Fintech and Digital Banking Crucial to Achieving Sustainable Goals

Financial technology could create new economic models and opportunities worth $12 trillion a year by 2030

By Nicole K. Phinopoulou, Lawyer, Banking Financial Services, ESG & Sustainability Policies, LLB. LLM. LPC, CISL, University of Cambridge

There are two major trends that will continue to affect the international economic scene in the coming years (excluding the new balances that the Russian invasion of Ukraine will create). One involves the application of technology to every aspect of the economy and the other concerns the role that Sustainable Development now plays in the business and investment decision-making process.

The combination of these two major trends can play a crucial role in the implementation of sustainable economic models, which will transform the global economy much faster. A United Nations study has shown that implementing sustainable economic models could create opportunities worth $12 trillion a year by 2030. To this end, the role of technology will be crucial. Technology solutions such as Data Analytics, Blockchain, Artificial Intelligence and Fintech in general can help businesses evaluate and reduce their environmental impact (carbon footprint) and guide investors towards channeling their funds towards more sustainable projects.

Achieving the United Nations Sustainable Development Goals (17 SDGs) also requires funding, which is a major challenge. The connection between the economic model’s digitization and the achievement of sustainability is a sine qua non and their intersection should be precisely defined as soon as possible. The term “Green Fintech” must be put in the right context (UN Task Force on Digital Financing Goals).

Although traditional banking institutions have begun to incorporate the sustainability factor into their loan products, these still make up only a very small percentage of their total loans. Respectively, the so-called “green bonds” constitute only 1% of the total debt issuance.

The opportunities that technology creates in the financial sector are truly unlimited. Big Data, Machine Learning, Artificial Intelligence and Cloud Computing have facilitated and accelerated low-cost decision-making in the financial sector. Similarly, digital trading platforms, either between individuals (P2P) or for mass transactions, allow fast financing transactions without the need for traditional bank accounts. All these create new investment opportunities for lenders and stakeholders as well as new capital debt sources for borrowers. Furthermore, Blockchain technology has already created new data in transactions through the activation of smart contracts, which, inter alia, allow the automatic execution of transactions under certain conditions, without the need for third party mediation, thus significantly reducing costs. In addition, the so-called Internet of Things (IoT) enables the activation of intelligent computers that perform non-routine tasks. The technological possibilities are therefore unlimited.

According to recent research by the Sustainable Digital Finance Alliance, “Today’s digitalization of financing is already delivering financing for the SDGs. The DNA of digital finance – more and better data on risks and impacts, cheaper and wider accessibility of financial services, and innovative products and services – is already being harnessed to finance the SDGs.” Digital banking could potentially add $4.2 trillion in deposits and $2.1 trillion in new credit, leading to a 90% reduction in transaction costs. In addition, it is estimated that, by 2025, 10% of global GDP will be stored on the Blockchain. So, it becomes very clear that, if a part of this perspective is directed towards Sustainable Development, the change will be radical.

Digital financing can increase the potential of the productive forces of the global economy through more efficient supply chains, reduced costs and the calculation of environmental risks and opportunities, but also through effective implementation of policies, regulations and standards, given, of course, that the utilization of technological financial solutions is combined with the achievement of sustainable development. Collective ambition, innovation and perseverance by everyone involved – financial institutions, politicians, decision-makers and ordinary citizens – is therefore required.

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