Fintechs’ Evolution and Current Context
Fintechs, or financial technologies, are companies that combine technological innovation and financial services, facilitating access to financing and financial products, especially in markets underserved by traditional banking. Since the 2008 economic crisis, they have grown rapidly, driven by a distrust of traditional institutions and the demand for more accessible solutions [1].
Fintechs have diversified their offerings to include electronic payments, crowdfunding, crypto assets, insurance, and wealth advisory. They have democratized investment access, enabling individuals and small businesses to access financial resources, contributing to social inclusion and social mobility [2]. Technologies like robo-advisors allow small investors to participate in sustainable assets, making financing and investment easier and more accessible [3]. This trend has coincided with a rise in sustainability concerns in the financial sector, driving demand for responsible financial practices, where Fintechs can represent a useful tool to respond to this demand [4].
Fintechs can play an important role in the transition to a more sustainable economy because they are able to generate added value through the use of advanced technologies such as big data, blockchain, and artificial intelligence. These technologies enable and facilitate multiple applications compared to traditional financial institutions. For example, expertise in using big data may allow Fintechs to analyze portfolio exposure to various climate transition risks, assess the environmental and social impacts of company assets or investments, and enhance transparency in supply chains[5]. Despite challenges such as cybersecurity and regulation, their ability to innovate and collaborate with various types of institutions positions them as key players in advancing economic and social sustainability (See Figure 1).
Figure 1. Overview of Fintechs in Sustainability
Transformative Success Stories: Fintech Innovations in Sustainability
Fintechs possess characteristics that facilitate the integration of sustainability into their business models. For example, their use of advanced technologies optimizes operational and administrative processes through automation and simplification. Additionally, digitalization can help consumers and companies to measure, understand, reduce and mitigate their environmental impact [6], leading to the development of financial products that are both profitable and promote sustainable practices. Fintechs can also enhance transparency and trust in the traceability of sustainable investments, particularly through the use of the blockchain. Furthermore, by leveraging digital platforms and innovative solutions, Fintechs can contribute to financial inclusion by providing affordable services to excluded and underserved communities [7].
Several success stories exemplify the intersection of fintech and sustainability.
In the banking sector, Aspiration stands out as a US-based online-only fintech that incentivizes socially and environmentally conscious spending by offering cashback for purchases at climate-friendly brands [8].
In the lending space, Konfío serves as an exemplary case in addressing gender bias in lending in Mexico. By utilizing fair algorithms that focus solely on credit risk, Konfío ensures that women and men receive identical credit offers, effectively challenging the prevalent biases that often label women as higher-risk borrowers. Research from IDB Invest shows that businesses led by women experience significant sales growth (42% more than their male counterparts) after securing loans from Konfío, highlighting the positive impact of equitable lending practices [9]. This approach demonstrates Fintechs’ potential to drive economic growth by tapping into underserved markets.
In the investing sector, RedGirasol offers crowdfunding for sustainable projects, initially focused on solar energy and now expanded to diverse environmental initiatives. It mobilizes sustainable capital through four strategies: 1) direct financing with a climate and social focus; 2) participation in funding and strategic donations; 3) impact measurement that quantifies environmental, social, and economic impacts in relation to the SDGs; and 4) education and community initiatives, including podcasts and other tools to foster dialogue [10].
In the trading space, Climate Impact X is a Singapore-based global carbon exchange and marketplace co-founded by Temasek, DBS Bank, Singapore Exchange Limited (SGX), and Standard Chartered Bank. It supports trading of carbon credits created from projects involved in the protection and restoration of natural ecosystems [11].
Finally, Jupiter Intelligence is a risk analysis company that measures physical risk of climate change by using satellite data, artificial intelligence, machine learning, and Internet-of-Things connectivity [12].
These examples illustrate the diverse ways Fintechs can contribute to sustainability while fostering economic growth.
Fintechs as Agents of Sustainable Change in the Financial Sector: Challenges and Opportunities
Fintechs, in addition to promoting a more digital world, can adopt practices that positively impact the environment and society; however, this ecosystem also faces significant challenges, including those related to data security, such as cyber-attacks, phishing [13], or even internal mishandling of confidential information [14].
At the same time, these institutions have fewer regulatory and auditing requirements, making them easier targets for such attacks. Hence, the importance of having well-defined controls and processes in place to safeguard sensitive company and customer information. Likewise, the lack of regulation and potential misunderstanding of terms associated with greenwashing, these institutions may run the risk of engaging in practices that can damage the credibility of the sector [15].
Despite the above, Fintechs present various opportunities, for example, through partnerships with governments, companies, and international organizations to promote sustainability through leveraging technology or running cohorts in digital sandboxes to accelerate innovation and develop environmentally and socially friendly projects [16]. Also Fintechs can serve as catalysts for the development and implementation of innovative financial solutions that meet sustainability criteria such as the success stories mentioned above.
Fintechs play a vital role in the transition to a sustainable future, combining technological innovation with responsible financial practices. Through the use of technologies such as big data and blockchain, they can optimize processes, assess environmental impacts, facilitate transparency in sustainable investments, promote economic empowerment, and contribute to democratizing access to financial services, especially for underserved communities.
Although challenges remain, Fintechs are well-positioned to lead the transformation toward a financial landscape with positive environmental and social impacts, demonstrating that innovation and sustainability can coexist for mutual benefit.
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Brenda Aguilar is an analyst at HPL, graduated with honors from the Law School of the Universidad Nacional Autónoma de México (UNAM) and graduated with a Bachelor’s Degree in Financial Management at the Instituto Tecnológico Autónomo de Mexico (ITAM). She has experience working in the legal public sector in México and has developed expertise in accounting, tax and financial issues applicable to domestic and foreign suppliers.
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References
[1] Areandina (2024). Fintech: La oportunidad para la inclusión financiera y el emprendimiento con enfoque social. Available here.
[2] Areandina (2024). Fintech: La oportunidad para la inclusión financiera y el emprendimiento con enfoque social. Available here.
[3] Fisa Group (s.f.). Los Robo-Advisors: ¿qué son y cómo influyen en la banca? Available here.
[4] Ionix (2023). Fintech: Cómo las tecnologías financieras pueden ayudar a un futuro más verde. Available here.
[5] BBVA (2021). Así pueden ayudar a las ‘fintech’ a implantar la economía ‘verde’. Available here.
[6] Ferreira (2024). Fintech: entiende qué son y cómo sacarle provecho a los servicios financieros que ofrecen. Available here.
[7] Pérez (2023). El sector ‘fintech’: actor clave para alcanzar los ODS en México. Available here.
[8] Aspiration website. Available here.
[9] Arraiz et al. (2023). Eliminating Gender Bias from Lending in Mexico. Available here.
[10] RedGirasol website. Available here.
[11] Grutman (2022). ESG and fintechs: how firms are benefiting from an ESG focus. Available here.
[12] Jupiter intel website. Available here.
[13] An online fraud technique in which cybercriminals seek to trick people into revealing confidential information. (RAE).
[14] Torres (2024). Estrategias de ciberseguridad para las empresas Fintech. Available here.
[15] It is a deceptive strategy whereby a company presents its products or practices as more sustainable than they really are, through exaggerated or misleading claims about the true environmental or social impact of a product or service, and may conceal more significant harmful practices (Investopedia).
[16] BBVA (2021). Así pueden ayudar a las ‘fintech’ a implantar la economía ‘verde’. Available here.