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How fintechs are working with banks to make them more green

  • The financial ecosystem seems to be getting greener.
  • Can fintechs help banks provide greener financial solutions?
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How fintechs are working with banks to make them more green

In February, the Clean Energy and Sustainability Accelerator Act was reintroduced to Congress. The legislation would allow for the creation of a national green bank, which would use $100 billion in private and public funds to invest in clean energy projects. This move, together with the fact that 39% of voters said they would take environmental factors into consideration when choosing a bank, seems to point to the financial industry getting greener.

“We’re living in a time of great societal change, and consumers have made it clear that they want brands to take a stance on things like sustainability and racial justice,” said David Reiling, CEO of Minnesota-based Sunrise Banks, a bank that brands itself as socially responsible. “Frankly, companies need to make a commitment one way or the other – they can’t remain silent.”

Startups are working on green solutions for banking and commerce.

Aspiration is a challenger bank founded on environmental principles that lets users plant a tree for every purchase they make. 

Stripe’s climate removal purchase tool lets online businesses redirect some proceeds to certain technologies focused on reducing carbon footprint and publicize their carbon footprint to potential shoppers. Stripe made this solution available outside the US back in February. More than 100 companies in Europe have already signed up. 

But when it comes to green fintech and traditional finance, the case doesn’t have to be about figuring out which of the two is the greener option. Fintechs can act as suppliers for banks, rather than competitors.

“Over the last few years, the role of fintech, in particular those that consider themselves as suppliers to banks rather than direct competitors, has become more and more relevant in terms of helping banks on their digitization path,” said Dr. Ruth Wandhöfer, partner at fintech investment firm Gauss Ventures. “There are [clear] applications across many different industry sectors.” 

Cloverly offers a carbon offset API. It calculates and purchases carbon offsets to neutralize the environmental impact of e-commerce deliveries, ridesharing, and flights. 

Meniga, an Icelandic fintech that provides digital banking solutions to financial institutions, has a green banking solution called Carbon Insights, which integrates into banks’ mobile apps and allows users to track their carbon footprint through their transaction data. 

“Banks are starting to realize the pivotal role they can play in helping fight climate change,” said Bragi Fjalldal, CMO & vp of business development at Meniga. “By integrating carbon footprinting as part of the everyday banking experience, banks have the potential to standardize carbon offsetting, empower millions of people to adopt more sustainable spending habits, and pave the way for a major change in consumer climate action.” 

One of the obvious ways fintechs help banks become greener is simply by enabling more paperless solutions, according to Gauss Ventures’ Wandhöfer.

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Climate First Bank, a bank focused on environmentally friendly financing, partnered with Finastra, a fintech that provides retail and corporate banking software, to offer digital banking solutions to its customers.

“There are a number of reasons banks seek out working with fintech, mainly around modernization and competitive differentiation,” said Chris Zingo, svp and gm of America’s field operations at Finastra. “The tech will always be the main driver behind any bank’s decision to partner. However, the ability to show an improved commitment to climate initiatives is an increasingly important differentiator to banks’ customers. Fintechs that support banks in this mission add value beyond the value of the technology alone.”

By partnering with Finastra, Climate First can digitize a lot more of its services, which falls in line with the bank’s goal of going paperless.

“By transitioning all banking and loan processes to be paperless, Climate First Bank will reduce environmental impacts and provide a seamless, entirely digital banking experience that appeals to tech-savvy Millennials and GenZ, while also being intuitive and easy-to-use for older generations,” said Ken LaRoe, Chairman and CEO of Climate First Bank.

Aquaoso, a water security analysis platform, is another example of a fintech helping banks get greener.

“After a number of conversations with banking entities, we realized that the bigger issue was that financial institutions — like bankers, insurance companies, investors — didn’t have access to the information that they needed to make smarter and better investment and loan decisions, especially around water,” said Chris Peacock, CEO and co-founder of Aquaoso.

The company aggregates hundreds of water-based data sets and then helps banks and financial institutions use this information to make better lending and investing decisions surrounding water.

“We’ve created what we call a water security score that helps organizations quickly understand the risk associated with their investments and loans,” said Peacock.

Credit Farm provides agricultural credit and financial services to farmers and is one of Aquaoso’s biggest customers. It uses Aquaoso’s platform to tie together information when it’s issuing loans.

“Right now, we’re really focused on the agricultural space and helping the agricultural economy understand these risks,” said Peacock. “So the banks will run a report, very much like a credit report, on the farming operations and look at the water risks associated with the farm.”

For Peacock, Aquaoso’s services aren’t just beneficial for agricultural financial services, but crucial for their survival. 

“If we don’t do anything about it today, the bigger issue is going to be collateral losses around the value of farmland,” said Peacock. “Operations will go out of business, and banks will trend downwards in terms of their ability to continue to lend money, which has a broader impact on the larger economy, as well.”

Environmental action isn’t something traditional financial institutions can take slowly anymore. Fintechs may be the catalysts these companies need to speed things up.

“There is now an urgent need for banks to play their part in helping save the planet, and equally, fintechs must step up their game to provide adequate green banking technology,” said Meniga’s Fjalldal.

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