform Your Organisation Into a Greener One
Using FinTech to transform your organisation, maximise customer satisfaction, and keep up with the industrial revolution in order to stay competitive has become a necessity.
Eco-friendly solutions require digital transformation. ForInvest is here for you to create a strong digital asset with sustainable solutions to develop your organisation’s position in the future of green finance.
With 30+ years of financial industry experience and our dedicated team of experts, we help institutions to go beyond common financial solutions and deliver ultimate value with innovative technology. Act now to join the FinTech revolution.