Exactly how ethical is fintech? One could argue that an industry is only as ethical as the people within it, but it’s not quite as simple as that. What structures exist in fintech to lay out ethics, regulate behaviours, and push for better? Our Features Editor Sophie Camp looks at how modern ethics applies to fintech, how important adaptability over time is, and in what way the industry has been able to successfully apply them.
Ethical agents within fintech
So maybe it’s not as simple as saying ‘an industry is only as ethical as the people within it’. But that’s certainly a quick way to establish the willingness of an industry to do something about its ethical backbone. There’s two way to look at the ethical willingness within the industry itself:
- Companies created to be ethical
There are fintech companies out there whose entire existence depends on solving an ethical issue. They come from a desire to maintain ethics at their core. MoneeMint, for example, has dubbed itself ‘the UK and Europe’s first completely digital ethical bank’. Niyah is a UK Islamic fintech providing bank accounts that are sharia law compliant. As they told Railsbank: “…that’s not to say that Islamic banking cannot be accessed by non-Muslims. It can, and the bigger Islamic banks in the UK in fact have a majority of customers who are non-Muslims.” That’s because, no matter whether they come from religious or personal ethics, people like the fact that their money won’t be invested in things such as weapons, pornography, alcohol or drugs.
- Companies doing ethical things
GoHenry – a fitnech providing cards and accounts for under 18s and their parents – has created a card which is 82% composed of bio-sourced renewable materials from field corn, which can degrade within six months. It’s not that they weren’t an ethical company to begin with, but they went to extra effort to add something ethically minded alongside their central core purpose of providing bank accounts for young people.
Industry regulation and ethics
What do authorities within fintech do to uphold ethics in the industry? The slight problem here is that fintech is made up of private companies. Whilst working closely with regulators and dealing with sensitive information, there are different rules applied in different geographies and to different subsections of the large fintech umbrella. A few example of global initiatives include the Association of Indonesian Financial Technology (Aftech) which has launched a code of conduct for peer-to-peer lending fintechs. Australian AFIA Online Small Business Lenders Code of Lending Practice has created a code to improve ethical behaviour in small business lending fintechs. UK Finance, in partnership with Linklaters, has created an ‘Ethics in Banking and Finance’ online guide for banks that it hopes is taken up by fintech companies as well as traditional banking.
The state of fintech regulation in general requires a whole different article, but this is about ethics. In as much as one can set up rules and regulations around ethics, this is something that the industry needs to fold into its regulatory structure. How much further could it go?
Ethics and the next generation
The next generation are ethically minded to a degree not expected from their predecessors. According to this CB Insights report: ‘More than any other generation, millennials are interested in the idea that their investments will have a positive global impact when it comes to sustainability and climate change’.
Ethics do change from generation to generation. At their heart they’re not very different, but where a previous generation may have turned a blind eye, or believed in a gray scale, it’s becoming increasingly clear that newer generations will not. Millennials and Gen Z are going to feel very differently about their banks, the way they operate, and their ethical impact than their parents did, and certainly their grandparents. This has a lot to do with choice. After all, perhaps the ethical banking movement would have unfolded earlier if consumers had the choice with their purchasing power.
Whatever the reasons are, it’s clear that millennials and Gen Z are going to feel differently about the way their banks operate. This is the perfect opportunity for fintech companies to differentiate themselves.
How does fintech compare to banking?
Banking doesn’t have a storied history of ethical behaviour. But is fintech more ethical than traditional banking?
This question alludes back to my initial point: is the ethics of an industry simply a total sum of all of the ethics of the people and company involved?
Fintech is not ‘inherently’ more ethical than traditional banking, it’s all to do with the people and the structures that make it up. And fintech has one driver that banking hasn’t had (until fintech’s emergence): customers can go elsewhere. Companies require trust from customers due to the sensitive nature of the information they share with them, and if they decide to leave because of unethical behaviour, the company can simply not survive. That knowledge, combined with the upcoming generation of ethically minded millennials, means that if fintech’s don’t play the ethical game, they might just die.