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Fintech opportunities to reach $12 trln by 2030

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By Nicole Phinopoulou

There are two major trends that will continue to affect the international economic scene in the coming years, excluding the new balances created by Russia’s invasion of Ukraine.

One concerns the application of technology in every aspect of the economy and the other is the role that Sustainable Development Goals (SDG) now have in the business and investment decision-making process.

The combination of these two trends can play a crucial role in achieving the implementation of sustainable economic models, which will transform the global economy, much faster.

A United Nations study has shown that implementing sustainable economic models could create opportunities worth $12 trln a year by 2030. Towards this direction, the role of technology will be catalytic.

Technology solutions such as data analytics, blockchain, artificial intelligence and fintech in general, can help businesses evaluate and reduce their environmental impact (carbon footprint) and guide investors to channel their funds towards more sustainable projects.

Achieving the UN Sustainable Development Goals (17 SDGs) also requires funding, which is a major challenge. The connection between the economic model’s digitisation and the achievement of sustainability is a “sine qua non” (interconnected) and their intersection should be precisely defined as soon as possible.

The term “Green Fintech” must me put in the right context, as per the UN Task Force on Digital Financing Goals.

Although traditional banking institutions have begun to incorporate the sustainability factor into their loan products, these still make up only a small percentage of their total lending. Respectively, the so-called “green bonds” constitute only 1% of the total debt issuance (loan products).

The opportunities that technology creates in the financial sector are truly unlimited.

Solutions such as Big Data, machine learning, artificial intelligence and cloud computing, facilitate and accelerate low-cost decision-making in the financial sector.

Similarly, digital trading platforms, either between individuals (P2P) or for mass transactions, allow fast financing transactions without the need for traditional bank accounts.

New capital debt sources

All these create new investment opportunities for lenders and stakeholders as well as new capital debt sources for borrowers.

Furthermore, blockchain technology has already created new data in transactions through the activation of smart contracts, which, inter alia, allow the automatic execution of transactions under certain conditions, without the need for a third party mediation, thus significantly reducing costs.

In addition, the so-called Internet of Things (IoT) enables the activation of intelligent computers that perform non-routine tasks. The technological possibilities are therefore unlimited.

According to a recent research by the Sustainable Digital Finance Alliance, “today’s digitalisation of financing is already delivering financing for the SDGs. The DNA of digital finance – more and better data on risks and impacts, cheaper and wider accessibility of financial services, and innovative products and services – is already being harnessed to finance the SDGs.”

Digital banking could potentially add $4.2 trln in deposits, $2.1 trln in new credit and lead to 90% reduced transaction costs compared to traditional transactions. In addition, it is estimated that by 2025, about 10% of the world’s GDP will be stored on blockchain.

So, it becomes very clear that if a part of this perspective is directed towards sustainable development, the change will be radical.

Digital financing can increase the potential of the productive forces of the economy through more efficient supply chains, reduced costs, calculation of environmental risks and opportunities, but also through effective implementation of policies, regulations and standards. Given, of course, that the utilisation of technological financial solutions is combined with the achievement of sustainable development.

Collective ambition, innovation, and perseverance from everyone involved, financial institutions, politicians, decision-makers and the citizens themselves, is therefore required.

The potential of digital disruption to shape the traditional way of financing and give a boost to sustainable development was recorded in detail in the report “People’s Money: Harnessing Digitalisation to Finance a Sustainable Future”, under the auspices of the United Nations. I will analyse these findings in a subsequent article.

Nicole K. Phinopoulou is a lawyer, banking and financial services, LLB. LLM. LPC, CISL, University of Cambridge