Week 10 Dr Jia (Lucy) Lu

Fintech and [email protected]

Sustainable Finance
At the end of this session, you will be able to:
 Understand sustainability with ESG ;
 Discuss sustainable finance and Fintech; and
 Analyse the relationship between fintech and
sustainable finance, particular on mobile payment,
blockchain and AI and their applications.
Reading List:

 Muhammad, K., Chen, P.L., Saif, U. and Mubasher, Z. (2023) Evaluating the
Influence of Financial Technology (Fintech) on Sustainable Finance: A
Comprehensive Global Analysis. Financial Markets and Portfolio
Management. 12 91), pp.1-33.
 Cristina, C.V. and Luis, F.A. (2021) Fintech and sustainability: Do They Affect
Each Other? Sustainability. 13 (13), pp.1-19.
 Starks, L.T. (2023) Presidential Address: Sustainable Finance and ESG Issues –
Value versus Values. The Journal of Finance, 78 (4), pp. 1837-1872.
 Coverage

Sustainability
Sustainable Finance
Fintech
Fintech and
Sustainable Finance
Sustainability means meeting our own needs
without compromising the ability of future
generations to meet their own needs. In
addition to natural resources, we also need
social and economic resources. Sustainability
is not just environmentalism.

Sustainability
The Oxford Dictionary of English defines
sustainability as: "the property of being
environmentally sustainable; the degree to
which a process or enterprise is able to be
maintained or continued while avoiding the
long-term depletion of natural resources"
 Environmental – pollution,
carbon emissions, climate
change, deforestation.

 Social – customer service,

employee turnover, community
engagement.

 Governance – management
and control of the organisation
(management, board,
shareholders).
 Sustainable Finance
 Financial investments and funding encouraging sustainable
development by creating measurable integrated benefits across
economic, social, and environmental aspects.

 The notion of sustainable finance has emerged as a significant

concept in promoting eco-friendly growth and achieving
worldwide sustainability objectives.

 Sustainable finance that includes economic, social, and

environmental sustainability considerations in financial and
investment decision-making (The European Commission 2021).
ESG investing can be important to both investors focused
on socially responsible investments and traditional (i.e.,
financially oriented) investors.

Source: Starks (2023)

This figure illustrates the full spectrum of investment
approaches and the relation of each to investors’ preferences
and financial value considerations.

Source: Starks (2023)

Panel C adds to the Venn diagram the expected return
expectations of the different investment approaches.

Source: Starks (2023)

 Fintech is a key driver “for financial
development, inclusion, social stability,
and integrity, and consequential
sustainable development through
building an infrastructure for an
innovative digital financial ecosystem”
(Cristina and Luis, 2021).

Fintech and Technology plays an integral part in

Sustainable the realm of sustainable finance by
Finance providing investors with increased
security and transparency, as well as
improved visibility. This is how FinTech
advances the sustainability agenda and
enhances the quality of life for those in
need (Muhammad et al., 2023).
(Muhammad et al., 2023).
GL (globalization), IQ (institutional quality), SEC (social and economic condition),
and REP (renewable energy) are control factors.
• FinTech – a contraction of “finance” and
“technology” is the use of technology in
the financial services industry resulting in
the introduction of new and innovative
products and services, which provide
modern technology solutions to financial
services companies.

• The utilization of technological

advancements within the financial sector
that can transform financial services by
creating a novel or altering current
business models, applications,
procedures, and offerings.
Source: The Outlook for the Global Fintech Industry, 2022
Source: CBinsights Fintech Report, 2021
How FinTechs
can cause
Sustainable
Finance?
Mobile Payment
Source: Maximize Market Research, 2022.
 In 2022, mobile wallets accounted for roughly half of global e-commerce
payment transaction.

 Estimates are that out of approximately 2.8 billion mobile wallets in use
worldwide, nearly half were in Asia-pacific alone e.g., China, India and
Southeast Asia.

Source: Top countries in the world with the most real-time payments (RTP) in
2022, Statista, 2003
 Mobile Payment in China - Digital
money over hard cash

 In 2022, around 911 million people

used mobile payments in China. After
the growth rate of new users began to
taper off after 2017, the outbreak of
COVID-19 caused an influx of many
new users.

 Two companies have completely

changed commerce in China. Alibaba
and Tencent are the two main
providers of mobile payments in the
country with their platforms WeChat
Pay and Alipay.
 WeChat Pay:
How it
works in
China?

https://www.youtube.com/
watch?v=bIPUMdEckiQ
 The Impact of Mobile Payment
 many discussions between researchers and business
practitioners have emphasized the importance of mobile
payment (Kim, Mirusmonov and Lee, 2010; Lee, Ryu and
Lee, 2019; Mallat, 2007; Liu, Ben and Zhang, 2019).

 an important influence in e-commerce and mobile commerce

 promote and encourage changes in terms of service, especially
person-to-person transfer (P2P).
 especially important for developing countries.
Blockchain Technology
 Uses cryptography to Forms the basis of
An electronic
process and verify Bitcoin and also serves
distributed ledger
transactions in a other
technology (DLT).
ledger. cryptocurrencies.

Cryptography – a
branch of
mathematics and
provide security
services.

https://www.youtube.com/watch?v=27nS3p2i_3g
The size of the blockchain technology market
worldwide from 2016-2021 (in million USD)

Source: Statista, 2021

Characteristics of Blockchain?
 no central database or central authority.
Decentralized
and transparent  users are able to check on any transaction that
has taken place at any time on the blockchain.

 all participants share and update the ledger

after reaching a consensus.
Consensus-driven
 agreeing on the validity of transactions taking
place.

 once data is added to the blockchain, it cannot

be altered.
Immutable
 this is done via the use of particular
cryptographic techniques.
International Payments
 Blockchain provides a way to securely and efficiently create a tamper-proof log
of sensitive activity.
Artificial Intelligence
 AI-Enabled
Automation
 It allows a financial institution to
improve the speed and efficiency,
and it can service a very large
number of customers.

 It significantly reduce operational

costs and may at the same time
improve users’ experiences.

 The ability of a growing number of

fintech firms to deliver ‘straight
through processing’ experiences
that significantly speed traditional
processing times.
 AI-Enabled Improved
Decision-Making
 It gives financial institutions the
capability to incorporate much broader
and less structured sets of data into their
analytics processes, theoretically
enabling significantly improved foresight.

 AI-enabled strategies focused on

improved decision-making are likely to
be particularly relevant for organizations
that compete on performance metrics
that are easily measurable, such as
investment returns compared to the
market.
AI-Enabled Customization

 It enables financial institutions to

break the trade-off, theoretically
enabling the deployment of fully
personalized financial products
services at zero marginal cost
once a system is in place.

 It enables customization is likely

to be most valuable for financial
institutions where customer
acquisition or retention can be
significantly improved.
 AI application
 Wealth and Asset Management
 Automation
 rote customer management and compliance processes;
 automate large portions of the quantitative modelling processes
 Many fund managers are seeking to use AI-enabled strategies to
improve the investment decisions.
 using sophisticated machine learning and deep learning – build
“active portfolios”; and deliver active investing return characteristics
 Aberdeen Global AI Equity fund and BlackRock’s China A-Share
Opportunities Private Fund.
 Customization
 Robo-advisors focused on delivering asset advice and
allocation – tailor risk profile and pre-existing
investment.
 more customized portfolios, such as Clarity AI, which
helps allocate investors’ funds according to social
impact investing factors.
Payments

 The deployment of machine learning can recognize

suspicious behaviour against anti-money laundering
and financial crime.
 The deployment of machine can recognize
suspicious behaviour;
 reduces the number of false positive alerts; and
 Provide with ‘straight-through’ processing of the
transactions
HSBC delivers new
solution powered by
Google Cloud
(Fintech Finance
News, 06.04.2022)

HSBC delivers new

counterparty credit risk (CCR)
and derivative valuation
adjustment (XVA) engine with
in-house built analytics library
NOLA 2.0, powered by
Google Cloud. The cloud-native
risk management solution
boosts calculation speed 10x by
combining Graph Theory from
Mathematics and Dataflow
Elastic compute from Google
Cloud.
 “We knew that a cloud-native solution
“We knew we needed to make changes to gave us the ability to scale and run at a
our internal processes, and we wanted to reduced cost. We did a proof of
build something using cutting-edge, cloud- concept using Google Cloud, and we
first technology,” said Faisal Yousaf, Global quickly realized that this could be very
Head of Treasury Risk Management & Risk successful,” said Dominic Williams,
Analytics at HSBC Global Head of Traded Risk Technology
at HSBC.
Future:
 the team plans to leverage its engagement with Google Cloud to
extend NOLA 2.0 beyond London and Hong Kong to 38 additional
sites.
 HSBC is also planning to work with Google Cloud to develop and
deploy additional technical solutions.
Thanks for Your Attention
 Week 11
Business Ethics