Luca Borella (Financial Economist), Awa Paola Thiam (Writer)
We are on the verge of a revolution.
So many changes are coming our way that it’s difficult to keep track. To keep up with the latest innovations, one has to 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.
And 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?”
He told me 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.
It has resulted in hundreds of thousands of trees 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.
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 the PSD2 APIs we have aren’t enough for such use cases. Doconomy expects a much greater level of detail for each transaction.”
For instance, one of the key proxies Luca told me about is the Merchant Category Code (MCC).
MCC is a four-digit number that denotes the type of business providing a service or selling merchandise.
These numbers are used by card issuers to categorize, track, or restrict specific types of purchases.
The flow isn’t simple but, in short, Doconomy can:
- Identify the merchant by retracing the MCC
- Cross-reference the information with data in the Åland Index (a climate impact index)
- Calculate the average CO2 emissions per euro paid to the merchant
- Notify users and inform them of their consumption OR
- 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 track
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, and he immediately jumped into a passionate explanation.
The Open Bank Project (OBP) already enables banks to share customer data with Fintechs and Startups (consent permitting) in a fast and secure manner.
So he decided to exemplify this concept by considering a fictional partnership between Bank A and Fintech B.
To start with, Bank A uses OBP middleware to communicate with Fintech B and needs to set up a few features:
- 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 “Bank A’s keeping-up-with-the-Paris-agreement program card”.
- Add the ‘MCC’ attribute to the ‘Merchant’ entity (aka Counterparty in OBP). This can be done by using the Add Counterparty More Info API.
- Create a new View (called say “CO2”) to share only anonymised and relevant transactional data with Fintech B. This can be done by using Create View API and allows Fintech B to calculate CO2 emissions without having complete access to sensitive information.
- Create a Consent on the CO2 view for the account which can be shared with Fintech B.
Now, each time a transaction is initiated by a merchant, the following happens:
- Bank A transmits the relevant filtered information to Fintech B.
- Fintech B uses the merchant’s information stored in the card’s transactional metadata to get the MCC.
- Then, Fintech B enriches the information by translating the MCC and goods into a carbon score.
- Eventually, Fintech B then posts the enriched information and the score back into the transactional metadata by using Add a Comment API. This information will serve as a log for the user, Bank A and Fintech B. In fact, transactional data in OBP can be easily enriched with tags and even images.
- Bank A 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.
The technology should also be highly customisable.
Each financial institution has different needs and must determine what fits best with its business needs and IT systems before taking action.
But how does a bank take the first step? It’s simple: Ask.
Ask a trusted technology provider for a consultation.
In fact, if you would like to know more, you can go ahead and send us a quick message – we would be happy to chat.
Moreover, if you want to read more about Open Bank Project and Tesobe’s initiatives in this space, check out the recent partnership with the Energy Efficient Mortgage Initiative here.