“This is a global reset of our virtues and our values and a chance for us to get it right again, or should I say, right first time, to build up an economy in a society that is actually sustainable.”
That got me thinking.
Only a few days earlier, Marc Andreessen of venture capital firm, Andreessen Horowitz, had published his “It’s Time to Build” essay, in which he issued a call to arms to act, to build and to have the desire to do so:
“Every step of the way, to everyone around us, we should be asking the question, what are you building? What are you building directly, or helping other people to build, or teaching other people to build, or taking care of people who are building?”
It all got me thinking.
I’ve seen multi-billion dollar global digital transformation projects that have started, finished, and then started all over again. I’ve witnessed first-hand thousands of jobs put at risk—even before COVID-19 and the economic impacts of the coronavirus were known—all in favour of a renewed focus on simplification, reducing costs, increasing profits and shareholder value. In 2019, the Top 25 banks in the world made nearly half a trillion dollars in pre-tax profits. That followed a year when the global banking industry made $1.36 trillion in after-tax profits. It’s hard to argue that all this is not capitalistic.
How then, do we not only build in financial services, but how do we build back better?
Build Back Better
The notion of Build Back Better was championed by former US President Bill Clinton during his time as United Nations Secretary-General’s Special Envoy for Tsunami Recovery following Haiti’s 2004 earthquake. Since then, “build back better” has become something of a mantra for post-disaster recovery programs.
“Disasters have been recognized and leveraged as opportunities for change and improvement and, in some cases, are even considered as a “helpful interruption” to previously unchallenged inadequate policies and practices.”
A scientific study on this concept found that a crisis is often an opportunity for fixing prior deficient ways of working. The financial services industry needs to be ready to adopt a similar mindset and challenge itself. To disrupt its values. To rethink who we are and who we want to be.
Banks have arguably focused more on digital optimisation than true disruption.
This has been the focus on those start—stop—start again digital transformation projects. Now is actually a perfect time to double down on innovation. This is a time when banks should step up to solve problems for the greater good. A time for banks to reset.
The call to action from Andreessen is a shift for companies to build what has not been created in the last century, but to build something new. Something better.
What is ‘better’?
After the last financial crisis, business historian and author, John Steele Gordon claimed:
“The banking industry is the circulatory system of the economy. It’s analogous to the heart. Breaking your arm is unpleasant—it takes awhile to recover—but eventually you’re as good as new. If our heart fails, you’re in trouble.”
Can we reset an industry that has capitalism at its core?
Can we reset banking without the risk of heart failure?
The World Economic Forum recently called for a “Great Reset” of capitalism that:
- Steers us towards fairer outcomes
- Advances shared goals, such as equality and sustainability
- Harnesses innovations to support the public good
Capitalism has profit at the heart of its definition. But profits can still be achieved whilst tackling social good, fairness, equality and sustainability. There can be a win-win. A truly conscious capitalism.
A fifteen year study, reported in the Harvard Business Review, of publicly traded companies found those that practised conscious capitalism performed 10x better than those that did not. These companies were more generous in compensation, provided better quality customer service, invested in their communities, and limited their impact on the environment.
Where to Start?
The obvious place to start looking is within existing Environmental, Social and Governance (ESG) policies. It actually makes business sense to pay attention in this area first. Growing more intangible value can actually help banks to thrive.
According to the FT, “Companies with high ESG rankings have outperformed rivals during the crisis”. However, looking at the #ESG commitments across the high street and challenger banks, and even within their overall published mission statements and values, there are wide variations across the board.
Climate change and financial inclusion tend to be common commitments, but a devotion to ESG needs to go further than being a nice to have. Continued measurement and comparative appraisals right across financial services and the wider business world are as important as defining these proposals and commitments.
Asset Manager, BlackRock has shown support of climate resolutions at several portfolio companies. But it also recently put 244 companies ‘on watch’ for insufficient progress on climate issues, and went even further at the annual meetings of 53 companies by taking voting action to express it’s dissatisfaction.
Whilst banks at least report their varied commitments, many FinTech companies don’t openly publish much regarding their ESG agenda at all. A missed opportunity? Perhaps. Many venture investors are already placing greater emphasis on ESG factors when evaluating companies in which to invest. Not just popular for institutional investments, consumers have options too.
FinTechs such as Plenitude.io are pioneering ESG investing, with a platform designed to allow partner banks to offer consumers the ability to build portfolios of low-carbon ethical funds. Following the United Nations’ Principles for Responsible Investment, customers can align their investments with their ESG values.
Assessing positive impacts on social, cultural, and environmental issues is fast becoming a more important criteria for consumers when considering whom they want to do business with. A recent Forrester report into the Future of Banking stated, “Consumers will prefer banks that align with their environmental and social values in a more purposeful age, where local and cooperative principles align to matters of global responsibility” . This creates an additional competitive lens that companies can focus on, to win greater affinity from both consumers and investors.
Young environmental activists like Greta Thunberg, have been raising awareness of climate change issues. According to insights consultancy, Beano Brain, 40% of 6-14 year olds feel that it’s their responsibility to save the planet. UK FinTech GoHenry––a pocket money app for kids that now has over 1 million customers––has itself seen an increase in demand from eco-conscious kids. In response to this growing trend, it has launched a bio-degradable debit card, planting a tree every time it is used for the first time.
Tree planting initiatives are no gimmick. They present a positive and significant environmental benefit for all generations. In Europe, Bunq––a Challenger Bank––plants a tree for every €100 spent by customers on its SuperGreen subscription. Customers can offset all their carbon emissions within just 2 years, just by spending on their card. Given the early success of this program with the Eden Reforestation Project, Bunq has since pledged to plant 1 million trees by February 2021.
Technology is still the enabler that can drive diverse initiatives and measures in those areas that provide the greatest positive impacts on society. As customer awareness increases, banks have a responsibility to also build better products that can influence and change consumer behaviour to benefit the environment as well as receiving the expected financial reward.
We are already seeing behavioural science being used in Apps like Qapital and Monzo. Both have partnered with no-code App, IFTTT (If This Then That) to help change the way people interact with their money, motivating them to save by triggering a movement of money based on different events. It’s created some really interesting use cases that consumers can take control of. A small saving reward for completing a Strava workout, saving every time it rains, or even a savings punishment for taking an Uber ride instead of walking. Why can’t this extend to more ESG related themes? Like planting trees with the savings from my roundups?
An obvious place to start is with ESG, but this needs a higher prioritisation by bank leadership. One that focuses on positive impacts. One that aligns with customer values. One that changes behaviours for a better world.
A higher prioritisation is needed today to Build Back Better for all of our futures.
Paul Loberman is a frequent contribute to FinTECHTalents and a noted FinTech expert.
Tune in next week for Part 2 of Paul’s Build Back Better series.
Photo Credit: Photo by Singkham from Pexels