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Navigating 2024: Priorities from FinTech Scotland’s CEO, Nicola Anderson

As we step into the early months of 2024, I’m reflecting on the achievements and progress across the FinTech Scotland Cluster over the past six years, and am also focused on the year ahead to build on the work so far and enable more opportunities for fintech innovation. 

The FinTech Scotland Cluster is a vibrant and diverse ecosystem that’s driven by contributions from a diverse range of committed participants focused on shaping the future of financial services. It goes without saying that technology is a critical focus, but we also find that there is a purposeful intent to the commitments to support the needs of a successful economy, one that’s becoming more and more digital. 

It’s the commitment from all involved in the Cluster that has resulted in a number of significant achievements over the years, including:

  1. Continued growth in fintech SMEs and fintech jobs, 
  2. Greater collaboration between larger organisations and smaller fintechs,
  3. Development of new innovative products, services and partnerships that all ultimately deliver good customer outcomes, and 
  4. A deepening focus on fintech R&D driven by the research excellence from the universities in Scotland and by collaboration on industry priorities in the FinTech Research and Innovation Roadmap (R&I Roadmap).

So, despite the challenging economic environment, I am optimistic about our opportunities for growth and innovation. In particular, I am looking forward to deepening our approach of collaborate to innovate’, and the limitless potential this powerful combination offers. We see it working already, resulting in changes for customers, businesses, our economy and the environment, supporting future needs and the development of fintech-enabled financial services in Scotland and across the UK. 

A new year brings an opportunity to assess our priorities for the year ahead. We’re focused on propelling our fintech cluster forward, deepening connections across the UK and the world, as well as accelerating fintech SME growth. 

 

Innovation and Priorities in 2024:

 

Fintech Growth

The FinTech Scotland community of fintech SMEs continues to grow, with 227 businesses currently developing and delivering fintech products and services that meet business and citizen needs. Accelerating their success and enabling them to grow and scale requires a collective focus on investment, access to current market opportunities (which includes collaboration with financial institutions), and supporting their ambitions to export.  

We’re spurred on by January triumphs already. 

Snugg, a thriving fintech, kicked off the year by announcing success on both funding and collaboration that will help them expand and scale throughout 2024.

Broadridge Financial Solutions, a growing and global fintech, announced success in international markets working with Denmark’s Danske Bank, exporting services and continuing its global growth.

Encompass Corporation has also started the year off by continuing its global expansion and growth through acquisitions.

We will continue to focus on investment, growth and international opportunities for the fintech SMEs throughout 2024.

 

Impactful collaboration

 

Working with the big and small 

We saw growing success throughout 2023 in the fintech programmes delivered in association with Lloyds Banking Group, TSB and Phoenix Group. Within our approach of collaborate to innovate’, more partnerships emerged, and fintech enterprises benefited from hearing about priority needs directly from the market. 

There is more to come in 2024. Collaborate to innovate’, through practical innovation programmes, will enable more potential for commercial opportunities and support new ways for market adoption of new and emerging technologies. We’re commencing the year with an innovation call on using AI and emerging technologies to help simplify compliance. 

 

The role we see for R&D

In 2023, we launched the Financial Regulation Innovation Lab, with an agenda focused on how technology can simplify and support compliance, and help regulation develop. The Lab also creates an independent environment to enable industry collaboration on current and emerging challenges within financial services. It’s a privilege to work with all involved, including UK regulators, large financial institutions and fintechs, as well as the University of Strathclyde and the University of Glasgow.

The Lab is kicking off 2024 with a collaborative research and innovation programme focused on AI and emerging technologies, and looking at their application in ESG regulations, Consumer Duty requirements and addressing Financial Crime. You’ll hear more about the progress throughout the upcoming year, and if you’d like to learn more now please let me know. 

Financial inclusion continues as a pressing issue. The cost of living crisis has brought it into further focus and the FCA’s Financial Lives survey persists in demonstrating a need for change. Throughout 2024, we will work with Financial Inclusion for Scotland, the FCA and Scottish Financial Enterprise, and explore how technology and a heightened period of focus can help move the dial on this critical problem. 

We’ve initiated this already, working in collaboration with the FCA on a Financial Inclusion TechSprint (more details can be found here). The Sprint is focused on helping to find ways to enable those excluded from basic financial services to get access. There’s a firm belief that technology can help, and that collaboration and a willingness to find solutions is key. The Sprint will run from March until the end of May, and conclude with an event in Glasgow. I’m starting 2024 hopeful we can drive change on this difficult agenda. The invitation to get involved is open to all. 

 

Working on priority environmental issues

With the climate agenda critical to so many aspects of business and society, it’s no surprise that fintech enterprises are working to find solutions and services that will help – indeed, the number of Scottish fintechs focused on climate doubled in 2023. In addition, we saw accelerated learning across the cluster through our work with Space Scotland, increasing our knowledge and understanding of geospatial data. 

There is more to come through 2024 on the priority of climate finance. We’ll build on the lessons and experiences from Space Scotland, exploring application of geospatial data in insurance risks, investments, emerging regulatory requirements and ESG development. 

 

Inclusive Cluster leadership

We will continue to work across the UK to advance fintech innovation. The FinTech Scotland team will continue to progress collaborative opportunities across the nation, working with the Centre for Finance, Innovation and Technology (CFIT), the Fintech National Network, Innovate Finance and The City of London Corporation. We will work, learn and collaborate across the regions to accelerate the whole of the UK’s fintech potential.

 

We invite you to collaborate with us

We know purposeful collaboration is key – collaboration across the industry, across sectors, and amongst other fintech clusters – to help us drive and lead the future of the digital economy.

My call to action for 2024 is: Collaborate with us, and innovate. 



AI in Scotland’s Workplaces: Navigating the Shift

A Surge in AI Adoption

Scotland is witnessing a significant shift towards embracing Artificial Intelligence (AI) in the workplace. Recent research by Hays reveals a notable increase in AI utilisation: from 26% to 32% in just six months. This uptrend is not just among organisations but also individual workers, with 19% now incorporating AI tools into their roles.

 

Employer Expectations and Future Outlook

Interestingly, 59% of employers anticipate allowing AI usage in the workplace but plan to monitor it closely. On the other hand, a smaller fraction, about 20%, expect to ban AI usage. This divergence in approach reflects the evolving landscape of AI in the professional sphere.

 

The Scottish State of Play

The research, encompassing feedback from nearly 15,000 employers and professionals, including 886 from Scotland, underscores a growing trend of AI adoption. Despite this, a significant majority of Scottish professionals (80%) have not integrated AI into their current roles.

Justin Black, Business Director at Hays, highlights mixed attitudes towards AI in the workplace. While a modest 21% view AI’s impact on their jobs positively, a declining number, now at 6%, see it negatively. Interestingly, some Scottish organisations have already prohibited AI usage.

 

Challenges and Opportunities

Black points out several hurdles in AI adoption, including GDPR concerns and skepticism about AI reliability. Additionally, the rapid surge in AI demand has outpaced the growth in relevant skills, leading to notable skill shortages. However, there’s a silver lining: the extreme skills shortage in AI among employers has decreased from 48% to 36% in the last six months.

 

The Skills Gap and Employer Role

The study also reveals a decrease in professionals who believe they lack the right skills for AI, dropping from 29% to 26%. However, Black emphasises that employers still need to do more in supporting staff upskilling for effective AI usage. This includes clear communication about AI’s role and monitoring in the workplace.

For more insights, visit Hays Technology.

Alternative to public markets, trade on a private market

IPO activity remains sluggish with high borrowing costs and broader macroeconomic headwinds seen as depressing investor and issuer appetites. However, there’s also a longer term shift being seen as companies and their corporate advisers show an increased tendency to move away from relying so heavily on traditional market structures – a trend which is now being accelerated thanks to a host of new and emerging financial technologies.

One great example of this innovation emerging on a home-grown basis is Glasgow-based InfinitX. Their software has already played a vital role in connecting JP Jenkins – the UK’s most established liquidity venue for unquoted companies – to any broker or other regulated financial institution. Prices can be displayed and orders placed using a standard trading terminal and whilst the assets remain unquoted, accessibility is dramatically improved for buyers and sellers alike.

And the wider industry is starting to take note, with InfinitX winning a slew of commendations in recent months, both in respect of its own technology and how they have bolstered the proposition offered by JP Jenkins.

Recently InfinitX was awarded Leading Innovators in Private Trading Technology 2023, UK by Innovation in Business. Innovation in Business’ Technology Innovator Awards 2023 provided a platform for companies like InfinitX  to showcase their groundbreaking solutions, game-changing innovations, and positive impact on the business landscape.

This month in London InfinitX and JP Jenkins attended the FF-Awards with InfinitX awarded  Finalists for Private Trading Technology 2023. Over 6,000 votes were cast with more than 18,000 total minutes of video entries viewed and we congratulate the team for making the top three finalists.

Finally InfinitX was acknowledged by Business Cloud as 2nd in UK’s Most Innovative Tech Creators 2023, This was a climb up from number 37 of 50 in 2022 to be second among some recognised leading financial service providers.

We also congratulate other Fintech Scotland members for inclusion in this list. Well done to DirectID, Modulr, Paysend and ShareIn.

Interested in working with JP Jenkins?

– To enquire about joining as an unquoted company contact Mason Doick at md@jpjenkins.com

– To join our ecosystem as a partner for events and services contact Melissa Gilmour melissa@infinitx.co.uk

– To learn more about InfinitX technology contact Mike McCudden, Mike@infinitX.co.uk

Blockchain’s potential in securing the UK fintech ecosystem

Today we’re looking at a dissertation by Gerald Lee, a student at the University of West England, which presents a compelling examination of blockchain technology’s transformative potential in securing the United Kingdom’s fintech ecosystem.

As the industry confronts a surge in cybersecurity threats, the research timely explores how blockchain can not only mitigate these risks but also fortify trust amongst consumers and stakeholders.

The dissertation adopts a robust mixed-methods framework, combining quantitative surveys of fintech firms across the UK with qualitative insights from industry experts, and illustrative case studies of entities pioneering blockchain integration. This triangulated approach provides a multifaceted view of the blockchain’s impact, capturing its empirical benefits and the practical challenges in adoption.

Key findings reveal that blockchain’s decentralised and immutable ledger could revolutionise cybersecurity measures within fintech, offering resilience against data breaches and fraud. Nevertheless, this research doesn’t shy away from the intricate barriers to blockchain’s widespread adoption, including regulatory uncertainties, integration complexities, and the delicate balance of transparency versus privacy concerns.

With a strategic blend of theory and empirical investigation, the dissertation underscores the urgent need for a coherent strategy among fintech firms, policymakers, and technology developers. The conclusion offers actionable recommendations, positioning strategic blockchain adoption as a cornerstone for a more secure and trustworthy UK fintech landscape.

This research stands as a significant contribution to both academic discourse and industry practice, highlighting the nuanced dynamics between emerging technologies and cybersecurity imperatives in the digital finance realm. Its implications extend beyond the UK, serving as a blueprint for global fintech markets aiming to leverage blockchain as a bulwark against the evolving cyber threatscape.

You can read the full dissertation here.

Photo by Leeloo Thefirst: https://www.pexels.com/photo/smartphone-pen-calendar-and-eyeglasses-on-flat-surface-7887800/

How to manage retirement during a cost of living crisis

Confused about your pension? You are not the only one. “People have an average 11 small pots, they don’t really know what that means for them in terms of what their retirement income is likely to be,” explained Laura Trott, UK’s Minister for Pensions at a recent evidence hearing by the Work and Pensions Committee examining DWP’s plans to introduce Pensions Dashboards.

And it’s not only UK citizens who don’t know what their retirement income is likely to be. The DWP admitted in the same evidence session that there have been underpayments to the tune of £1bn in state pension payouts due to missing information from people’s national insurance records.

Meanwhile, the cost of living in the UK is rising. The latest inflation figures show prices have gone up by 7.9% in June, with food prices increasing by 17.4%, resulting in 57% of households reporting to have struggled to pay for essentials. This state of affairs has dramatically diminished the capability of people to save for their retirement.

During these worrying times of rising prices, people have much more of a need to know what they are likely to have in retirement. Yet at the moment it’s very difficult to determine what that will look like. This is particularly relevant for younger generations. How millennials go about saving for a pension has radically changed from when their grandparents dealt with retirement. There is a concern that Generation Y (millennials) is not informed enough about saving for a pension, especially considering it is likely they will on average hold more than ten jobs before they retire.

A different pension approach is needed.

Introducing the (delayed) Pensions Dashboard

The UK Government is focused on the financial wellbeing of people by equipping them to be more financially informed and make the most of their money and pensions. This is why the UK Government has initiated the implementation of the Pensions Dashboard, enabling individuals to find and view their pensions all in one place, bringing more awareness to how much they will need to save in the long term for retirement.

Although the DWP recognises the importance of the Pensions Dashboard, it nevertheless announced a delay to implementation:

“The pensions dashboard will play a really important role in bringing that all together and also allowing people to see this alongside their state pension to get a full picture of what it’s going to look like for their retirement,” said pensions minister Laura Trott. “[Yet] it was the issue that we had around the connection process, which was needing more work in terms of the industry and there was insufficient testing in terms of the actual architecture itself. We needed more time to ensure that it was robust.”

The DWP is hoping to have the portal up and running “very soon” and the government body will start the process of writing later this year. This timing, however, has not come soon enough for Jonathan Hawkins, Principal Consultant and Pensions Expert at Bravura. Bravura has been collaborating closely with the Pension Dashboards Programme (PDP), regulators and its industry partners to make sure dashboards are delivered successfully for the good of the industry.

Bravura recently completed a collaboration with MoneyHub at this year’s PASA Annual Conference, at which a fully operational front- and back-end pensions dashboard was showcased for the very first time, demonstrating the tech works. Nonetheless, the pension solution provider is waiting for final guidance from the PDP to continue onboarding clients and build on the work the sizable amount of work the industry has already delivered.

“We are concerned that any further delays in connecting to the CDA  will likely eat into the time pensions providers and schemes have to deliver, so it is important the programme comes back online sooner rather than later,” explained Hawkins. “Although June’s announcement played a useful role in tidying up the regulations and legislation around the PDP, we are roughly four months on from the programme reset and we’re still waiting on key guidance on connections and staging deadlines.

“When the guidance is received (which we hope to be over the next few months) there is, of course, a worry that guidance differs in gravity from legislation. It will ultimately be up to the industry to lead by example and to the regulators to ensure appropriate measures are in place to meet the updated timelines.”

In the meantime prices are likely to continue to rise, which puts people more at risk of not putting enough aside for retirement. The Pensions Dashboard is expected to help many, especially the younger generation, in planning for their retirement income in the future. Once it’s ready.

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“The Future is Unwritten”: Stephen Ingledew OBE on the Promise of FinTech

Stephen Ingledew OBE, Chair of FinTech Scotland, likens fintech to the new punk rock scene of the 1970s. “What punk rock did was allow anyone who wanted to form a band, play an instrument, and just get up there and be part of it. It allowed more women, for example, into music than any other genre,” he explained. “Fintech is similarly challenging the traditional ways in which innovation is done.”

We took the opportunity to interview Stephen Ingledew on the occasion of him being awarded an OBE for services to the UK fintech sector and asked him the following questions:

 

Congratulations on your OBE! Can you briefly describe your FinTech journey and the innovations that led to this recognition?

I suppose innovation has been in my blood for just under 40 years. I decided to come into the financial world to change it for the better because, for me, innovation is a means to improve the state of affairs for people, including financial wellness. From 2018, I was asked to set up and lead Fintech Scotland as a new organisation. This allowed me to use my experience of working in big companies, like Barclays, as well as small, innovative financial companies, and bring all these experts together to develop a cluster focused on genuine innovation using new technologies – which is precisely what Fintech is. And while fintech itself is not new, what has changed in the last 10 years or so is, firstly, an acceleration of the type of technology that can be applied, and secondly, the mindset of focusing on technology as a way of bringing about better outcomes for individuals, businesses and communities. 

 

What makes fintech in Scotland stand out?

At FinTech Scotland, we are focused on the actual impact of the outcomes of innovation on consumers, whether that’s around issues like financial inclusion, financial crime or operational improvements for large financial firms. The FinTech Scotland cluster is about bringing people together who would not naturally do so, to drive better outcomes. Diversity is the key ingredient here. Scotland, albeit small, has a heritage of innovation, and brings together major players, bigger and smaller enterprises, and great universities. What’s crucial to our success is, rather than a narrow focus on Scotland, we see ourselves as part of the broader UK ecosystem. I happen to be one of the founders of the UK FinTech national network and believe strongly, therefore, in the value of working in collaboration with our other regional fintech groups, rather than in competition. 

 

What emerging trends and technologies do you think will have the most significant impact on the financial sector, both in Scotland and beyond?

What’s most exciting is the way that the cluster approach allows us to cut through the financial world into horizontal sectors of other parts of the economy. So, for example, fintech can work with SpaceTech, HealthTech and ClimateTech. I have a little saying, that fintech is far too important to leave up to the financial services industry on its own. After 40 years in the industry, I can say that we’ve not always got things right. To improve on this we need more diverse minds around the table, for instance, consumer groups impacted by the innovation. We need to listen to the users themselves, not those who think they know what’s best.

 

Winning an OBE is a significant achievement. How do you plan to leverage this recognition to inspire and contribute to the fintech community in Scotland? 

Hopefully it will encourage more people who wouldn’t normally have thought of fintech to actually reach out and get involved. Of course, I’m very humbled by the recognition, but it wouldn’t have happened if it wasn’t for the enablement of the three Teams’: the wonderful team at FinTech Scotland; the Scottish fintech cluster team (comprised of entrepreneurs, established industry players, academics, economic agencies like Scottish Enterprise, and investor and consumer groups); and the UK team including industry, regional fintech associations, Innovate UK, the FCA, the Centre for Finance Innovation and Technology (CFIT) and Innovate Finance amongst others. This is a great example of the whole being greater than the parts. By joining up with the UK as a whole we can recognise bigger ambitions and achieve more success for the Scottish cluster as a whole.

 

Can you share a memorable success story or milestone in your fintech career that you’re proud of and exemplifies your contributions to fintech?

FinTech Scotland winning the silver cluster excellent accreditation from the European Secretariat for Cluster Accreditation was an important recognition that we’re on the right track to what we are trying to achieve. Alongside that, we’re hosting the third annual UK FinTech Symposium this November, which engages the whole of the UK ecosystem, including UK government ministers, the FCA, the City of London, as well as all of the regional fintech groups, to share examples of best practice and how to build on that as a family

Personally, my motivation has come from meeting so many brilliant entrepreneurs who are inspired about improving some aspects of the financial world, whether that’s in terms of how people manage their money, through to payments mechanisms or handling new regulations. With the right mindset and the right technology, I believe things can be made better. 

Joe Strummer, lead singer of the Clash, once said, “The future is unwritten”, because it is up to each one of us to break out and write our own future. Ultimately, there will always be room for improvement and, therefore, always room for innovation – and that will always be fintech, even if it is called punk rock.



Scotland FinTech Festival Wrap-Up: Unlocking answers through comprehensive understanding

Following the conclusion of this year’s successful Scotland Fintech Festival, we spoke to Nicola Anderson, CEO of FinTech Scotland, to find out what her key takeaways of the festival were, and how she sees it demonstrating the importance of the FinTech Research and Innovation Roadmap’ in guiding the industry’s priorities.

Nicola Anderson, CEO of FinTech Scotland, is of the firm view that fintech is supremely poised to solve some of the most pressing challenges we have in society today, from driving change on the climate agenda, to embracing the opportunity that fintech can provide for women and financial inclusion in general. “The breadth and quality of contributions across the full range of festival events has been amazing,” Anderson comments. “The purpose of the Scotland Fintech Festival has always been about definitively showing the vibrancy, connection, collaboration, and the inclusion that we see fintech presenting as an opportunity for the economy in Scotland and across the UK – and I think the festival has demonstrated that.”

Anderson is encouraged that the festival has promoted the interests of fintechs based in Scotland by helping reignite relationships and networks, allowing participants to hear different perspectives and views. “If you look at some of the speakers and across the events, they are from both UK-wide and global institutions. This shows how connected the Scottish fintech cluster continues to be across the world, and how interested people are in coming to hear what we have to say,” she points out. The festival aims to shine a light on fintech innovation and the opportunity that fintech presents for Scotland’s economy. This sentiment was further strengthened by the launch of a new £150 million Investment Fund for Scotland by the British Business Bank to help unlock additional funding to help smaller businesses to prosper and thrive. 

“We’ve experienced purposeful action plans coming from the meetings and discussions across the Fintech Festival,” says Anderson. She provides a couple of examples, including the Scottish government’s drive behind an action plan that will enable fintech for exports. In addition, the focus of discussions on the impact of data and AI on the future of finance and climate. This demonstrates that the FinTech Research and Innovation Roadmap’ is the right vehicle to advance innovation in the financial services sector. It calls on the importance of data, AI and technologies to drive change and innovation.

Anderson also feels that the UK is starting to realise the benefits from some of the recommendations outlined in the Kalifa Review. This is shown through the relationships FinTech Scotland has created with the Centre for Finance, Innovation and Technology (CFIT) around work on finance data, as well as the team behind the UK FinTech Growth Fund involved and participating at the Festival showcasing investment opportunities. “It emphasises how important it is to connect the regions as per the Kalifa Review,” she notes.

What should the Scottish FinTech sector focus on next? “We have an opportunity to drive growth by focusing on those fintechs that are starting to scale,” she underlines. “We also need to focus on continuing to build relationships across the financial services ecosystem and cluster towards an inclusive environment that allows participation and collaboration between big and small entities, as well as connecting internal experts and inviting international perspectives to help us develop and grow.” In fact, there was great international representation across the festival involving delegations from China, as well as sessions focusing on the markets in the US.

“This year’s festival was a great success, and it underlines why I continue to be inspired to work at FinTech Scotland,” she concluded. “It’s about business growth, problem solving, collaboration, and innovation with purposeful intent. And most importantly, it’s about driving responsible change and outcomes that will serve society, and the future economy.”

Navigating the Future: The UK’s Competitive Edge in Fintech Regulation and Innovation

“The UK has a strong competitive advantage in areas like cybersecurity, privacy and, increasingly, artificial intelligence. A lot of work, however, remains to be done. This is not an automatic process by any means,” outlines Dr Devraj Basu, Senior Lecturer in Finance in the Accounting and Finance department at the Strathclyde Business School. Basu helped set up the RegTech Forum which brings together industry, academia and government to help understand the fast moving RegTech landscape and how Scotland and the UK can position themselves to become leading global players.

“While the UK has well established strengths, it needs to pull together all these very different areas by creating an ecosystem solution,” he continues. Basu feels that if the UK provides a proper regulatory framework in the context of technology it will provide a greater impetus in unlocking innovation. A stable regulatory framework is also needed to adapt to technological change to ensure it’s fit for consumers – AI being a prime example. But the UK needs to simultaneously join up with international best practice as well. “These elements require a deep understanding of all the issues, as well as an aspect of agility to bring together all the different stakeholders,” he says.

Regarding the appetite of UK regulators towards the development of overarching digital public infrastructures (such as the so-called India Stack’ built on Aadhaar, India’s digital ID system), Basu believes that the UK can learn from establishing digital identities, preferably through the creation of an overarching framework for privacy regulations. However, the parallels stop there. This is because the UK would, unlike India, have to tackle its legacy technology issues. Further, the UK’s Financial Conduct Authority (FCA) can only play a limited role in transforming legacy infrastructure because rather than dishing out prescriptive directions to industry, the FCA is a principles-based regulator which can only outline overarching maxims.

In terms of innovating financial regulation itself, Basu feels that the UK has done the right thing by introducing regulatory sandboxes. Moreover, he feels strongly that the FCA should start looking at the costs that regulations impose on businesses and how they can be minimised. This could be achieved by implementing a by design’ philosophy by providing either high-level roadmaps that minimise cost or interactive processes that lead to better regulation. “One way of being innovative is if the regulator could convince organisations that the adoption of new regulations would actually improve products or sales. One thing that’s come out of our RegTech Forum is this notion of the by design’ philosophy, which takes a proactive view on regulation, which in turn encourages innovation,” Basu explains. “Ideally a regulator should be a body that guides businesses through a process and helps them get better.”



A £250 Billion Opportunity: How fintechs can lead the charge in greening UK homes for Net Zero

One of the newer startups of the Scottish fintech ecosystem, Snugg, is dedicated to making energy efficient homes simple and affordable for everyone. Co-founder Robin Peters spoke to us about his concept of climate finance and challenges, as well as his recommendations for fintech companies entering the space.

In the UK, homes make up a fifth of total carbon emissions, and it is estimated £250 billion pounds of investment is needed to make homes energy efficient if we’re to hit our net zero objective by 2045. To get there, the private sector will have to play a significant role in support of that. While investment in large infrastructure projects, such as wind farms, are supported by quite mature financial vehicles, there has been very little progress in innovative finance solutions for homeowners. 

“One of the key challenges is that investment related to decarbonising homes is generally quite expensive and intrusive. And frankly, the investment case often isn’t very attractive to people,” points out Peters. “So it’s quite a difficult nut to crack, but also extremely important.”

Climate finance plays an important role in tackling this challenge because it brings together different elements of the private sector to underpin finance initiatives to help the world achieve its net zero ambition. The goal is to not only direct investment into getting projects off the ground, but it’s also about helping financial services customers to invest in climate-positive activities. 

Yet there are a number of barriers that need to be overcome, including the need for more consistent government policy around green incentives, and the fact that general consumers have got to want this more. Further, there needs to be more integration across the supply chain. “People need things to be made simple for better take-up of the pro-climate incentives that are on offer,” explained Peters. “There should be a deeper alignment amongst the different providers across the supply chain, for example, between a trusted installer, the financial provider, manufacturers and the government.”

The financial sector now also has an opportunity to pave the way more seamlessly. Firstly, they can put all their data to more intelligent use by targeting personalised initiatives and engaging with customers in a more meaningful way. Secondly, there is scope for innovation in green financial products, such as pay-as-you-go (where people can repay loans based on savings they have achieved from making their homes more energy efficient) or property-linked finance (where a loan is linked to a house rather than a person). Peters notes a slight degree of reluctance in the financial sector at present, yet he is optimistic that in the future there will be better auditing of banks to assess whether financial products are truly delivering. 

 

His top  three recommendations to Scotland’s fintechs wanting to incorporate climate concerns into offering?:

  1. Focus on the data: There’s a lot of data out there that can be improved and interrogated for better insights
  2. See the opportunity: A perception shift is needed to see that this is an opportunity for real innovation. There’s a huge investment opportunity for financial services, yet patience is needed as banks can be particularly slow in adopting truly new innovations
  3. Collaborate: It’s an incredibly dynamic market which literally needs to grow by a factor of ten in the next 4-5 years. There’s also an enormous amount of innovation, and sharing different ideas with emerging players and other participants will help come up with the best solutions for the market.

Defining Climate Finance

Kirsteen Harrison, the Environment & Sustainability Advisor at the digital-assets platform, Zumo, is a stubborn optimist with a fierce conviction that businesses should be a force for good. As such, she works with leaders to facilitate the mindset shift required for businesses to thrive in a net zero future. 

She notes that the term climate finance’ is a multifaceted concept, which in her view, may be used as an all-encompassing term and often gets confused with green or sustainable finance. “Climate finance has been specifically defined by the United Nations Framework Convention on Climate Change (UNFCCC) as finance for climate mitigation, adaptation or resilience,” Harrison explains. “To me it also includes generally enabling and delivering  flows of climate finance to the parts of the world where it’s needed most.”

To support the flow of climate finance, financial institutions are having to establish transition plans that show not only how they will meet their own net zero targets, but to ensure financial flows actually shift towards supporting decarbonisation. This requirement has not quite yet filtered down to most fintechs. Harrison cautions that the requirement for fintechs to consider the financed emissions they are facilitating will arrive sooner than they think, and that the pace towards transition will move extremely quickly and not in a linear fashion. “I think as businesses, we tend to look at past events and timelines as a way to predict what might happen in the future. And with climate change we cannot do that, that is actually quite a dangerous thing to do,” cautions Harrison. “In terms of evolution, I think it is going to be much faster than we are used to seeing. Not only is that needed, it’s to be encouraged.” 

Harrison also believes that improvements to ESG investing need to be made. She acknowledges that while this is a fast-evolving landscape and there is rightly a fear of greenwashing, there is nevertheless a much higher burden put on ESG investing. “ESG investments rightly need to prove that they meet certain criteria through data, whereas non-ESG investment does not.”

She has confidence, however, that blockchain technology will be a true enabler for delivering climate finance. Because blockchain provides an immutable ledger, it can ensure that finance is delivered to the points it actually needs to be delivered to, which is especially important for jurisdictions lacking in good governance structures. Blockchain can also play an important role in supporting the role of quality carbon credits and renewable energy certificates (RECs) by avoiding legacy issues such as double counting.  

Harrison has three main pieces of advice for fintechs wanting to incorporate climate finance into their offerings:

  1. Do it authentically: Rather than simply launching a green product, sustainability principles need to be embedded in your business alongside credible net zero commitments.
  2. Stay two steps ahead: Because we’re working within such a rapidly changing landscape, planning needs to determine what might be needed in three, five or seven years’ time, or risk quickly becoming out of date. 
  3. Be mindful of financed emissions: A big part of the carbon footprint of the financial industry is financed emissions’,  which are the greenhouse gas emissions linked to investment and lending activities. Fintechs need to very carefully consider how their work might be impacting financed emissions, and, if necessary, pivot and support climate-friendly choices and investments instead. 

Awareness is key. Ultimately, fintechs need to take responsibility for the impact that investment decisions can have on harming the environment, as well as the impact that they as technology providers might have on affecting the system as a whole for the greater good. In doing so, they will attract and retain new talent, increase trust in their brand and prepare themselves for the fast-evolving sustainability disclosures landscape.