Business

How businesses can supercharge sustainability and gain consumer trust

Published

2 weeks ago

November 18, 2023

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Author: Karine Martinez, Head of Sales

It’s not easy being green, especially when environmental, social and governance (ESG) are under pressure due to an uncertain economic picture. But fintechs can no longer ignore the voices of consumers worldwide who are demanding immediate and impactful climate actions from the businesses they transact with.

The United Nations has declared 2021-2030 the Decade of Action, and is demanding that businesses take meaningful action towards a more sustainable future. In addition, investor pressure is building, with 82% of investors saying ESG needs to be embedded in corporate strategy, according to PwC data.

As the global push towards sustainability gathers force, the demand for fintech-driven ESG solutions is definitely out there – and growing. According to KPMG, the market size for such solutions could surge from $21 billion in 2022 to more than $160 billion in the next five years.

But if this potential is to be realised, fintechs will need to pay close attention to how new regulations and reporting standards will impact their business. Any business that thinks it can get away with ‘greenwashing’ is in for a rude awakening.

Global pressure to stamp out greenwashing is building

It’s clear to see that government and regulatory demands for more ESG actions are intensifying worldwide. During 2022, several fines and remedial actions were imposed on companies found to have given misleading or incorrect ESG information, a prime example being the US Securities and Exchange Commission, which fined two financial institutions for misstating and omitting information in ESG disclosures.

Efforts to speed up ESG reporting standards are also ramping up. With the establishment of the International Sustainability Standards Board (ISSB) at the COP26 climate summit in 2021, and the release of data reporting and climate-related disclosure standards in June 2023, companies now have a consistent global framework for investor-focused sustainability reporting. Already, authorities in Singapore have acted by proposing ISSB-aligned mandatory climate reporting for listed and large non-listed companies.

These new reporting standards should go a long way in easing one of the big challenges in the way of further ESG adoption – a lack of clarity over data. Research from McKinsey shows that a lack of data was one of the key reasons why companies aren’t able to properly assess ESG programmes when evaluating competitors, suppliers, and potential partners.

Incentivising ESG at the corporate level is being factored into remuneration and rewards policies, to motivate leaders and boards to do the right thing by their businesses, shareholders and their customers. This is unsurprising given the sharp rise of climate-focused litigation over the past few years – according to the London School of Economics, of more than 2,000 cases brought globally since 2015, around 15% were filed between the years 2020 and 2022.

At the same time, employees are increasingly demanding more ESG action from their employers. With a global skills shortage threatening to slow the pace of innovation, businesses are finding it harder to recruit and retain the right staff who can shape the future of fintech. They will have no option but to listen to the views of potential employees who want their social values reflected in the organisations they work for.

Rising consumer demand for climate-conscious payment technology

As ESG moves up political and commercial agendas, fulfilling a growing consumer demand for climate-conscious actions is fast becoming a necessity for brand success. Younger Millennial and Generation Z consumers won’t hesitate to shun brands who merely pay lip service to sustainability – around 40% of Gen Z and Millennial consumers say that environmental impact is a crucial factor in their purchasing decisions.

The good news is that the emergence of game-changing technology is enabling businesses and their customers to join forces and tackle climate change – and achieve sustainability goals together.

During the pandemic, we saw just how quickly consumers were able to switch from cash to contactless and digital wallet or in-app payments, helping to reduce paper usage across retail, hospitality, transport and other cash-heavy sectors. And with less cash in usage, the carbon footprint linked to the transportation and disposal of cash and coins was reduced too.

While it’s great to see consumers and businesses embracing digital payments, there are those who still prefer physical payment cards. Here, solutions like eco-friendly payment cards and wearable tech made from recyclable materials can help businesses forge deeper connections with their customers through items they carry every day.

One of the ways businesses can take meaningful action and make positive impacts is by encouraging consumers to make climate-conscious purchases, with innovative tools like carbon calculators at the checkout that can help consumers reduce their carbon footprints.

One of the projects that I’m incredibly proud of is Edenred Payment Solutions and ekko’s partnership, with an app and green recyclable debit card powered by our issuing and processing services. This solution enables consumers to see how their purchases and payment behaviour impact their carbon footprint. In this way, we are incentivising customers to make more climate-friendly purchases, and contribute to plastic recycling and tree planting initiatives.

As AI and machine learning (ML) make their way into more business areas, they have incredible potential to gather, speed read and validate data quality, plus trace it to specific ESG touchpoints or programmes that can help fintechs to serve their customers with climate-conscious solutions. From a wider corporate/investor standpoint, AI and ML can analyse massive datasets in real-time and identify viable sustainable investment opportunities based on ESG data standards to enable better decisions and discover potential areas for development. Who knows? Maybe with these technologies, we are about to see the emergence of the first green fintech unicorns.

ESG needs an evergreen approach

Companies that adopt ESG objectives across their business models will be better positioned to reach new customers and retain them. But ESG is not a tick-box exercise. Complacency is not an option. As new climate emergencies occur, and new risks to sustainability appear, ESG is a continual journey. Fintechs and their partners therefore need to keep their eyes on the horizon, and use the tools and data at hand to anticipate their next steps.

By measuring and reporting transparent metrics on governance, strategy, risk and opportunities, progress will be easier for customers, regulators and potential investors to track. A proactive approach should involve ongoing engagement and discussion with key stakeholders to gain consensus on short-term actions and longer-term strategies. Getting management buy-in as early as possible will ensure fintechs chart the correct course.

The fintech sector now has the opportunity to harness technology, creative ingenuity, and treasure troves of data to tackle sustainability obstacles and create a healthier planet. Not only can we ensure continued profitability, but we can also do so in a way that meets consumers’ growing needs for more climate-conscious action, and ensure that fintech paves the way for a more sustainable world.

Business

Revolutionizing Risk: Innovative Derivatives to Support the Evolution of Commercial Space

Published

1 day ago

December 2, 2023

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By Grant Gryska, Co-Founder and Director of Markets at Allocation.Space

The space economy continues to expand rapidly, crossing $500bn in revenue in 2022, 78% of which came from the commercial sector[1]. Major developments like the successful test launch of SpaceX’s massive Starship are set to radically change the cost of getting mass to orbit, unlocking new possibilities for business in space.

This growing market presents outsized opportunities for investors, insurers, and businesses. But, as enterprises extend their reach beyond Earth’s atmosphere, risk management tools must evolve to meet the new and unique challenges they face. A new generation of derivative instruments is emerging to support the commercial space sector while complementing traditional insurance models.

A Paradigm Shift in Risk Management

Traditionally, space ventures were funded by governments and international space agencies — institutions that were able to absorb risk and ignore bottom-line concerns. The arrival of private space companies such as SpaceX, Vast, and Blue Origin represents a material shift in the trajectory of commercial space. National interest is no longer enough; space ventures must also turn a profit, which means managing risk. These enterprises are pushing the boundaries of what is possible, requiring a comparable evolution in financial tools to support their endeavors.

Grant Gryska

We’re now seeing a new generation of companies building platforms to host derivatives that enable enhanced risk management for the space industry. By hosting these products on a Swap Execution Facility (SEF), the aim is to bring pricing transparency and efficiency to the sector via a centralized venue. Unlike traditional insurance, which often relies on predefined policies and premiums designed to mitigate specific critical loss, swap contracts do not require proof of any actual loss or attribution, broadening the universe of potential participants in this growing market.

Derivative Instruments for Commercial Space

Derivative instruments tailored for the commercial space sector will help mitigate risks and enhance financial flexibility as the barriers to entry come down and competition increases.

Space Weather Derivatives (SWDs): With satellite anomalies demonstrating a 74% correlation[2] with geomagnetic disturbances caused by the solar wind, these products will become invaluable in managing revenue loss due to these disruptions. SWDs will ensure a smoother execution of space missions and terrestrial applications such as power grid management.
Space Derivative Contracts (SDCs): SDCs allow investors and companies to hedge against price fluctuations in space-related assets. Whether it’s fuel, space-based resources, or payload rate indexes across launch platforms and locations, these products provide a means to lock in prices, offering stability in an otherwise volatile market.
Space Options (SOs): Like traditional financial options, SOs provide the right, but not the obligation, to buy or sell a space asset at a predetermined price and time. This allows investors to capitalize on favorable market conditions while limiting downside risk.
Space Risk Swaps (SRS): SRSs enable entities to exchange or transfer specific risks associated with space activities. For instance, a satellite operator concerned about launch delay or orbital debris may enter an SRS with a risk-taking party, effectively transferring the risk to them. These products diversify risk and encourage collaboration among industry players providing complementary services like debris mitigation.

Complementing Traditional Insurance: Bridging the Coverage Gap

While traditional insurance remains a fundamental component of risk management, derivative instruments offer a more nuanced approach targeting the risks to revenue. These products provide a level of risk granularity that traditional insurance may lack or be unable to cover economically, which has left 99% of LEO (Low Earth Orbit), and 73% of MEO (Medium Earth Orbit) and GEO (Geostationary Orbit) satellites uninsured on orbit as of 2022[3]. This is crucial in an industry where risks to launch platforms, satellite technologies, and commercial objectives can be highly specific and variable.

The Future of Space and Derivative Instruments

There’s a growing cluster of companies looking to transform the financial products and venues supporting the commercialization of space. The derivative instruments being developed with the help of space industry players will provide a forward-looking and adaptive approach to risk management for space, complementing traditional insurance models.

As the commercial space sector continues its trajectory beyond Earth, these innovative financial tools will play a pivotal role in ensuring a robust and resilient financial ecosystem for companies participating in the space economy.

[1] https://www.spacefoundation.org/2023/07/25/the-space-report-2023-q2/

[2] Choi, H. S., J. Lee, K. S. Cho, Y. S. Kwak et al., 2011, Analysis of GEO spacecraft
anomalies: Space Weather relationships, Space Weather, 9, S06001.

[3] https://spacenews.com/connecting-the-dots-space-insurers-toast-another-profitable-year

Business

2024 Payments Predictions

Published

2 days ago

December 1, 2023

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Alan Irwin, Vice President of Product & Solutions Europe, Global Payments:

Open banking in 2024 will be all about the consumer

“2023 has been a huge year for open banking adoption, surging 68.2% from the previous year to hit 4.2 million users in the UK in July. Open banking enables consumers to provide third-party providers (TPPs) with secure access to their payments account, meaning that payments can be made through these TTPs directly from their payments account and without the need for cards.

“With more people using open banking for payments, in 2024 consumer expectations of open banking are likely to increase dramatically. Consumers will demand higher levels of speed, convenience, and security around open banking as a payment method. As a result, there will be a renewed focus on the availability and performance of APIs and user interfaces. Without improving these features, TTPs will see growth in open banking payments stagnate and even struggle to compete with digital wallets and standard cards.

“2024 will also see a stronger emphasis placed on consumer protection from fraud and scammers. With £239.2 million lost to authorised push payments (APP) fraud in the first six months of 2023, security is front of mind for businesses and their customer bases. A key differentiator for open banking and card payments is the liability protection offered by cards through the disputes and chargeback processes. Merchants and consumers alike want the power to protect themselves with tools and processes to limit financial exposure. As such, to grow in the coming year, TTPs will need to develop and implement enhanced risk and fraud prevention tools to help drive confidence in the payment channel and mitigate concerns around exposure.”

Competition between old and new banks will intensify around convenience

“Growth in consumers’ desire for a financial ‘super app’ experience will put a great deal of pressure on traditional financial institutions and increase competition between neobanks and legacy banks in 2024. A financial ‘super app’ is a single mobile application that can be used to manage all aspects of your financial life, including services that range across savings, investments, mortgages, and payments, for example.

“Neobanks, such as Revolut, are creeping into ‘super app’ territory: providing a range of services, from shopping discounts and savings pockets to instant currency conversions and stock investing, all on a single mobile application. So far, these developments are almost exclusively in the consumer banking space. However, in 2024 we will see the neobanks push their payments offerings further up the value chain into the B2B world, challenging traditional banks on another front.”

Ecommerce checkout enhancements

“In 2024, payments providers and their clients will place a fresh emphasis on customer experience, as demand for convenient and slick payment processes continues to increase. Currently, 69.57% of online shopping carts are abandoned and less than one fifth (17%) of retail, leisure and hospitality transactions are made through digital wallets, showing that much more needs to be done to offer smoother payment infrastructure online and in-store. As such, in 2024 businesses will focus on customer experience as a means of increasing customer loyalty and slashing cart abandonment rates in the process. Moving away from slow, clunky payment experiences to offer customers the ability to pay for something with a few clicks through biometrics, which allow customers to pay with a simple face or fingerprint scan, and digital wallets, which store customer payment information, is the primary method that businesses should be using as we approach the new year to tackle this issue.”

Data Storage and Keeping Customers On-Site

“Providing a top-quality payments experience will go hand-in-hand with ensuring that consumers feel safe at the checkout, especially with soaring cybercrime. In 2024 we’re likely to see more use of card data storage and tokenisation to further reduce cart abandonment rates as they allow consumers to store their card details for future use, making their next purchase at the ecommerce store much faster. Network tokens in particular, which are tokenised payment details saved for a specific card and merchant pair, drive higher approval rates for merchants and offer a more secure form of payment than raw card data entry. In addition to this, continuously updating customers’ card data further reduces friction in the checkout and drives better cart conversion.

“What’s more, customers are also put off payments when they are redirected to another (3rd party) site to complete it, as it is unfamiliar to the rest of the checkout process, often doesn’t carry the merchant brand and thus deemed insecure. Therefore, reducing site changes as much as possible and using clear branding and UX to ensure customers are aware that they’re still on this same site is key to instilling a sense of security. Similarly, real-time data validation built into the payment form can prevent bad data from being entered in the first place, such as invalid PAN, expiry date, or security code, as well as keeping out bad actors from spamming through card data en masse.”