Can fintech innovation be a force for good social impact?

If money is the root of all evil, can fintech really be a force for good?

With social impact rising up the corporate agenda, Paynetics CEO Mike Peplow considers the role fintech innovation can play in this endeavor

The 2008 recession caused many consumers to no longer trust financial institutions. Because of this and falling interest rates, it has been challenging for the banks to engage with their customers. At the same time, consumers are now actively looking for financial institutions that do more than just serve their needs.

Last year, Accenture found that two-thirds (63 percent) of consumers want to introduce more sustainable products and services across all aspects of life, including financial institutions. Consumers are actively looking for greener banking options and proving that their current banking providers adhere to the ethical initiatives they have in place.

With social impact becoming increasingly important, and banks trying to keep up with demands for action, can fintech be a force for good?

What defines a ‘force for good’ in the fintech world?

Generally, we can assume that a fintech has a few specific characteristics, including agility, adaptability, a focus on collaboration and an interest in challenging the status quo. Fintechs are often set up to focus on the individual rather than being ‘one size fits all’. Having all these qualities usually means that they are “good” at being a fintech, and potentially a fintech that can also do “good”.

It has been shown that over half of consumers are more likely to buy financial products from suppliers who demonstrate sustainable values. Therefore, fintechs that are ready and willing to demonstrate sustainable, ethical and targeted products with an end goal greater than just profit will adapt to consumer desires and be more attractive to the current market.

Can fintech be purpose-driven?

Putting purpose over profit requires fintech innovation to have a social purpose other than making money and just being a ‘good’ fintech, and we know that consumers are now actively looking for this purpose when choosing their financial institution.

At the same time, modern consumers value experience over things and want fintech to be more human-centric. Fintechs often create competitive advantages by being able to tailor offers for niche markets. Consumers appreciate the personal approach, feel they are supporting positive change, and are increasingly looking for companies that better align with their values. If another financial institution does this in a better way, they will not hesitate to switch providers.

In short, fintechs thrive by offering services and a way to deliver those services that are attractive to the target customer, and therefore beyond their competitors who offer a more generalized offering.

Where does fintech make a difference?

Fintechs tailor an offering to meet a customer’s financial needs, and some have already started to make a bigger difference.

A current example of a fintech setup with more than just money in mind is Sibstar. Their app and card are designed to help you manage your money on a day-to-day basis. The extra support provided enables those living with dementia to maintain their financial independence while providing security to those around them. Not only is this a financial service, but it also supports an underserved community that needs help with their money.

Paynetics is also part of this group. Recently, with Phyre, we developed a mobile payment application for iOS and Android that allows charities to easily deliver funds to those displaced as a result of the Russian invasion of Ukraine.

Fintechs are also already known for promoting financial inclusion via services such as buy now, pay later (BNPL). The short-term financing opens up lines of credit for those who would not normally have access to it. Having access to credit allows consumers to build credit scores and qualify for more traditional types of finance. BNPL needs to be brought under regulatory oversight to better protect users, but what cannot be denied is that BNPL has made access to short-term, affordable credit much more accessible.

How do we decide when a fintech is a “force for good”?

We know what makes a “good” fintech, but a fintech that is a force for good must reach wider than the immediate financial communities need. Fintechs can be innovative in their approaches and therefore have the ability and potential to help people in need. We are already seeing examples of this where fintechs have encouraged financial inclusion,
launched sustainability measures and helped customers in times of crisis.

There is a “double whammy” here – I would argue that fintechs simply being fintechs have had a huge beneficial impact. By entering the market with new products and services, fintech has caused the big banks to respond with new ways of working, improved customer care and a much faster approach to introducing new products. Even the biggest bank wants to be seen as a fintech.

What does this mean for the future of banking?

There is no doubt about it. If the banks do not prove to consumers that they are looking out for more than just their own pockets, consumers will move on to providers who do better. It is not enough to say that you are an ethical bank or offer a green banking option. Fintechs and banks will have to work to prove to consumers that they care about and support the wider issues we face.

To keep up with what customers are looking for, and adapt accordingly, purpose and profit should be at the forefront of banks and fintechs. If this is not the case, we will see an increasing number of consumers move to providers that better match their values.

Related:

What makes a digital transformation project ethical? — Donovan Justice, CEO and founder of Digital Detox, explores what it means for a digital transformation project to be truly ethical.

Bank IT compliance: how financial services can stay compliant — Antony Savvas looks at strategies that can help organizations stay on the right side of the law, meet regulations and industry-agreed standards.