Paytech covers any technological innovation that changes the way we pay. Having delved into some of the environmental considerations of payments, we now turn our attention to ethical payments.
ESG continues to be a ‘buzz term’ for the fintech and payment sectors. But beyond promises to ensure high standards, many fintechs simply do not do enough – whether that is because they lack the knowledge, the funds or another factor.
But how exactly should fintechs ensure change? To find out, we asked several fintech experts industry ‘What more can fintechs do to ensure their payment procedures are ethical?’
‘Being transparent is key’
Virginijus Doveika, CEO of SME BANK, emphasises the need for enhanced transparency across the global fintech sector: “Ethical sustainability must be a company’s essence, including its payment procedures. Fintechs have made progress, but they need to keep improving.
“Ethical payment procedures revolve around unassailable transparency, data security, and overall cybersecurity, fostering unbreakable client trust in the integrity of their data and transaction fairness.
“Boosting cybersecurity and offering good customer support can strengthen this trust. Advocating for standardised regulations can also instigate industry-wide ethical consistency. Being transparent is key to avoiding false claims and truly earning trust.”
Fintechs should ‘safeguard customer data responsibly’
As Raman Korneu, CEO and co-founder of digital banking platform myTU, explains: “To make payment procedures more ethical, fintech companies can take several steps.
“First, they should follow the rules and laws related to data protection, consumer rights, and fraud prevention. It’s crucial to stay updated on any changes in these regulations. Second, they need to safeguard customer data responsibly, in line with regulations like GDPR, ensuring secure handling.
“Additionally, fintech firms should be mindful of the businesses they serve. They can choose not to work with industries considered unethical, such as tobacco, weapons, gambling or fossil fuels.
“Many fintech companies use AI for tasks like fraud detection and credit scoring. It’s important to ensure these algorithms are fair and transparent. Unethical algorithms can harm vulnerable individuals, offering high-cost loans or causing inconvenience by blocking legitimate transactions or freezing accounts.
“Fintechs should also educate their customers about potential risks, fraud prevention, and responsible service usage.
“Innovative ideas to enhance ethical practices could include inviting hackers to test payment systems’ security and ethical integrity, as well as rewarding those who find vulnerabilities. Real-time alerts can inform users about ethical issues, like over-indebtedness or high-risk investments. Fintech apps can also incorporate game-based tools to educate users on financial literacy and ethical choices, offering rewards for completing courses or making responsible financial decisions.”
‘Two key strategies’
Monika Liikamaa, co-founder and co-CEO of the Finland-based embedded finance fintech Enfuce, discusses the individual roles fintechs, regulators and investors can play in enhancing ethical standards of fintech payment procedures: “Enhancing the ethical standards of fintech payment procedures requires a multi-faceted approach that involves two key strategies.
“Firstly, strengthening audits and compliance measures to ensure that processes align with ethical guidelines and industry standards; and secondly, emphasising peer pressure and community standards to build accountability and a culture of shared responsibility.
“By openly highlighting and rewarding ethical behaviour while outing and condemning any unethical conduct, the industry can foster an environment where ethical practices are not only expected but celebrated.
“Finally, investors can also play a pivotal role in promoting ethical practices by conducting thorough due diligence before investing in fintech companies, and by prioritising ethical considerations and only supporting businesses with robust ethical frameworks.”
‘An ideal environment for fraudsters and criminals’
Claire Rowley, head of business operations for The Global LEI Foundation, also explained: “The cross-border payments ecosystem is highly complex, spanning national borders and jurisdictions and involving multiple financial institutions and legal entities.
“This provides an ideal environment for fraudsters and criminals to spin intricate webs to obfuscate money laundering and terrorist financing activity.
“In response, fintechs are subject to increasingly stringent anti-money laundering (AML) and counter-terrorist financing (CTF) requirements. Yet fragmentation limits the effectiveness of these initiatives, as the data currently used by fintechs to detect and monitor suspicious financial flows is not standardised or readily consumable and shareable. This inhibits collaboration and drastically limits the capacity to expose complex, global criminal networks.
“Harmonising cross-border data flows to overcome these ongoing challenges is an increasingly urgent priority for fintechs and other industry stakeholders. The Financial Action Task Force, for example, has identified data-sharing, data standardisation, and advanced analytics as underpinning effective AML and CTF initiatives across borders.
“This has important implications for the Legal Entity Identifier (LEI). As the only established universal entity identifier globally, the LEI is uniquely positioned to play a foundational role in the fight against financial crime. When the LEI is added as a data attribute in payment messages, any originator or beneficiary legal entity can be precisely, instantly, and automatically identified across borders to bolster efforts to tackle financial crime.
“In view of a broad industry consensus, integrating the LEI data – a free, global and open dataset – into payment procedures and surveillance tools – offers one simple way for fintechs to counter financial crime and, ultimately, help to ensure that cross-border payments are more ethical.”