The bank of the future. Sustainable finance and why it’s needed
German fintech Tomorrow Bank is aiming to turn finance green. In an industry with high barriers to entry, can it succeed?
Your savings account is funding climate change
No, this is not some clickbait, anarchist headline.
In spite of a concerted effort to be greener – shopping local, shunning single-use plastic etc – most of us overlook the money sitting in our bank accounts. Money which banks use to invest, return a profit and pay interest (well…they used to).
Sound like a sweet deal? Perhaps. Except your money may be supporting unsustainable companies. Banks’ interests may not align with our individual values.
For example, since the signing of the Paris Agreement in 2015, major banks have invested £1.2t (~$1.6t) into fossil fuels, such as coal, oil and gas. 1,200,000,000,000. That’s a lot of 0s. To put that figure in perspective, £1.2t would be enough to double solar energy capacity globally.
But, before you turn your back on banks entirely and start hoarding cash under your mattress, there may be an alternative:
*Tomorrow Bank has joined the chat*
Banking shouldn’t cost the earth
Tomorrow Bank was founded on the principle that banking can be a force for good. Rather than investing in nefarious companies, Tomorrow funds renewable energies, green initiatives and other socially desirable enterprises.
And there’s more. Interchange fees – 0.2% charges levied against the seller when a customer pays by card – are also put to good use. For every euro spent using a Tomorrow Card, 1 square metre of rainforest is protected (>70 million square metres to date). Each purchase helps safeguard the future of our planet. Consumerism never felt so fulfilling.
Trade-off between growth and good
I love the idea of protecting the rainforest from an environmental point of view. But, there is a big question mark over whether it may hinder company growth.
Banks must ultimately make money to deliver competitive interest rates, provide better services, fund innovation etc. Allocating interchange fees, a reliable source of income, to non-profit-making initiatives sacrifices some of this.
At present, it would be more beneficial to apportion this money to growth. Customer acquisition should be the priority. The equation is simple: more customers = a more meaningful long-term impact.
Another restriction for would-be customers is the range of services available in comparison to what traditional financial services provide. Customers may be reluctant to switch to Tomorrow if that means foregoing services they rely on. Again, if Tomorrow Bank were to reinvest profits into expanding their product offerings, customers would be more likely to join.
Trailing in the wake of the digital-only wave
Other challenger banks, such as Starling, Monzo and Revolut, have managed to attract large customer bases in a short space of time: 800k, 4m and 7m users respectively. With only 40k customers to its name, Tomorrow is seriously lagging behind.
Most challenger banks, however, are used for secondary services (such as spending abroad, splitting bills), so it may not be their fairest of comparisons. For example, only 20% of customers use Monzo exclusively. Tomorrow, on the other hand, differs in that it sees itself as a complete substitute to these banks, not merely offering one or two additional services. Still, even bearing this in mind, the numbers don’t stack up favourably.
If only banks were more responsible…
Tomorrow faces a daunting task. Well-established institutions can’t be supplanted overnight.
Let’s be clear: the big banks aren’t going anywhere. No matter how many scandals they are caught up in, people will continue to demand their services (Bitcoiners don’t @ me).
That doesn’t mean change can’t happen. But why does the banking revolution have to come from the outside?
Perhaps Tomorrow Bank will provide the wakeup call for the much-maligned banks to be the drivers of change themselves. With their enormous reach and customer bases, even tentative steps towards more sustainable investing will have more impact on the planet than Tomorrow Bank, which is just a drop in the ocean in comparison.
Tomorrow’s assertion that money must be part of the solution is correct. For the moment, however, Tomorrow is simply too small to leave a mark on the finance industry.
Dear Editor,
Great read. Thank you for sharing and informing the less-informed. That’s a great point about the big boys pivoting into sustainable investment. There seem to be lots of sustainable fintechs starting up in any case.
Best,
Thomas
Viva Sustainable Growth