I first saw a demo of Robinhood – the commission-free trading app at an event in Singapore. I fell in love. The promise of FinTech – at its very heart – was desire to democratize finance. If only more people had access to tools and services that would allow them to control their wealth, and offer opportunities to increase it, issues around inequality and social mobility would find a positive correction.
Robinhood’s website promises its customers a new way to ‘invest in global companies’. There is no commission or foreign exchange fees. There are no account minimums – you can start an account with £1. Most importantly, there is no manual needed. The system is “intuitively designed for newcomers and experts alike.”.
To me that meant an end to the gatekeeping language, technical and institutional barriers, and the expense of dealing with investing that ends up barring many people from opportunities to grow personal capital.
Robinhood’s website also says: “With investment, your capital is at risk.”
A few weeks ago, a 20-year-old student at the University of Nebraska, killed himself after he mistakenly believed that he had a $730,000 negative balance on the Robinhood app. The student’s name was Alex Kearns and he had downloaded the app, which the press call ‘Millennial-friendly’, to learn about investing.
What the Robinhood app failed to teach Kearns is that when trading options, as he was, traders sometimes see a negative cash balance until the other half of their trades are executed. A 20-year-old man did not take his own life over a debt, he jumped in front of a train because of a UX failure.
Now, it is not Robinhood’s fault that a vulnerable young man felt desperate enough to commit suicide after using a FinTech app. The company has pledged to make improvements to their customer front end. But the story is a tragic example of how tech companies, in addition to the pursuit of growth or profitability, also need to prioritise how their innovative new service may impact our environment, our society and how their own company deals with governance.
Sustainable Finance, where financial services firms integrate environmental, social and governance (ESG) criteria into business or investment decisions has been gaining traction in recent years. Most common is a focus on environmental issues – investment funds that promote their ‘Green’ credentials, taking into account the impact certain companies have on climate change.
While ‘Green’ investing is an important sector – I am more interested in examining how tech companies and new financial services impact society. What un-intended consequences were either ignored, or never anticipated?
For the past few years there have been streams of commentary on whether the likes of Facebook and Twitter impacted the US Presidential elections or the Brexit vote in the UK in 2016. Should platforms, like social media, that host content, news, videos and opinions be held to the same standards as established media? How do you discuss whether a tech platform should be held responsible for false, incendiary, or hateful content, while continuing to protect freedom of speech and balanced viewpoints? What type of organisation gets to determine what is balanced?
You don’t need to dig very far into the internet to find a wide range of considered, intelligent debate on the topic sitting alongside bat-shit crazy posts and troll bots whose only purpose is to throw lit matches into heated conversations.
FinTech should not be immune to considering what impact their services might have on society. The current global pandemic – affecting most of the world – have brought these considerations into sharp relief.
At our recent FinTECHTalents Virtual / Spring event which took place early June, Diana Carrasco, Head of Risk, Group Digital Channels, COO, Lloyds Banking Group spoke about how banks are now dealing with customers whose normal ways of interacting with their bank have changed considerably.
“The digital customer is every customer right now,” says Carrasco. “The other thing is that after Corona – not only the financial impact it’s going to have in the world – but it is also how people will be re-prioritized. I think this has made us all think a lot about how we are living our lives, what do we want our lives to be in the future. Also, on the table, we need to prepare for something that we could not even think of some months ago, which is what’s happened with Corona.”
Carrasco continues to say that many banks and financial services firms, are actively monitoring how the global lockdown and pandemic planning will change peoples lives. “People will be probably be behaving very differently with their finances and we’ll get to see what that actually means,” she says. “We will need to shift offerings and our services and our products and banking solutions to adapt to what has to come in that sense as well.”
In addition to dealing with COVID-19, global protests supporting the Black Lives Matter movement and the very public scandal and insolvency of German payments processor Wirecard have raised questions around governance at FinTech companies.
Many tech providers and FinTech companies openly supported global movements like BLM – but operate with a senior leadership team and board that exhibit a complete lack of racial diversity. This opens up questions around the system of rules, practices and processes by which a company is directed and controlled.
The fraud and scandal that brought down Wirecard caused many UK FinTech companies, like Curve and ANNA Money, to spend the weekend desperately trying to bring their services back online for their customers. Two reporters from the Financial Times had been investigating irregularities at Wirecard for over a year. This video from FT reporter, Dan McCrum is well worth a watch.
According to Reuters, numerous regulators had discussions over the years about tightening supervision on Wirecard or adding it to a list of potential subjects for more investigations, but all decided against it.
The story behind the fall of Wirecard, how the industry, regulators and auditors failed to take a closer look at its corporate governance, will probably find pride of place in business textbooks forever.
This brings us back to an increased look at how ESG should influence investing. The likes of Wirecard were allowed to operate, and eventually wreak havoc on the FinTech industry, because it was a company that appeared to be experiencing a huge amount of growth. Growth, versus profit, holds an almost fetish-level of obsession in tech company investment circles.
Questions around culture, human resources, regulations and compliance and impact on society and the environment are often overlooked with companies that strive for and achieve huge amounts of growth. The fabled ‘hockey stick’ is the shape most venture capitalists want to see on graphs predicting the future of their next investment.
This industry is now looking at prioritising factors beyond financial metrics, market fit projections and customer acquisition numbers. Taking into account the environmental, social or corporate governance impact can have a huge impact on the trajectory of that hockey stick.
Many have talked about how 2020 is the year of ‘The Great Reset’ where we are looking at all aspects of how we work and live and asking questions. Too often in the past, questions around culture, leadership and unfavourable consequences related to tech companies and FinTech startups have been dismissed with a reply of ‘But look at the growth!’ The end of that upturned hockey stick should not justify the means if those means included compliance irregularities, abusive employee environments or outright fraud.
ESG investing is becoming more than a ‘nice to have’ option from your investment advisor. If we as an industry do not prioritise how our businesses and innovative technology impacts our society and our environment or pay attention to corporate governance, our world will see more young men like Alex Kearns. And that is not the FinTech we were promised.