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How do Fintechs Address the Sustainability Challenge?

Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. ​​​At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of “financial technology”. 

Fintechs just like other companies can either be a B2B or B2C, meaning they can serve other clients (Business to Business) in assisting them with their value proposition to customers or can directly interface and provide their solutions to end users (Business to Consumer).

When fintech emerged in the 21st Century, the term was initially applied to the technology employed at the back-end systems of established financial institutions. ​Since then, however, there has been a shift to more consumer-oriented services and therefore a more consumer-oriented definition. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management to name a few.

More recently, a large number of Fintechs have emerged in the area of sustainability, boosting by the increasing demand for green products and the regulation.

BtoB Fintechs in sustainable finance, to address regulatory challenges

Most BtoB Fintechs address the complex and moving regulatory challenges around sustainable finance, especially in Europe.

In particular, the European Union’s (EU’s) Sustainable Finance Disclosure Regulation (SFDR) came into effect on the 10th of March 2021 to compel financial institutions like banks and investment firms to make public their ESG commitments. Prior to March this year, it was recommended but not mandatory. It is now a requirement of financial institutions like banks and fund managers to make known their sustainability involvements through disclosure. This will bring about transparency to the sustainable investment space and to encourage investors interested in sustainable portfolios to have a better visibility of the investment firms or banks they work with and what exactly their funds are being used for. The MiFIDII regulation completes the SFDR by making compulsory to integrate ESG preferences in the financial recommendations.

This new regulation implies huge internal restructuration and challenges for financial institutions. A first major challenge is to find relevant external data to analyze if a specific fund or company have a positive or negative impact on topics like carbon emission or biodiversity. Based on advanced big data and machine learning technologies, Fintechs like OWL or Arabesque are addressing this issue.

Once the products as been classified based on ESG criteria, a second challenge is to find the right matching between the products and clients’ preferences, in line with the MIFIDII regulation. Fintechs like Neuroprofiler provides solutions to this second challenge through a gamified and behavioral-based approach to making investments in line with the new MiFIDII regulation.    

BtoC Fintechs in sustainable finance, to address the increasing demand for sustainable finance