By Nick Dale, Senior Director, Verne Global
Society at large is becoming increasingly aware of its environmental impact, recently highlighted by the crystal-clear water in Venice’s canals and the Himalayas being visible across smog-free skies from over 120 miles away, amidst the global shutdown. This concern has also extended to the finance industry, with environmental, social, and governance (ESG) criteria rising in importance for both business and investment decisions.
At the same time, the financial sector has also been a major adopter of another significant trend – the use of AI and machine learning to improve efficiency and results. AI is particularly useful to the finance industry, from optimising asset portfolios and underwriting loans, to assessing risk and spotting fraud. In fact, the financial sector is leading the UK in the use of AI, with the great majority of banks, insurance firms and other financial institutions using such technologies.
Surprisingly, these two trends may be at cross purposes because of AI’s hefty carbon footprint. Training one deep learning model for natural language processing can emit more than 626,000 pounds of carbon dioxide equivalent, which is nearly 5 times greater than the amount generated during the entire lifetime of a car (including the manufacture of the car itself), per 2019 University of Massachusetts research.
But sustainable AI innovation is possible if financial services organisations begin to understand why AI can have a negative impact on the environment, and what they can do to minimise that impact.
AI’s appetite for power
The field of AI has been growing in leaps and bounds in the last decade, and no where more so than the finance industry. Financial institutions like Goldman Sachs, Morgan Stanley, and S&P Global are routinely using AI tools like Kensho’s for investment insight. Kensho’s algorithms can process 65 million question combinations, analysing over 90,000 world events – such as political events, economic reports, and monetary policy changes – and their impact on asset prices. Forbes reports that traders with access to Kensho’s AI-powered data were able to foresee a protracted drop in the British pound in the days after Brexit.
But as AI technology grows and develops, the computations behind it are also increasing in size and complexity. There has been a 300,000-fold increase in the computations required for deep learning research from 2012 to 2018, according to analysis conducted by the Allen Institute for AI. On top of that, these AI computing platforms can sometimes run 24-hours a day, necessitating days and even weeks of processing, plus trillions of attempts, to get the numbers lined up. As a result, these applications consume an enormous amount of energy in order to function, and require significant and constant access to power.
The carbon cost of AI becomes even greater when you factor in the energy required to keep computing equipment cool in order to prevent overheating that can impact performance and damage equipment. In a conventional data center, at least 40% of all energy consumed goes towards cooling.
Steps to minimise carbon impact of AI
Green – or greenwashing?
For businesses looking to reduce the environmental impact of their AI, the first step is to check the green credentials of the cloud providers and data centers that power these applications. Despite the “green” label, there’s no guarantee that a cloud provider or data center is powered entirely, or even partially, by green energy. Instead, these green claims can be more akin to a “carbon offset” programme, with energy providers offsetting the carbon they produce through tree planting or other similar programs.
Renewable energy sources
Instead of greenwashing, make sure that the data centers housing your AI compute are actually powered by renewable energy. In many Nordic countries, data centers are powered by renewable energy sources like hydroelectric and geothermal power. Iceland, in particular, uses 100% renewable energy with no nuclear power. These renewable energies are much less harmful to the environment because, unlike fossil fuels, they don’t cause pollution and don’t generate greenhouse gases. Not to mention, renewable energy is based on natural resources that can be replenished within an average human lifetime, as compared to fossil fuels, which can take thousands—or even millions—of years to replace.
Data center location
The next step is to look at the location of your data centers. Over 80% of compute doesn’t need to be near the end-user, and in those situations, choosing data center locations in cool climates has a significant impact on carbon emissions. In such cases, AI compute can be located in places like Iceland, which can utilise free-of-cost, natural cooling, due to its year-round cool, temperate climate.
This is in stark contrast to data centers located in hot climates, like Arizona in the US. With average high temperatures of 40° Celsius in the summer, data centers in climes like these need high-powered cooling systems in operation around the clock, often supported by up to 4 million gallons of water a day used to absorb heat through evaporation into cooling towers. As a result, when it doesn’t affect performance or accessibility, housing AI compute in data centers with natural cooling seems like an environmental no-brainer.
Better for the environment – and for business
As much as the financial sector is starting to embrace sustainability as a key ESG criteria in their corporate strategies, some may still view such efforts as an added cost to the expense side of the balance sheet. But the truth is, green AI presents financial services firms with an opportunity to align profit with purpose. By housing the servers that train AI models in data centers powered by renewable energy sources – connected to a reliable power grid –, businesses can substantially reduce energy expenses and benefit from predictable pricing.
As well, choosing locations with year-round, cool climates that allow natural cooling of powerful AI servers further minimises energy usage. When it comes to green AI, reducing environmental impact also lowers energy demands and costs – something that’s well worth the investment.
COULD COVID-19 BE THE CATALYST FOR DIGITAL TRANSFORMATION IN FINANCE?
By Simon Bull, Sales Operations & Business Development Manager at Aqilla
We are all now living in a new ‘normal’ where working from home is no longer a luxurious ‘perk’ of the job, but an essential. In the case of many organisations, the transition to flexible, remote working was successful, albeit slightly bumpy. But there is one department that has found it more challenging to transition to the required standards of remote working – the finance department.
The finance department often gets left behind when it comes to digital transformation largely because it is so heavily regulated. And because of this, one of the biggest problems the finance teams face is that it’s sensitive data will likely be stored on a hardware server on office premises. If you look at how organisations update their software as they grow, it’s usually the finance department lagging far behind, or sometimes forgotten about altogether. This is because finance has complex requirements that can lead to the attitude of: if it ain’t broke, why fix it?
Up until now, most finance teams have overcome the challenges this situation presents, but with the repercussions of the pandemic still very much in play, the complications that go hand-in-hand with on-premise technology have been more noticeable than usual. As a result, COVID-19 is becoming a catalyst for a digital transformation in finance, or more specifically moving finance and accounting software away from traditional on-premise solutions to built-for-cloud services. But what are the advantages of this approach, and what should finance teams be looking for in a built-for-cloud solution?
Cost: The Software-as-a-Service (SaaS) approach that is the basis of many of today’s cloud computing businesses generally offers customers a convenient monthly pay-as-you-go model. Given that all that users need to access the software is a desktop, laptop or smart device and internet connectivity, they can also save money on the server hardware that has previously sat in the corner of the office. Hint: compare pricing from several potential providers to make sure there are no unexpected extras before signing up.
- Service: Good cloud-based providers offer extremely strong levels of customer support and service. It should be very easy to get help quickly and conveniently, and they should be in a position to offer advice, identify problems and fix errors without undue delay. Hint: ask for references from existing customers or look for online reviews to assess their service and support capabilities. Also, carefully check their Service Level Agreement (SLA) to clearly understand where their commitments begin and end.
- Security: Established cloud providers offer high levels of security, data protection and backup services as part of their ‘as-a-Service’ package. Customers benefit from the protection afforded by security specialists whose job it is to prevent breaches and keep data completely secure. Hint: Check their security policies and consider talking to existing customers about their security track record.
- Compliance: Cloud providers specialising in the finance industry should have compliance at the heart of their product set. Hint: Check with potential providers about their levels of compliance and certification, particularly if you have specialised requirements.
- Ease of use: today’s built-for-cloud software services are built for purpose, with many offering a high degree of bespoke capabilities so every user can tailor it to their precise needs. This is in contrast to traditional software packages that can be far less flexible, forcing the user to work in a particular way that might not be ideal. Hint: ask potential providers for an online demonstration to check the way the services work meet your needs.
- Performance: In the early days of cloud computing, finance software was too basic for many professionals to consider. Today, there are many entry-level services, while others offer a comprehensive range of capabilities to precisely fit the needs of professional finance departments. Hint: evaluate the range of capabilities offered by a cloud provider, which should include areas such as: extensive analysis, proper periodic management and business calendars, multi-currency, multilingual and multi-company operation, full VAT handling International coding, tax and language flexibility, automatic reconciliation / bank integration, built-in key performance measurement, advanced search, selection and drill-down, document and image scanning. Hint: compare the features of different providers in advance – if anything important is missing, look elsewhere.
- Regular updates: Software developers find it much easier to update and improve their services when they are delivered online, and can more effectively keep up with finance best practice and changes to rules and regulations. Many also encourage users to suggest improvements or new features which are then provided to customers at no extra cost. Hint: ask providers about how often they update their software and whether you can suggest improvements.
For many businesses, these are compelling reasons to adopt cloud-based finance software services, even in normal circumstances. But considered in the context of the current remote working environment, built-for-cloud finance software can help departments to adapt and capitalise on working from home and match the levels of digital transformation seen across many other key business functions.
WE NEED FINTECHS NOW MORE THAN EVER
Lubaina Manji, Senior Programme Manager, Nesta Challenges
Whilst the sun is far from setting on the COVID-19 pandemic, predictions and hopes for a new “normal” are shimmering on the horizon.
Amid the trail of devastation left by the virus, there has to be some semblance of change and positivity to be taken. One such shift is the increase in digital services usage which poses a huge opportunity for our fintech community. Confinement has forced even the more sceptical of us to dabble in digital, and embrace how it has made many everyday tasks more easy and convenient.
Online and mobile banking has been helping many people stay on top of their finances for some time. Research conducted by Open Up 2020 Challenge last summer found half (48%) of people would like to use online tools and apps to help them manage their money.
Then along came a global pandemic that has undoubtedly forced the hands of even the more sceptical to log on, download and transact – quickening the pace of long-lasting change in terms of how we manage our money. Recent figures from deVere Group suggest the virus is behind a 72% rise in the use of fintech apps in Europe. Never before have we been so reliant on technology in maintaining some sort of normalcy and in helping us continue day-to-day tasks, like everyday banking.
Another unfortunate byproduct of protecting communities from the virus means many people have been left out of work and with less or no income. In times of financial strain, the need for people to engage with their finances – be it budgeting, saving or shopping around for better deals – is far greater.
Issues of trust in traditional banking services and a lack of awareness of the helpful money management services available are some of the barriers preventing people from taking more control of their finances. But the solutions made possible through open banking can provide people with a lifeline to build their financial resilience and better manage their money.
Open banking has the potential to revolutionise financial services, by giving people control over their financial data in order to access innovative products tailored to them. Since it launched in 2018, open banking technology has opened the door for new fintech innovators to create cutting-edge tools designed to help people better manage their money – from budgeting, debt management, comparing and switching banks to automating savings and more. These could have a significant impact – it is estimated that UK consumers could gain as much as £12bn over the course of a year from open banking-enabled tools.
So far, it’s been effective – the UK FinTech’s State of the Nation report totted up more than 1,600 fintech firms in the UK in 2019, whilst predicting this could more than double by 2030. Figures from the Open Banking Implementation Entity showed there were 243 regulated providers, 169 third party providers and 74 account providers as of April 2020. The UK adoption rate of fintech is 42% – higher than the global average of 33% – making it ripe for opportunity. Coupled with lockdown restrictions creating greater dependence on technology – including ATM cash withdrawals falling by half – fintechs are well placed to be part of the solution – and offer help to those struggling to manage.
With more than a fifth (21%) of the adult population saying financial stress is having a bigger impact on their mental wellbeing than physical health concerns during the crisis, and a quarter more stressed about money than usual, fintechs can be part of the support available to them.
However, in order to fully realise the opportunity we need to ensure budding entrepreneurs with bold ideas have the means to turn them into reality. Nesta Challenges exists to design and run challenge prizes that incentivise people to help solve pressing social problems that lack solutions. Through our Open Up 2020 Challenge we are supporting 15 fintech finalists to develop their solutions to enable more people – particularly those underserved by traditional financial products – to manage their finances better, whatever their circumstances.
Of the 15 finalists, some offer app designed to help people budget,, save, switch and invest – aided with alerts and notifications that allow people to stay on top of their finances and make their money work harder for them for the long term. For example, Cleo is an AI financial assistant that is already helping more than 3 million customers monitor their spending, budgeting and saving, while Moneyhub empowers people to do more with their money by offering actionable insights from a review of all of their accounts.
Some of the apps are designed for those with more specific circumstances, such as Mojo Mortgages, which analyses income and transaction data for first time buyers to produce mortgage affordability scores and savings recommendations if they aren’t quite ready to apply. Finalists Portify and Wagestream cater for workers with irregular earning patterns.
As well as monetary grants, Open Up 2020 Challenge provides these companies with non-financial support and promotion to help them on their way to achieving their full potential – which in turn helps them reach many people to help them achieve their monetary goals.
While COVID-19 has created personal finance headaches for many, it has been inspiring to see how quickly fintechs have been able to innovate and develop digital solutions that help solve these problems and equip people to better manage their money.
 Open Up 2020 Challenge
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