Throughout the decades, an assortment of fintech products and services have helped liberate millions of unbanked or underbanked individuals through the use of mobile payments and inclusive finance offerings.
The ongoing development in the financial services industry, alongside rapid monetary digitization, has seen the unbanked population go from 60% in the early 2000s to roughly 30% by 2021. The heavily unbanked regions across the world are now slowly but surely becoming key players in the deployment of financial instruments that can help unlock new possibilities and opportunities going forward.
The pandemic has undoubtedly increased the need and importance of access to financial software and tools. And, in the coming years, we can expect more companies to deliver societal breakthroughs that can help resolve these industry-related complexities.
Though fintech has made online monetary systems largely accessible, in the coming years, these same efforts will need to be directed towards the greenification, societal impact and overall governance of the financial services sector.
A hard pill to swallow, but ESG efforts are more than sustainable business ventures, and in turn, fund managers alongside seasoned investors are largely looking at how companies, in this case, fintech, can utilize the complexities of ESG-based agendas to improve labor standards, diversity, inclusion, corruption and whistleblowing schemes, among others.
The key strength of fintech lies within the ability to connect people with the digital world through the automation of processes and other critical financial services.
Yet, these aren’t the only components that fintech should look to offer both the banked and unbanked populations. With the majority of the world now coming online, it’s time for fintech to address the internal complexities that ESG brings to the table and resolve these challenges through innovative and forward-thinking goals.
Fintech Developments and ESG Efforts
There is a multitude of factors that exist well within the structure of the ESG model. Today, businesses are considering how they can apply these factors within their operations, not simply as a way to comply with regulatory statutes but to enhance and improve the environmental, societal, and governance conditions by which they operate.
For fintech companies, these efforts are crucial to their overall survival in the long term, as more investors and fund managers look to diversify their investments through the utilization of ESG-based models.
The benefits of ESG investing are plentiful, and in a Deloitte Insights survey, more than 59% of those surveyed found that ESG efforts had a positive impact on their growth. Additionally, 51% cited that ESG helped to grow their annual profits.
The growing need for more advanced fintech-related services and products will only increase their ESG agenda in the long term. This will help shareholders, institutional investors and consumers realize whether the companies they support and invest in are delivering on their green agendas.
Fintech has developed in several directions over the last few years but considering environmental, societal and governance, these developments could be poised towards delivering answers to complex questions such as:
- Are capital investments being used towards sustainable efforts? How will capital management alleviate the risks associated with climate change, resource depletion, and the improvement of human capital?
- Can development in the industry help foster more transparent financial and economic activities?
- What are the societal issues that the financial sector can help address?
- Is there room for internal development in regards to the company and organizational governance?
Fintechs can be built and institutionalized in a direction that could help address all three separate components of ESG. These solutions are not only focused on near-term solutions but should be considered viable long-term solutions.
How Will Fintech Handle the Challenges Brought On by ESG?
There’s more to the equation than what meets the eye, and in the wake of current conditions, fintech will need to restructure and reorientate itself in a way that could help resolve challenges found created by human intervention.
Creating Links
For the most part, we’ve seen how fintech managed to link ordinary people with the world of digital online payments. Through the utilization and widespread adoption of the Internet of Things (IoT), fintech managed to deliver connectivity and create economic links.
The ever-growing challenges of ensuring communities are connected and have access to viable resources or links that can help keep them informed and up to date about ongoing changes or situations in their proximity.
Fintechs are at the core of this, as the industry sits on top of a network of existing and growing links that can help keep people connected. Through the technological advancements of fintech and financial services, the industry could look towards creating a more sustainable ecosystem that helps to link both investors and consumers.
Consistent Regulatory Considerations
A leading challenge for most fintech in the modern day is the inconsistent methodological approach to changing regulations.
This, in itself, is a challenge that not many fintech companies have managed to seize, but in the long term, it could mean a broader impact that is focused on the importance of establishing an informative ecosystem.
The information available to fintech should be cast far and wide, and as many are working across several regions, fintech should have a straightforward narrative that can be applied even as regulatory conditions change.
The technology of fintech companies could assist in the creation of platforms where consumers can access the information they require, and fintech can compile analytical data sets based on consumer and investor behavior.
Big-Data Analytics
Fintechs have been at the forefront of innovation, and considering how much these companies have already managed to accomplish over the last few years, these tools could potentially bring smarter, more contemporary solutions.
For starters, Artificial Intelligence (AI) can be used as a processor of large quantities of ESG data. Furthermore, distributed ledger technology (DLT) could process big-data analytics, a key evaluation for performance indicators.
Utilizing these key elements, many of which some fintech firms have already ensured the transparency of big data and the reliability of data. In the near term, companies can use this information for several reasons, many of which will be to lower the burden and stress placed on natural resources and analyze internal social agendas.
Community-Oriented Goals
Even as fintech grows and expands, they tend to lose touch with the communities and people that interact with their products and services daily. While some fintech companies may be locally established, looking to resolve a community issue, others have become more focussed on widespread commercialization.
This scenario is played out in most regions that have only recently discovered the power of full-scale digital banking and financial services. Yet, there is that small fintech that has been solely created to resolve issues found within their direct community; these are often far and wide in between.
Here we could see fintech focusing more on what their communities require, whether it’s education resources or guidance regarding inclusion and diversity. Additionally, fintech will have to consider the needs of its consumers, as these may change across regions.
It’s a lot easier to have a broad spectrum through which a fintech company can operate, but in the long term, this may only meet the needs of a few consumers, misleading many and not making a direct or meaningful impact.
Financial Inclusion
As mentioned above, community-driven goals will ensure that fintech firms can create a localized approach to their work and the efforts they plow into the communities they directly affect.
On the same basis, fintech organisations, with the use of big data and analytical tools, can structure themselves in a way to become data centers or data organizations that could help to improve overall financial inclusion.
To this day, a large portion of the global population is still relatively unbanked or underbanked, even in some developed regions. According to data provided by the Federal Reserve, before the pandemic in 2020, an estimated 22% of American adults were either unbanked or underbanked. This accounted for more than 60 million people.
Financial inclusion in the age of eCommerce and digital communication is more important than ever before. Strategies developed by fintech should look to increase the inclusion of financial activities, services and products. Right from the start, more effort should be directed to ensure that the majority of the unbanked population can leverage digital advances that have already improved the lives of millions.
Final Remarks
As regions across the world evolve and a growing number of unbanked populations become connected to financial services, we can see a changing atmosphere that could help lead a new wave of change on pressing matters that are currently plaguing humanity.
The need for more focus in terms of environmental, societal and governance could enable many to have access to the analytical data and information they require to build ESG agendas or regulatory conditions.
In the long term, we could see how fintech would levitate more towards becoming big data centers rather than sole providers of financial solutions. Ultimately, ESG can benefit from what fintech has to offer and vice versa. The important consideration here is how this effort is used to improve, develop and transform communities, businesses, and investors to find viable solutions to complex problems.
