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Is the finance sector set for a black swan event?



You could argue that happened last year when the global pandemic began to unfold, however, given the number of pandemics over the past century, can this really be deemed an unexpected event?

That said, it’s interesting to explore whether it may be the catalyst for other less predictable outcomes across the finance sector.


It’s already clear that Covid has had a huge impact on people’s behaviours, especially when it comes to who they spend their hard-earned cash with. It’s fair to say that it has hugely accelerated trends associated with more conscious consumerism and a desire to spend with brands that better reflect people’s values and have sustainability, environmental and ethical practices high on up in their priorities. A recent study by Accenture puts this figure at 60% of shoppers, with the vast majority expecting to continue this shift post-pandemic.


In addition, there has been a significant shift in those shopping more locally with independent retailers and focusing more on local community initiatives. And the market has reacted with more focus on the supply chain, an increase in consideration of circular economies, a shift from ownership to rental, recommence, and a wider range of further innovations.


So, the question is, will this seismic shift in consumer consciousness filter through into the world of finance?


The Story so far

While financial services are far less tangible than retail products, they have still started to come under more scrutiny in recent years. Pressure for greater transparency regarding who, less sustainable, businesses are allowed to bank with, a shift towards a greater focus on ESG within the investment world and a demand that equal access is given to the best products and services for the more disadvantaged in society.


But this is the tip of the iceberg and the large institutions still have a mountain to climb in order to avoid accusations of tokenism and greenwashing campaigns. They need to more closely align with the new consumer ideals that are starting to emerge.


Blackrock, the world’s largest asset manager, signaled its intentions last year with the announcement it was divesting in fossil fuels, however by exploiting a loophole, it still had investments of $85bn in coal companies in early 2021. Likewise, the recent Banking on Climate Change report reviewing 35 leading private banks painted a similar picture for most they assessed, with several increasing their financing of fossil fuel firms since 2016.


That said, they did call out a couple of the more established banks (NatWest and BNP Paribas) as making progress and Tridos and Ecology Building Society as market leaders. It’s worth mentioning that Co-Op Bank has long been banging the drum for a more ethical approach to banking in the UK.

Others are also taking a more proactive approach in building their business, products and services around the needs and values of their customers.


With a new report by Gartner stating, 73% of UK consumers want to be more sustainable in 2021 where should FS businesses focus?


Help me, help the planet

Customers aren’t just expecting FS businesses to get their house in order, eventually, that will become a hygiene factor, they are also looking for help to lessen their own impact on the environment.


The recent OnePulse study found 88% of UK consumers would like brands to help them be more environmentally friendly and ethical in their daily life.


A growing awareness of our own carbon footprints is not a new thing but a number of fintech companies have explored how using carbon labelling and open banking APIs can provide real-time analysis of our monthly spending.


YAYZY is one such example that recently came to market and received Apple’s accolade of App of the Day earlier this year. Integrating with numerous UK bank accounts the app provides a clear picture of the customer’s monthly carbon footprint, highlighting the transactions with the biggest impact, making people more aware and conscious of future purchases. It also facilitates offsetting via single payment or subscription, offers behaviour changing tips and has just started to share eco-friendly retailers. Soon to launch is an ethical investment feature.


The concept is already going mainstream with NatWest running a Beta in collaboration with CoGo who’s offering is similar to YAYZY.



Mindful about money

Increased visualisation of spend analysis, heroed by the challenger banks when they first came to market, ‘save the change/round up’ features and AI-powered solutions that advise customers how to avoid unwanted overdraft fees and provide investment advice, are all making money more accessible and engaging.


It’s these service offerings that help banks shift from commoditised providers to more valued partners and Fifth Third Bank have taken the logic a step further. The bank, which proudly states ‘we stand firm against racism and inequality’ on their homepage, was quick to pick up on last year’s anti-Black Friday sentiment and fight back against hyper-consumerism.


Fifth Third Bank ran social media campaigns to warn customers off impulse purchases after they viewed ads on their daily social scrolls. Product ads were replaced by ads from the bank designed to encourage customers to think twice about splashing out and encouraging them to buy less and save more.



Investing for the future shouldn't cost the earth

The shift in consciousness is beginning to permeate into the world of investments. This has long been the domain of pressure groups and charities who have campaigned against ‘rogue’ businesses appearing amongst the portfolios included in big corporates’ employee pension schemes.

It’s now begun to filter down to an individual level. Having done more and moreover the past decade to change their personal behaviours to lessen their impact on the planet, people are increasingly becoming aware that their retirement pots are having a very real impact on the environment’s future.


Earlier this year, Cushion, who claimed to launch the world’s first net neutral pension, sought to quantify this impact stating, ‘The average UK pension pot unwittingly finances an average of 23 tonnes of CO2 emissions - each year - through the businesses the pension invests in.’


The product was launched following research they undertook that found ‘68.6% are concerned that their company pension could be investing in businesses that are contributing to the climate crisis.’

As campaign organisation, Make My Money Matter points out, this isn’t just an environmental issue, people are also worried that their pension pot may be funding tobacco firms, gambling businesses and arms manufacturers.


And it’s this combination of pressure groups and consumer desire for a more ethical approach to investment that has seen Aviva become one of the first major pension companies to respond and pledge to ensure all auto enrolment pensions are net zero by 2050.


Interestingly, Censuswide research, commissioned by Aviva points to the finding that ‘59% of people think it’s important that pension funds become net zero by 2050’ however with 95% of customers currently in default funds that ‘take little account of climate change’, the potential for change is huge.


Conclusion

So, will 2021 be the year where this emerging customer voice is heard? Will it be down to the fintechs and challenger brands to continue to pave the way? Or will the more established players see this as an opportunity to take a more agile approach, consider new collaborations and partnerships, and lead the charge to put purpose and the customer at the heart of their strategies?


Time will tell but the longer Covid exists as part of our lives, the more conscious people are becoming about their actions, choices and who they want to do business with.