Technology is reshaping the financial services industry and powering a more sustainable world. In the pandemic economy, more and more people are turning to digital payment and e-commerce platforms. This shift has reduced carbon emissions and has opened up new opportunities for fintech disrupters to expand access to capital. We believe this could be an important catalyst for the advancement of the United Nations’ Sustainable Development Goals (SDGs).
Prior to COVID-19, the barrier holding us back from realising SDGs was not scarcity of funding. The UN notes there is more than enough available financing for these goals, given that gross world product and global gross financial assets are over USD80 trillion and USD200 trillion, respectively. The real barrier was in distributing these funds to emerging markets and communities most in need.
As Daniel Hanna, Global Head of Sustainable Finance for Standard Chartered, stated, “What is very clear is that capital is not flowing to where it matters most. We all have a collective challenge and opportunity to ensure that we can actually move green or sustainable finance into these areas.”
The UN estimates approximately USD2.5 trillion a year is needed to meet its SDGs goals in emerging countries.1 Fintech can help bridge this gap. Digital technologies are supporting the transition to an inclusive and sustainable planet by channelling public and private resources to fund SDG technologies. These include:
- Mobile payment platforms
- Cloud computing
- Alternative data
- Artificial intelligence
- Distribution ledger technology
“Fintech has been able to leverage this phenomenon extremely well by building the right types of applications, the right types of software, as well as the right type of products that suit the needs of a vast number of unserved and under-served populations,” said Vihang Patel, Co-Founder of Finaxar, which finances small businesses through cloud accounting platforms.
An immense challenge – but with high rewards
SDGs represent vast investment opportunities, offering USD10 trillion in market prospects and 380 million jobs to be created by 2030, according to the UN.3
Another recent study, Opportunity2030: The Standard Chartered SDG Investment Map, identifies and explores key priorities for investment in infrastructure-focused SDGs in 15 of the world’s fastest-growing economies. Fintech is already contributing towards two of these priorities – clean energy and water and sanitation services. These, and other priorities, are further explored in ‘The 10 trillion-dollar opportunity’.
For the energy sector, fintech start-ups can provide mobile payment solutions and mobile micro-loans. Fintech can also mobilise capital to fund energy infrastructure via mechanisms like crowdsourcing4. One example is GridShare, an online platform where renewable energy project developers and cleantech companies from around the world post their funding needs.5
In the water sector, fintech players already provide applications that streamline the payment of upfront costs such as connection fees while also ensuring easier access to microfinance loans for water and sanitation projects.6
Tools like blockchain can be used to track and govern subsidy payouts to incentivise service providers that provide water and sanitation to underserved areas.7
Taking the lead
One of Standard Chartered’s missions is to support the UN’s SDG targets. One of the Bank’s strategies is to leverage existing platforms that have large reach, to push down costs.
“In our Asian footprint, platforms such as Ant Financial and WeChat in China, Paytm in India and Grab in Southeast Asia are reaching populations and SMEs that were previously underserviced,” said Lucy Demery, Global Head of Fintech Banking. “The size and scale of these platforms create an opportunity to reduce the cost of payments and small-ticket credit. This makes finance more accessible for the individuals, merchants and suppliers who trade on these platforms.”
Standard Chartered’s Opportunity2030 report notes that USD2.737 trillion of investment is needed to develop universal digital access in emerging markets – one of the UN’s key SDGs.
Oi Yee Choo, Chief Commercial Officer at blockchain-based capital markets platform iSTOX, said a new breed of investors are very keen to invest in companies involved in sustainability activities. And fintech, with its ability to lower the cost of infrastructure and improve connectivity between investors and issuers, can help them reach that goal.
"We see a lot of our younger generation who are very focused on investing in what they feel can change the world, and we are also always on the lookout for companies that have a social responsibility agenda that are looking to do fundraising," said Choo.
“There’s a lot that we all need to do. The more players there are, whether traditional or fintech, that support this initiative, the better for society. iSTOX is here to facilitate investments into such companies,” she said.
What are the risks?
Fintech solutions are not without risks. Digitalisation could widen the existing divide created by low mobile phone ownership and access to the internet, resulting from a lack of infrastructure and the prohibitive cost of handsets and data.8 There is also a risk that algorithms can reinforce existing biases and stereotypes.9 Digitalisation could also lead to fraud, increased money laundering and illicit financial flows – a serious concern already voiced by regulators about cryptocurrency.10
Other concerns include predatory lending and targeting of vulnerable borrowers, privacy issues and the possibility of missed payments and defaults.11
Collaboration and governance is key
To tackle these risks, the UN recommends robust governance. Regulators in developing countries will have to boost their capabilities to identify, and proactively manage, unintended consequences.
There is also a pressing need to regulate cross-border movements of data with the collaboration of relevant institutions such as the World Trade Organization, as well as others regulating data privacy, like the European Commission’s Competition division. However, according to the UN, policy and consumer protection will require oversight from a completely different group of public institutions.12
Such collaboration needs to involve public institutions and the private sector. For instance, Standard Chartered has partnered with global trade and payment system Ripple13 to increase the transparency and consistency of transactions. More recently, the Bank joined the Enterprise Ethereum Alliance, where it will collaborate with other industry leaders to set best practice and standards for blockchain.14
It's a long road towards achieving the SDGs, and only a large-scale collaborative effort will enable us to succeed.
According to Demery, “Digital banking will be transformative if we combine ‘new-economy’ innovation with institutional trust, security and governance. At Standard Chartered, we are pushing digital innovation in both retail and institutional banking – to optimise our infrastructure and processes, advance our front-end products and services, and create new business models which are more naturally integrated with the consumer lifestyle and business life cycle.”
Demery added that the Bank is keen to partner with fintechs on that journey, “That’s how we can expand our reach to under-served markets and maintain our standing with the next generation.”
1 https://www.un.org/sustainabledevelopment/wp-content/uploads/2019/07/UN-SG-Roadmap-Financing-the-SDGs-July-2019.pdf Page 1
2 https://digitalfinancingtaskforce.org/wp-content/uploads/2019/09/Task-Force-CoChair-Interim-Report.pdf page 11
https://av.sc.com/corp-en/content/docs/Standard-Chartered-Opportunity-2030.pdf page 3
4 https://www.oecd.org/environment/cc/climate-futures/case-study-digital-finance-and-citizen-action.pdf Page 9
6 http://www.ruralfinanceandinvestment.org/sites/default/files/135340-WP-P165652-PUBLIC-15-3-2019-11-41-29-WeBook.pdf Page viii
7 http://documents.worldbank.org/curated/en/387931552667416907/pdf/135340-WP-P165652-PUBLIC-15-3-2019-11-41-29-WeBook.pdf Page 14
10 https://digitalfinancingtaskforce.org/wp-content/uploads/2019/09/Task-Force-CoChair-Interim-Report.pdf Page 37
12 https://digitalfinancingtaskforce.org/wp-content/uploads/2019/09/Task-Force-CoChair-Interim-Report.pdf Page 46