Can open banking help with sustainability credentials?
Open banking can help financial institutions build sustainability offerings for customers, it has been suggested, at a time when many stakeholders are putting pressure on their banks, lenders and investment groups to be more green.
In its essence, open banking is the process of sharing customer’s banking data by opening up application programming interfaces (APIs) with third parties. It connects banks with technical providers.
Open banking has many benefits for lenders, indulging peer-to-peer lending platforms, such as the ability to better asses the affordability of borrowers using real-time data. It can help reduce fraud, through the confirmation of payees, and create a smoother process for customers.
Read more: Is open banking making waves in P2P?
In the opinion of Tasha Chouhan, UK and IE banking lead at open banking platform Tink, open banking can also aid organisations in their sustainability journey.
“Open banking has a vital role to play in helping financial institutions build a strong sustainability offering for customers,” she said. “For example, by aggregating, categorising and analysing transactions with open banking, customer data can be linked to carbon footprint analysis and consumers can know the environmental impact of their spending.”
Other open banking industry stakeholders agree. Mark Boyd, who runs API consultancy Platformable, has put together a report on using open banking to build green fintech.
According to the Platformable report, “green APIs expose specific sustainability-focused functionalities or data, and coupled with bank or fintech APIs can allow more innovative products to be built. Energy switching functionalities, carbon accounting algorithms, and ESG data aggregation services are examples of green APIs that can be consumed by fintech to create sustainability impacts”.
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There are already some examples in the market of such innovative products.
KBC, for example, offers green energy and bicycle loans APIs. Both allow merchants to offer in-store or online credit to customers, therefore encouraging sustainable energy investments, as well as a change in transportation modes for consumers.
There could even be applications used to help link loan terms to environmental, social and governance conditions – a practice becoming more prevalent in the private debt world – or APIs that enable investors to have a greater say in how their money is invested, such as Tumelo.
“Tink’s research shows that consumers today expect strong environmental credentials from their financial services providers,” Tink’s Chouhan said.
“Younger generations in particular are embracing open banking powered services that give them greater control over their environmental footprint. Many are even willing to switch providers to seek out greener options.
“Financial services providers without sustainability offerings run the risk of losing business, by failing to meet the expectations of a new generation of climate-conscious consumers.”
Read more: What P2P platforms are doing to meet ESG goals
