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Fintech Goes “Green”, Joining $30T ESG Boom

Fintech Goes “Green”, Joining $30T ESG Boom

Back in 2019, Goldman Sachs made waves after becoming the first mainstream Wall Street bank to renounce fossil fuel investments. GS said it would cease financing any new oil exploration or drilling in the Arctic, or financing new thermal coal mines anywhere on the globe. Goldman also pledged to invest $750 billion over the next decade into areas that focus on climate transition.

Predictably, other banks began to feel the ethical squeeze and a slew of other investment banks soon followed suit.

In April 2020, Citigroup joined GS by denouncing financing thermal coal miners by 2030, while Deutsche Bank, Germany’s largest lender, vowed to cut ties with banks that continued to finance the coal industry by 2025. Meanwhile, BlackRock Inc, the world’s largest asset manager with $9.5 trillion in assets under management (AUM), pledged to grow its green portfolio more than 10-fold over the next decade from $90 billion to more than a trillion dollars.

But it’s not just mainstream investment banks that have doubled down on the $30 trillion ESG market- lately, there has been an explosion of fintechs--both new and incumbent players--going green.

Few, perhaps, are as striking as Aspiration, a California-based online bank backed by Hollywood actor Leonardo DiCaprio of the Titanic fame, that has fashioned itself as a Wells Fargo alternative, and whose proud mantra is “Clean rich is the new filthy rich.” 

 

Aspiration promises to take the leftover change from customers’ purchases and use it to plant millions of trees around the world.

Green Fintech

Founded in 2015, Aspiration has been doing quite well, managing to grow its customer base to more than 5 million. Fashioned as the antithesis of Wells Fargo, Aspiration has been urging customers to switch allegiances to a bank that can save them money and a lender they can trust.

Quite naturally, more than a few of Wells Fargo’s 70 million customers have been looking to jump ship following the bank’s abysmal track record including opening millions of fake customer accounts and mortgage violations-- more than 200,000 of Aspiration’s customers trace their roots to the older bank.

As Aspiration founder and CEO Andrei Cherny has told CNN Business, the growing popularity of the new bank stems from widespread dissatisfaction by customers of traditional banks’ business models, adding that more modern banks with transparent models are proving to be a hit especially with younger generations:

"Wells Fargo went over the line of what was legally allowed, but a lot of banks everyday tiptoe up to that line and sell products that customers may not need or want.People of all ages — and especially young people — are fed up with big banks. There is this massive distrust of financial institutions."

Cherny has pointed to how banks make lots of money  through hidden fees that range from monthly service fees to overdraft fees and ATM fees. Aspiration’s philosophy on fees is radical yet pretty effective—it offers such a superlative service that many customers simply feel obliged to pay: "It's up to us to do such a great job that they pay us even though they don't have to. The great majority has chosen to pay. "

So, in what other ways does Aspiration make money off its customer deposits? 

After all, few, if any, not-for-profit organizations that are not on the freemium model can survive for long while giving away services for free. Aspiration says that rather than charge fees, it makes most of its money off the spread around interchange and interest rates or the charge retailers pay banks when their shoppers pay with a card.

Another important distinction: Aspiration offers fossil fuel and firearms-free accounts thus distancing itself from Wells Fargo, which has been criticized for financing controversial oil pipelines.

Aspiration says it can justify the “green” mantle because it has planted 35 million trees over the past 12 months alone. Indeed, CEO and co-founder Andrei Cherny claims his company now plants “as many trees every day as there are in Central Park.’’

The company also touts its mutual fund, which it says is “free” of fossil fuels. 

According to Lexology, the term ‘Fintech’ generally describes technologies that strive to improve and automate the delivery and use of financial services to clients. The concept of ‘Green Fintech’, is, however, relatively new and it typically describes companies or initiatives which have a positive impact on the environment, e.g. resulting in lower greenhouse gas emissions or greater biodiversity.

The ‘Green Fintech’ ecosystem encompasses fintech companies that are actively shaping this fundamental shift to sustainability from planting trees to offering fossil-fuel-free investment options. 

Aspiration is, however, hardly the only fintech that can lay claim to the green mantle.

In August, Ant Forest, a tree-planting mini program in the Alipay app that enables users to earn virtual points for making low-carbon lifestyle choices, announced that it has helped over 600 million users plant more than 326 million trees since it launched in 2016, contributing to reforestation efforts in some of China’s most arid regions.

Finovate lists 25 fintech companies that have gone green.

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