Green Fintech: who are the B2C players offering sustainable financial alternatives?
The traditional financial system is strongly criticized today for its share of responsibility in global warming. According to a study conducted by Oxfam France, the carbon footprint of the major French banks represents nearly 8 times the greenhouse gas emissions of the whole country. At this rate, banks are leading us towards a warming of +4°C by 2100, far from the 1.5°C target recommended by scientists. By placing our savings into these banks, we, consumers, are indirectly participating in global warming.
Today, there is a real environmental awareness, and it is very strong among millenials — who represent 1.8 billion people worldwide — who are increasingly concerned and show a growing appetite for new financial solutions that are environmentally friendly and compatible with their commitments.
As BlackFin Tech’s mission is to shape the future of financial services, we cannot ignore such a deep trend. More importantly, we do have a responsibility to finance projects leading to a better future — and investing in fintech is clearly a way to make this happen. That is why we carefully observe emerging players that are trying to make banks and the financial ecosystem as a whole, work greener.
In this first part, we’ll dive into the world of B2C Green Fintech and see what their value propositions are for consumers. We found 3 main types of players: carbon trackers, green neobanks, and new investment platforms. This categorization gives an understanding of the typology of services on the market, however, some players can offer more than one service (for instance, green neobanks would also sometimes provide a carbon tracker or give impact investing recommendations). What is the market opportunity of these solutions? What challenges are they facing?
Carbon trackers — helping consumers to quantify and ultimately reduce their carbon footprint
Startups like Greenly or Doconomy started as B2C players, offering their services directly to consumers to help them track their carbon footprint. Thanks to PSD2, those fintechs can access consumers’ banking data and give a ‘climate scoring’ based on their shopping habits. The score calculation is based on the European taxonomy for sustainable activities and can be improved by users themselves. By automating the data gathering and processing, they can give real-time insights and help consumers reduce their carbon emissions.
However, as useful as these startups can be for their final users, it is difficult for them to find a viable business model as long as they are offered as a standalone product. That’s why some of them decided to add other features while others chose to switch to B2B or B2B2C.
For instance, Doconomy recently partnered with Mastercard to develop a solution that will give cardholders tools to measure and manage their spendings’ CO2 impact. The fintech also partnered with Klarna to give its customers carbon footprint insights. These players can be really valuable to other fintechs and financial institutions, by helping them to meet their millennial clients’ demands.
Other carbon trackers switched to a B2B model, as this can be a way to support stronger unit economics including better LTV/CAC ratios. Good examples include Carbo or Greenly that kept their initial B2C offer but also extended it to businesses. Carbo now offers a SaaS platform to SMEs, allowing them to assess their carbon balance. As ESG compliance is becoming increasingly important, from both a regulatory and a reputational point of view, there is a growing need for businesses to understand and control their carbon footprint.
Green neobanks — being a bank doesn’t necessarily mean polluting
In 2020, several green neobanks launched in France, among which Helios and Green Got. Their mottos are pretty straightforward: “let’s clean up pollution in banking”, “take the power back on your finance”. The idea is to make sure their users’ money is not going to finance dirty projects. With 13 million Millenials in France, it represents a potential market of 4 or 5 billion euros according to Green-Got CEO — and maybe 5x more in Europe.
These neobanks provide their customers with the same basic features other mainstream neobanks would offer, such as current account, IBAN, debit card, discount FX… but with some specificities. For instance, they offer wooden cards, provide ESG investment recommendations and invest a percentage of the interchange earned on transactions in carbon offsetting projects. In the case of Treecard, part of the interchange will be used to fund reforestation projects. Others can also give cashback on sustainable brands or help find new alternatives. London-based Novus for example provides its customers with a community of ethical brands.
The main challenge these players are facing lies in their unit economics. Classical neobanks such as Revolut, N26, or Monzo have shown that launching a B2C neobank is a hard thing to do. These three giants still struggle with profitability and for their business model to be sustainable in the long run. Hence their bet on volume and their necessity to grow fast and far. By limiting their market to a green audience, these new actors could effectively limit their market size and ability to grow sustainably. That said, we’re observing that green neobanks can benefit from their users’ strong commitment (which tends to lower CAC within their users’ communities), higher usage habits, and a maybe greater stickiness to their product. German green neobank Tomorrow — that just raised a €14m Series B — has 30% of its users choosing Tomorrow as their main account and receives about 2000€/customer on average on every single account.
Another challenge would be that the market is already getting crowded: there are more and more new green neobanks, which are already facing the threat that traditional neobanks and incumbents may add specific green offerings. For instance, Bunq — a dutch neobank created in 2012 that recently raised $228m at a $1.9b valuation in July 2021 — launched an “Easy Green” offer, giving individuals metal cards that plant trees as you spend. Another example would be Flowe, a green neobank launched in April 2020 by Italy’s Banca Mediolanum. However, we do believe consumers are sensitive to the ultimate goal of a green neobank : preventing their savings from being invested in projects generating CO2. As a result, a neobank that will manage to build a strong brand image and make their consumers understand what is the real point of a neobank — ensuring that all funds collected will be invested in positive impact projects — will be the ultimate leader.
New investment platforms — a way of actively supporting green projects
On the one hand, according to GSIA (Global Sustainable Investment Alliance), SRI assets represented $30tn in 2018 — a 34% increase in two years, and $35tn in 2020. It means that over a third of all professionally managed investments in North America, Japan, Australasia, and Europe are now targeting social or environmental goals. On the other hand, according to a 2017 study from Morgan Stanley, Millenials are twice as likely to invest in sustainable projects vs their older peers. Those two figures show the market potential of platforms that offer their users the opportunity to support green, sustainable and impactful projects.
The first generation of platforms, created before 2015, included crowdlending and crowdfunding for SMEs. Some were specialized in sustainability such as Lendosphere.com, a platform enabling individuals to invest in sustainable energy projects while others were more generalist: for instance, individuals going on Wiseed could invest in real estate as well as sustainable projects. However, their risk-return ratio was not always sustainable for investors.
A new wave of investment platforms emerged over the last 5 years: they allow individuals to invest in various kinds of ESG products: stocks, pension funds, trees, or even private equity & VC funds focused on impact investing. However, the competition is getting fiercer on the global investment apps landscape. Indeed, the Berlin-based company Trade Republic just raised $900m in a Series C round in May 2021. This kind of player could possibly offer green investment alternatives in the future — and they might not be affected by the same brand image issue neobanks would face.
For the 3 types of products we investigated, there is undoubtedly a market. Surprisingly though, it appears that users are not always the ones that were first expected. As reported in mind Fintech’s overview of the French market, the average user of Green neobanks is around 36 — obviously not belonging to the Millenial category anymore. In a few months, it is going to be interesting to know more about who are the people using these products and how they use them.
But before that, we’ll dig into B2B trends in Green Fintech, which is much more regulatory-driven than B2C.
