Ethics and finance … how do they align?

I was asked for an interview the other day by Sonya at Machinelab Venture and decided to say yes. It gives you a good view of me. So,here we go ...

Can you tell me a little about your background? 

I took a degree in Management Sciences and joined IBM way back when. After a while, I ended up focused on financial services with NCR, the ATM company. It made me realise you couldn’t deal with finance without understanding it, so I took a post-masters degree in finance and that was that. I was a financial technologist!

Then I was made redundant in 2002 and started some ideas. Networking in the evenings with bankers and technologists through the Financial Services Club, and writing about the future of banking and technology as a freelance consultant. Then, before I knew it, that was my job.

What inspired you to write your latest book, ‘Digital for Good – Stand for something…or you will fall?’

It is clear that there is a rising movement towards stakeholder capitalism, where business serves all communities – employees, customers, community, shareholders and society. This has been rising on the agenda for years, but has recently become an imperative because of the ESG – Environmental, Social and Governance – agenda.

It became clear to me that this is something important in FinTech when I walked into one FinTech firm who had a poster in the main entrance stating: “Do good for society and good for the planet”.

That really hit me in the face and made me realise that we could use finance and technology to make the world a better place. That’s what inspired the book, but then I realised that I couldn’t write the book on my own as it would sound like Chris Skinner preaching. That’s why I chose to invite friends from across the world to contribute and, with over twenty chapters provided by friends from the Americas, Europe, Asia and Africa, I think it’s a pretty balanced book.

Can you discuss some of the most promising developments in the fintech space that are contributing to social and environmental good?

There are many. My favourite is Ant Forest in China, which plants trees across the nation, and the Finnish bank Ålandsbanken, who are cleansing the Baltic seas. Both programmes work on the basis of the better your lifestyle seems, based on the way you pay, the more they can contribute to planting trees and cleaning the seas. More than this, they incentivize you to do this in a gaming format. That means the more environmentally friendly your payments behaviours, the more points you get. You can then see how you’re doing compared to your friends, and compete with them to get more green points. This is a fabulous idea.

How do you see the intersection of financial technology and social/environmental impact evolving in the coming years?

The key to finance and the social and environmental impact is funding. Financial firms fund fossil fuel firms, fracking and companies that impact our world and the call from those who oppose those investments is not to stop them. It’s to stop making new investments in fossil fuel projects.

After the Paris Accord of 2015, the world’s 60 largest banks invested $3.8 trillion in fossil fuels by 2021. That is destroying sustainability. More importantly, Just 100 companies responsible for 71% of global emissions, according to the Carbon Majors Report (pdf). That is destroying sustainability. Finally, and most importantly for me, is the fact that funding of firms that destroy our natural habitat is creating a mass extinction of animals. Seven out of ten animals have been wiped out since 1970, thanks to our destruction of their habitats. A clear example is palm oils. Palm oil has contributed to an estimated 5% of tropical deforestation in tropical areas. The fact that banks invest, fund, support and offer loans and a line of credit to these companies is what needs to change.

I’m not saying stop it. I’m saying stop any new activities. The challenge for the banks is that they make a good profit from lending to these firms. In Europe, the major banks make around 15% of their profits from lending to fossil fuel firms. It’s hard to change that culture when it’s making money but, my reply is: how do you price the extinction of humanity?

Do you think large institutions are less resistant now to digitally transforming themselves? Or do you still sense caution?

No, I think most institutions understand they have to change. They just don’t know how to it correctly.

It’s a statement I often make in my presentations, quoting Charles Darwin and the survival of species. Herbert Spencer said it was “the survival of the fittest”, but Darwin clarified: “it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself”.

The thing is, when we talk about change, what are we changing into? For many of the institutions I deal with, they realise they have to change – to digitally transform – but they just don’t know what they have to change into or how.

How can financial institutions leverage emerging technologies such as blockchain, artificial intelligence, and the internet of things to create new business models and drive innovation?

These are all vanity projects. Don’t bother investing in them if you haven’t already completed a digital transformation. A digital transformation means that you have digital at the core. There are no legacy systems or silo services. Everything has been consolidated, rationalised, and placed in the cloud. There’s a single view of the customer. If you haven’t got that structure, then any investment in new projects like AI will be wasted. Again, I often say, how can you be intelligent if your systems are dumb? Most old institutions have dumb data, spread around the organisation in silo structure with baronial barons. You need to sort that out first.

What are some of the ethical considerations that financial institutions and fintech companies should keep in mind as they develop and deploy new technologies and services?

It comes back to that question: are we making the world a better place? Is this something that’s good for my children and their children? Will my family benefit from this? During the financial crisis, a lot of people said that banks had lost their moral compass. In other words, profit was placed above purpose. My belief, as we move to stakeholder capitalism, is that purpose will be placed above profit.

What role do you see digital currencies such as Bitcoin and other cryptocurrencies playing in the future of the financial industry, and how can traditional financial institutions adapt to this new reality?

This is the theme of my next book, which can be summarised as the friction between centralised versus decentralised finance. An alternative view is the challenge of whether we want Central Bank Digital Currencies (CBDCs) or cryptocurrencies. I totally believe in a decentralised model, except when it fails and, boy oh boy, how many failures have we seen lately? TerraUSD, Luna, FTX, Celsius and more. But then we’ve also seen the failures of banaks. Signature Bank, Silicon Valley Bank and Credit Suisse. The former failed due to a lack of regulatory controls; the latter failed because of a lack of management controls. In other words, a centralised model or decentralised doesn’t necessarily work. So, what I believe in is hybrid finance, or HyFi for short. What is HyFi? The concept is that, if you lose your money, there has to be an authority who can help you to get it back. That’s an authority which could be the authority of the people, the worldwide web if you like, or it can be the authority of the government, such as the Federal Deposit Insurance Compensation (FDIC) scheme. Either way, for the important things in your life, there needs to be a backup. If you lose things, you need to be covered. In summary, I see a future where we can decentralise everyday things and centralise the important things. Just to qualify however, I’m not saying we centralise to a government. We can centralise to the network.

In fact, a key theme of the book is the friction of Libertarians versus the State. For many years, I’ve made clear that you cannot have money without government. The Libertarians always assume that when I say ‘government’, they think I mean the State, and I don’t. I mean governance. You need something in a financial system that protects you from losses. If that governance is the network of citizens worldwide, that’s just as good as the Federal Reserve.

What are some of the most important trends and developments that you anticipate shaping the future of the financial industry in the years to come, and how can businesses and consumers prepare for these changes?

The big thing is that everything is becoming invisible. Banking, payments, loans, credit and more will be built into everyday digital actions. Think of buy now, pay later. You won’t even have to think about those decisions in the future. It’s just a swipe left or swipe right. It’s just done based on pre-programmed parameters. I call it invisible finance, as I don’t like the phrase ‘embedded finance’.

Embedded is the view from inside the industry. How can we ‘embed’ this in the financial processes? I prefer ‘invisible’, as that has a more customer-centric view. How can we make this so easy for the customer that it’s invisible?

What that really means is that financial services, from investments to treasury to retail, becomes so easy it’s just like using electricity or getting water. It’s a utility.

Then, and this is the most critical point, how does it become an intelligent utility? How can we make this so informed that my financial provider is like a life guru? They inform me everyday of everything I need to know, without me having to swipe left or swipe right?

Intelligent finance that’s invisible is the future.

Chris, you began writing Captain Cake for your twins in 2020 – did you ever think you’d become an award-winning children’s book author?

Not at all. It’s a shock. But I just got fed up with reading very childish stories to children’s stories and realising there was little bridge in-between. So, I just started making up stories in the evenings and Captain Cake became the one my boys, who were four at the time, like the most. Then, I was lucky enough that my publisher liked the stories too and now we have five books out there.

The reason the published liked the books is it’s all about diversity, loyalty and teamwork, and my favourite character is Private Potato. She’s the lowest ranked member of the crew and, unlike the other members of the crew, she has no special powers but, without her, there would be no crew.

What has it been like, delving into fiction and writing for kids?

It’s fantastic. There’s nothing I love more than a good children’s book, and being with children is amazing. The strange thing is that, before I had my twin boys, that’s the last thing I would have said!

Are there any current projects you’re working on that you’d like to share with me?

I’m always working on new things. The two major areas I’ve mentioned – invisible finance and banking and the friction between centralised versus decentralised – but there are other things. I have a few ventures invested in, alongside being on the board of 11FS and an early investor in firms like Meniga. All of these things keep me busy. Meantime, I have to walk the dog …