#1 The New Decade of the ‘Empowered’ Consumer Will Propel Green Finance and Sustainability Considerations Beyond Regulators and Corporates
We have seen multiple countries set regulations and implement Emissions Trading Systems (ETS) and 2021 will see Environmental, Social and Governance (ESG) considerations growing in importance in the investment decisions for asset managers and hedge funds. Efforts for ESG standards for risk measurement will benefit and support that effort.
The primary driver will not only be regulatory frameworks – rather it will be further propelled by consumer preferences. The increased interest in climate change, sustainable business investments and ESG metrics will be an integral part of the reaction of the society to assist in the global transition to a greener and more humane economy in the post-COVID era. Individuals and consumers will demand FinTech solutions that empower them to be more environmentally and socially responsible. The performance of companies on their ESG ratings will become a key consideration for consumers making investment decisions. We will see corporate focus on ESG become a mainstay as a result – driven by regulatory frameworks and the consumer’s desire to place significant important on ESG as an investment criterion.
#2 Consumers Will Truly Be ‘Front and Centre’ in Reshaping the Financial Services Digital Ecosystems
Consumers will also shape the market because of the way they exercise their choices when it comes to transactional finance. They will opt for more discrete solutions – like microfinance, micro-insurances, multiple digital wallets and so on. Even long-standing customers will no longer be completely loyal to their main financial institutions. This will in effect take away traditional business from established financial institutions. Digital transformation will need to go beyond just a digital Customer Experience and will go hand-in-hand with digital offerings driven by consumer choice.
As a result, we will see the emergence of stronger digital ecosystems and partnerships between traditional financial institutions and like-minded FinTechs. As an example, platforms such as the API Exchange (APIX) will get a significant boost and play a crucial role in this emerging collaborative ecosystem. APIX was launched by AFIN, a non-profit organisation established in 2018 by the ASEAN Bankers Association (ABA), International Finance Corporation (IFC), a member of the World Bank Group, and the Monetary Authority of Singapore (MAS). Such platforms will create a level playing field across all tiers of the Financial Services innovation ecosystem by allowing industry participants to Discover, Design and rapidly Deploy innovative digital solutions and offerings.
#3 APIfication of Banking Will Become Mainstream
2020 was the year when banks accepted FinTechs into their product and services offerings – 2021 will see FinTech more established and their technology offerings becoming more sophisticated and consumer-led. These cutting-edge apps will have financial institutions seeking to establish partnerships with them, licensing their technologies and leveraging them to benefit and expand their customer base. This is already being called the “APIficiation” of banking. There will be more emphasis on the partnerships with regulated licensed banking entities in 2021, to gain access to the underlying financial products and services for a seamless customer experience.
This will see the growth of financial institutions’ dependence on third-party developers that have access to – and knowledge of – the financial institutions’ business models and data. But this also gives them an opportunity to leverage the existent Fintech innovations especially for enhanced customer engagement capabilities (Prediction #2).
#4 AI & Automation Will Proliferate in Back-Office Operations
From quicker loan origination to heightened surveillance against fraud and money laundering, financial institutions will push their focus on back-office automation using machine learning, AI and RPA tools (Figure 3). This is not only to improve efficiency and lower risks, but to further enhance the customer experience. AI is already being rolled out in customer-facing operations, but banks will actively be consolidating and automating their mid and back-office procedures for efficiency and automation transition in the post COVID-19 environment. This includes using AI for automating credit operations, policy making and data audits and using RPA for reducing the introduction of errors in datasets and processes.
There is enormous economic pressure to deliver cost savings and reduce risks through the adoption of technology. Financial Services leaders believe that insights gathered from compliance should help other areas of the business, and this requires a completely different mindset. Given the manual and semi-automated nature of current AML compliance, human-only efforts slow down processing timelines and impact business productivity. KYC will leverage AI and real-time environmental data (current accounts, mortgage payment status) and integration of third-party data to make the knowledge richer and timelier in this adaptive economic environment. This will make lending risk assessment more relevant.
#5 Driven by Post Pandemic Recovery, Collaboration Will Shape FinTech Regulation
Travel corridors across border controls have started to push the boundaries. Just as countries develop new processes and policies based on shared learning from other countries, FinTech regulators will collaborate to harmonise regulations that are similar in nature. These collaborative regulators will accelerate FinTech proliferation and osmosis i.e. proliferation of FinTechs into geographies with lower digital adoption.
Data corridors between countries will be the other outcome of this collaboration of FinTech regulators. Sharing of data in a regulated environment will advance data science and machine learning to new heights assisting credit models, AI, and innovations in general. The resulting ‘borderless nature’ of FinTech and the acceleration of policy convergence across several previously siloed regulators will result in new digital innovations. These Trusted Data Corridors between economies will be further driven by the desire for progressive governments to boost the Digital Economy in order to help the post-pandemic recovery.
In September this year, China – the world’s largest emitter of greenhouse gases – announced it would achieve carbon neutrality by 2060. Japan and Korea, too, have upped their mid-century targets to bring net emissions to zero.
The New Zealand Government has set a legislated goal for the country to be carbon neutral by 2050; has amended our Emissions Trading System (ETS) to ensure price signals encourage a move to low carbon; set up a green investment fund; invested heavily in research into reducing emissions from livestock production; and, most recently, made carbon-related financial disclosures mandatory for specified companies, banks, insurers and investment managers. We have also made it our mission to encourage governments to phase out fossil fuel subsidies (some US$400bn each year) that promote excessive consumption.
The Ripples Reach Cities and Businesses…
The political signals have flowed through to regional and local government. The C40 group (cities around the world working towards sustainability goals) now has 96 participating members – with many cities finding opportunities to collaborate with others in the network on joint projects.
It is becoming obvious that fossil fuel industries are at a disadvantage against increasingly cost-competitive renewable energy. Governments are working out how to manage a ‘just transition’ for the energy sector, while forward-leaning energy companies are re-shaping their business models in anticipation of a low carbon future.
Political signals encourage businesses to factor climate change into their planning and investment decisions. Businesses everywhere have read the political tea leaves and we see weekly announcements of pledges for carbon neutrality, ethical investing, green financing and so on. Whether it is Blackrock or NZ Super Fund making environmental, social, and governance (ESG) considerations integral to their investments, or Ikea’s IWAY (its ESG code of conduct for itself and its suppliers), business is showing a deeper commitment to sustainability than ever before.
Some industries will have to be more invested than others in emissions reduction, but this opens a world of opportunity and innovation. Energy & Utilities companies are implementing waste-to-energy solutions – Singapore’s Integrated Waste Management Facility (IWMF) is set to be the world’s largest energy recovery facility – and adoption of carbon capture, utilisation and storage (CCUS) facilities is at last gathering momentum across energy systems. Industries like aviation and maritime, too, have to play a key role in a circular economy.
… And Individuals (the Last – and First – Pieces of the Puzzle)
The ripples have spread to individuals – people like you and me. I know there are still plenty of climate deniers around. But mindsets are changing – and when that happens, the ripples become a tidal wave of real change. If we each start thinking we can do it and we will do it, the change will happen. If we make it clear, in our preferences as consumers, and in our expectations of the businesses we buy from or invest in, the change will happen.
The numbers who recognise we must live within our planetary boundaries are growing, values are changing (especially in light of the pandemic), and our low-carbon future is a high-tech one – not hemp shirts and home-made candles (unless of course these are your thing). Digital is a critical part of the story. Blockchain and distributed ledger technology (DLT) is being used to cater to a new generation of consumers, conscious of buying what is good for the world in the face of climate change and biodiversity loss. Food products are being branded using track-and-trace capabilities of Blockchain for ‘farm to fork’ visibility.
Who doesn’t want to breathe clean air, have lower energy bills, and eat safe and healthy food? Maybe we will see more initiatives like America’s Pledge, bringing together an entire ecosystem committed to fighting climate change, growing the economy, and protecting public health – an ecosystem of states, cities, businesses, universities, and citizens.
We now have the rules, the policy tools, the technologies, and – increasingly – we have the will to act. As we re-build our economies, our businesses, and our lives, let us re-build better. So, I would echo Sir David Attenborough’s optimism – it is just that we do not have his (95 years) lifetime left to put things right.
Singapore FinTech Festival 2020: Impact Summit
For more insights, attend the Singapore FinTech Festival 2020: Impact Summit which will cover topics tied to climate change and sustainability to build a better future