Technology has been a major disruptive force in the financial sector during the last decade. Mobile-supported financial applications have empowered a world of immediate and cashless transactions, reshaping the financial landscape. Around the globe, fintech is creating a more accessible and agile financial framework.
Amid this revolution, a movement focused on ethical fintech has emerged. Seeking transparency, fairness, and inclusivity, devotees of ethical fintech have launched a wide range of initiatives to ensure the fintech industry applies ethical principles and social responsibility to fintech development.
Using fintech to address financial inequality
“Financial inequality is a huge issue in the global financial landscape that ethical fintech seeks to address,” says Patrick Gruhn, founder of Perpetuals.com, a MIFID II Market Infrastructure startup for Crypto Derivatives Trading. “Lack of access to financial services frustrates business development in various areas, from developing countries to rural areas to low-income communities. By providing alternative access points for financial services, fintech fosters greater financial equality.”
Micro-lending platforms are an example of how fintech is being applied to extend the accessibility of working capital. Kiva Microfunds, which crowd-funds loans to borrowers worldwide through its fintech platform, is an example of this. While Kiva extends loans to those often rejected by the traditional banking system, it has experienced a 96 percent repayment rate on the more than $2 billion worth of loans it has facilitated.
“M-Pesa is another micro-lending platform that also offers a mobile phone-based money transfer service,” Gruhn says. “It illustrates the goals of ethical fintech by providing a highly accessible service whose fees are considerably lower than those of conventional providers.” According to a report published by the World Bank, the money transfer service M-Pesa offers to users in Kenya is 27 percent cheaper than similar services offered by the country’s postal service and 68 percent cheaper than another major national service provider.
Neobanks are another fintech innovation driving higher levels of financial equality by providing a more affordable alternative to traditional financial institutions. They are quasi-banks operating exclusively online, lowering costs by eliminating the overhead associated with brick-and-mortar institutions. By eliminating fees associated with ATM transactions and online bill paying, neobanks help users have greater financial agility and buying power.
Balancing fraud detection and consumer protection
“Fraud prevention is another key focus of ethical fintech that seeks to increase consumer protection in the financial space by encouraging the creation of systems designed to identify and prevent unauthorized transactions, identity theft, and other fraudulent activities,” says Gruhn. “By creating a more secure financial system, ethical fintech also seeks to build greater trust among consumers.”
The deployment of artificial intelligence (AI) in the financial sector has created tension in the ethical fintech space. AI can enhance fraud prevention by empowering real-time threat analysis and prevention. However, it also introduces the potential for AI-driven biases that can threaten equality and reduce trust.
“Ethical fintech promotes higher levels of transparency and accountability to balance protection and equality,” Gruhn says. “If institutions use AI-driven analytics to assess eligibility and establish credit ratings, transparent frameworks should be established to ensure fairness. Focusing on explainability in AI development ensures users know how decisions are made and the potential for bias.”
As the ethical fintech movement continues to mature, creating a universal regulatory framework is one challenge that must be addressed. Industry standards, whether regulated or self-imposed, should focus on ensuring data is kept private and used in ethical, transparent ways. The ongoing development and application of AI in the fintech space is a factor that should be closely tracked and carefully considered as part of the regulatory process.
Prioritizing sustainable development
The explosive growth of technology development and production has triggered several environmental concerns. For instance, the short lifespan of tech products raises concerns over e-waste and introducing toxic materials to the environment. Increased energy consumption is another major concern associated with the ever-growing use of technology tools.
“Ethical fintech addresses the environmental threat posed by technology and other sustainability issues,” Gruhn explains. “Promoting corporate social responsibility is a critical component of ethical fintech. It strongly encourages practices like ethical sourcing and fair labor practices in fintech development and production.”
Ethical fintech also seeks to drive higher levels of sustainability through consumer awareness and education. Fintech applications provide a far-reaching forum for alerting consumers to the impact of their financial activity and guiding them toward practices that support sustainability. By improving financial literacy, ethical fintech empowers consumers to understand their options and to make financial decisions that align with their values.
Fintech leverages technology to bring a wide range of innovations to consumers, making financial services more accessible, affordable, and equitable. Ethical fintech initiatives seek to ensure those innovations don’t result in an overall negative impact on society. As both consumers and developers embrace the goals of ethical fintech, they can work together to create a secure and empowering financial future.
