Charlie Bronks/Crown Agents Bank
Why the pursuit of profits shouldn’t detract fintech from its original purpose
In the fintech world purpose and profits can and should go hand in hand, writes Charlie Bronks, Head of ESG at Crown Agents Bank
The fintech revolution started with a promise to make finance more accessible, transparent, and efficient for all. It aimed to bridge gaps in financial access, encourage inclusion, and support social advancement.
As the sector has matured, it has opened opportunities to balance rapid growth with the core principles of inclusivity and transparency.
Fintech, infused with the visionary aim of enhancing financial access and propelling social mobility, continues to unlock unprecedented potential. However, over the years, in the vigorous pursuit of growth and customer acquisition, these foundational values have occasionally been overshadowed.
As we transition away from an era characterised by readily available funding and an abundance of venture capital, there is a critical need to re-centre this focus.
How fintech has lost its original purpose-driven mission
Fintech emerged from the 2008 financial crisis with a mission to innovate and enhance the industry. As it expanded, fintech faced the challenge of aligning investor expectations with customer-centric values, especially as issues like data breaches tested user trust. However, these challenges spurred further innovation and a stronger focus on security, signalling fintech's resilience and its promise to outshine traditional banking in trustworthiness.
Despite growing pains, including a notable gender pay gap, fintech's path is marked by temporary obstacles on its journey toward realising its transformative potential. As is the case with many growing industries, fintech's journey hasn't been without its challenges.
For example, the UK’s gender pay gap stands at 14.9 per cent but rises to 22 per cent for the fintech industry (26 per cent across financial services). This stark difference underscores the specific challenges faced by women within the fintech space. Additionally, the proportion of women in executive positions within fintech companies remains disproportionately low.
As fintech has evolved, facing the natural challenges of scaling, satisfying stakeholders, and diversifying offerings, it's crucial to remember and re-embrace its original, purpose-driven mission to revolutionise financial services.
While deviation from the initial path is a common aspect of growth in any industry, fintech stands at a pivotal moment to realign with its foundational vision. This presents an exciting opportunity for the sector to rediscover its roots and lead with innovation and purpose, redefining the future of financial services in alignment with the reasons it began.
Why a focus on ESG is important for fintechs…especially during the current downturn
Giving context to the current downturn, Global fintech funding fell to $52.4bn in the H1 of 2023, which is down 17 per cent from $63.2bn in H2 2022.
In this economic climate, the role of ESG emerges as a vital core for fintechs, steering them towards sustainable growth and resilience. The downturn, paired with the current risk aversion sentiment in the markets, highlights the need for agile and forward-thinking business models.
Fintechs that are embracing ESG cater to an evolving investor and broader stakeholder base that values long-term growth and resilience. Holistic ESG strategies ensure operational sustainability, heightened risk management, and the agility to navigate future regulatory requirements.
Looking specifically at the global regulatory shift towards sustainability and governance, we are fast approaching a new era of ESG compliance, auditing, and fines. Fintechs that have retrospectively embraced this change, will be far more capable of dealing with this new world of reporting and regulations.
Beyond the present challenges, ESG's influence is enduring, enabling fintechs to set industry benchmarks and lay foundations for lasting legacies.
ESG isn't just a strategic direction—it's a cornerstone for fintechs to emerge as leaders in the evolving landscape and it ensures not only survival but positions those early adopters to thrive and lead in the post-downturn environment.
How other fintechs should approach their ESG strategy
Embarking on an ESG strategy begins with understanding what matters most to your fintech and its stakeholders. A key step is conducting a materiality analysis and this must be done collaboratively.
This isn't just about ticking boxes; it's a deep dive into the unique concerns and aspirations of those you serve and work with. It's about identifying where your actions as a company can make a real difference and where there's room for genuine improvement.
Having a set of clear goals and measurable targets is essential. This means establishing Key Performance Indicators (KPIs) that are directly aligned with the critical issues unearthed in your materiality analysis. These KPIs are your roadmap, allowing you to track progress and maintain transparency in your ESG journey.
Setting objectives is just the beginning. It's about tailoring these goals to mirror and meet your unique ESG challenges. This involves a two-way conversation with your stakeholders, from customers and employees to partners. Their involvement doesn’t just keep your strategy on track; it also embeds a sense of ownership and enthusiasm among your workforce, making them active participants in your ESG evolution.
Integrating ESG into every business decision is the next crucial step. Whether it's developing a new product, managing risks, or laying out a strategic plan, ESG considerations should be woven into the fabric of these processes. This also extends to engaging with employees and leadership on ESG topics to ensure everyone is on the same page.
Lastly, collaboration is key. Working with fintech partners and suppliers who share your ESG values can dramatically improve overall performance and lead to a more sustainable supply chain. A
Early adoption is key, focusing on ESG attracts investment capital, enhances resilience, attracts talent, and expands the customer base. It is also central to ensuring compliance with a myriad of rules and regulations.
ESG isn't just another item on the checklist; — it represents embedding a deeper conscience into the essence of the business, harmonising profit with purpose. It should become corporate muscle memory, where doing good business aligns seamlessly with doing business for the greater good.