Luca Borella (Financial Economist), Dylan Thiam (Writer)
We are on the verge of a revolution.
Numerous changes are coming our way, making it difficult to keep track. To keep up with the latest innovations, one should participate in as many conferences and events as possible.
That’s exactly what my colleague Luca Borella, a Financial Economist, did when he decided to travel to Paris for the Fintech Forum 2020.
While there, he made a discovery that he had to share.
So, after we sank into the comfortable couches at the office, he told me about the first session he attended – “What is the future of financial services?”
The main topic was GreenTech.
Is GreenTech really that relevant to financial services?
The Ant Forest is embedded in China’s most popular mobile payment platform, Alipay, and is encouraging people to reduce their carbon footprint.
Low-carbon activities, such as biking and walking to work, earn you green energy points.
You can spend the points to grow a digital tree and, in parallel, the real tree is planted by Ant Forest. Users can also pool energy points together to plant larger trees.
As a result, hundreds of thousands of trees are being planted throughout China!
“I think this kind of gamification will help individuals adjust their consumption behaviour – and positively impact the environment,” Luca added.
The carbon footprint of every transaction
The next day, he learned about another interesting initiative, this time from Sweden: Doconomy.
Their mission is to trigger a behavioural change in consumers that will lead to lower CO2 emissions.
How does a fintech startup trigger a behavioural change to such a degree?
“Easy! With their innovative tool, you can limit your own consumption.”
They provide two types of cards:
- DO White is the standard credit card that helps users track, measure, and compensate their carbon footprint.
- DO Black, the premium service that provides users with a built-in CO2 emissions limit, creating the very foundation for conscious consumption.
BNP Paribas’ subsidiary Bank of the West is currently piloting their partnership with Doconomy in the US.
How do they do it?
Ok, but how exactly do they plan on tracking CO2 emissions through transactions? And is it going to come to Europe too?
“Well, Jean-Marc Chaudoreille (Head of Daily Banking for BNP Paribas International Retail Banking) points out that current PSD2 APIs have aren’t enough for such use cases. Indeed, Doconomy expects a much greater level of detail for each transaction.”
One of the key proxies Luca spoke about, for instance, is the Merchant Category Code (MCC).
MCC is a four-digit number that denotes the type of business providing a service or selling merchandise. Card issuers use these numbers to categorize, track, or restrict specific types of purchases.
The flow isn’t simple but, in short, Doconomy can:
1. Identify the merchant by retracing the MCC
2. Cross-reference the information with data in the Åland Index (a climate impact index)
3. Calculate the average CO2 emissions per euro paid to the merchant
4. Notify users and inform them of their consumption OR
5. Prevent the transaction from going through if the user reaches the carbon limit
“This certainly shows promise, but it can only become truly effective once the approach is adopted across the globe,” said Luca, clearly motivated by this idea.
How to set up Open Bank Project to track carbon emissions
What does this all mean on a technical level? How can you use APIs to pull this off?
Luca’s eyes lit up when I asked.
The Open Bank Project (OBP) already enables banks to share customer data with authorised Fintechs and Startups (consent permitting) by using a catalogue of APIs.
Keeping this in mind, he decided to provide an example of a fictional partnership between a bank and a fintech.
Firstly, the bank uses OBP middleware to communicate with the fintech and sets up a few features:
1. Create a new card product by using Create Product API, Product Attribute API, Create Card API and Create Card Attribute API. By doing so, a generalised OBP card can become the bank’s “keeping-up-with-the-Paris-agreement” card.
2. Add the ‘MCC’ attribute to the ‘Merchant’ entity (aka Counterparty in OBP). This can be done by using the Add Counterparty More Info API.
3. Create a new View (called say “CO2”) to share only anonymised and relevant transaction data with the fintech. This can be done by using Create View API and allows the fintech to calculate CO2 emissions without having complete access to sensitive information.
4. Create a Consent on the CO2 view for the account which can be shared with the fintech
What will the flow be?
Now, every time a merchant initiates a transaction, the following happens:
1. The bank transmits the relevant filtered information to the fintech.
2. The fintech company uses the merchant’s information stored in the card’s transactional metadata to get the MCC.
3. The fintech enriches the information by translating the MCC and goods into a carbon score.
4. The fintech posts the enriched information and the score back into the transactional metadata by using the Add a Comment API. This information will serve as a log for the user, the bank, and the fintech. In fact, users can easily enrich OBP transaction data with tags and even images.
5. The bank can now create aggregated, periodical insights for its end-users (e.g. monthly and /or peer comparison etc.) who are going to expect this kind of service from their bank.
Will your bank handle CO2 transactions too?
There is an urgent need for these kinds of use cases. We have to have our plan ready by the end of 2020, which is our deadline.
“Raising individual spending awareness is an effective and necessary approach,” Luca says. “But there’s an obstacle: a bank’s IT systems are scattered and inflexible by nature.”
It is better to regroup all information in a way that can be safely exposed to third parties.
Financial institutions should choose a solution that will enable them to store this enriched transactional data and share it by using private, standard, and developer-friendly APIs.
In addition, technology should also be highly customisable.
Each organisation has different needs and therefore must research, compare, and determine what aligns best with its business needs and IT systems before taking action.
Interested in the environment and how FinTech can contribute? Find more on Open Bank Project and TESOBE’s initiatives in this space by checking out our partnership with the Energy Efficient Mortgage Initiative here.