How fintech start-ups are driving the ethical finance revolution

The average UK consumer has a lot going on right now – with the cost-of-living crunch, rising inflation and eye-watering prices, focusing on the environmental, social and governance (ESG) activities of the companies they use to manage their finances may just be the last thing on their mind.

Does being ‘ethical’ mean companies or consumers have to compromise?

But does being ‘ethical’ mean having to compromise? Some fintech start-ups don’t think so.

Broadly speaking, ‘ethical finance’ refers to selecting firms or services that focus on doing good for the planet and society – in line with ESG investing and being “socially responsible”. With climate change on the rise, recent years have seen these terms gain more spotlight in news and discussions.

Fintech start-ups have taken to the trend as well, with a number of ethical fintech start-ups cropping up across the globe.

FinTech Futures spoke to some of these fintech companies operating in the UK to learn more about their modus operandi and why they believe ethical finance is the way forward.

Ethical banking

One fintech which brands itself as an ‘ethical challenger’ is Algbra. For the start-up, ethical finance is built not only within its product offerings, but also in the way it operates as an organisation.

Algbra has built its own values and ethics policy, which boils down to using customer funds in a positive way, and not investing them in industries that carry a negative impact on society – for example – tobacco and gambling.

“We make all our key partners sign up to that values and ethics policy,” says Fizel Nejabat, Algbra’s co-founder and COO. “So what that means from a customer perspective, is when you’ve got your money with Algbra, as opposed to a high street bank, know that your money isn’t contributing to any of those industries.

“And for a lot of people that peace of mind is extremely important and lacking in our climate.”

Algbra bills itself as an ethical challenger

The challenger is also Shariah-compliant, catering to underserved Muslims in the UK, and also offers carbon offsetting on its mobile app. In the next few weeks, it will also be launching a new donation feature which will allow users to donate to up to 100 different charities straight from the app.

Founded in 2020 and based in London, the challenger launched towards the end of 2022 after around 18 months of development.

“The main thing we spent a lot of time working on is making sure that we can choose the right partners to work with to be able to say we’re not funding or we’re not getting involved in any other institutions that might lend your money out to unethical industries,” Nejabat explains.

“That was tough. It wasn’t just a matter of contracting, we had to build out a whole new set of technology to make that happen.

“But it’s technology that gives us the flexibility to choose who we work with and how we work with them and therefore it is providing the cast iron guarantee in that respect.”

Bringing the ethical to debt resolution

Founded in 2019 and headquartered in London, Ophelos describes itself as “a new kind of debt resolution company, one with a social purpose and mission – putting people and their well-being first”.

Amon Ghaiumy, co-founder and CEO of Ophelos, believes there is a huge void in the debt collection industry, with little to no innovation seen in the past 20 years.

“In my previous roles, I saw first-hand how underinvested and underdeveloped debt collection departments and agencies are,” Ghaiumy remarks, “and how much strain that caused to customers who were in debt, and who are oftentimes facing the most difficult of situations”.

“Also, from an operational perspective, I could see the internal inefficiencies at large enterprises.”

Ophelos was built to balance both sides – to not only provide a better experience for the customer, but also to make the process of debt collection more efficient for businesses.

The way Ophelos works is through partnering with businesses and engaging directly with customers who fall behind on payments. The ethical element lies in the way Ophelos communicates with its customers.

Ophelos is an ethical debt collection platform

“We use machine learning to determine what is the best communication method for each individual customer, including details such as the tone of voice, time of day and preferred day of the week,” Ghaiumy says, highlighting that the firm’s process is very different from what traditional companies normally go for – a “one-size-fits-all” approach.

The second aspect of the platform is that it allows customers to self-serve and set up the “right type” of payment that works for them, with options to pay upfront or schedule payments as and when they see fit.

Ophelos also leverages open banking technology to gauge customers’ potentials for affordability, and ultimately help them understand how much they can really afford.

The platform, Ghaiumy adds, also utilises natural language processing to help it pick up potential vulnerabilities in communication.

“It is an industry where we’ve seen a lot of predatory and hostile behaviour in the past by other players,” Ghaiumy says. “And for us, it’s key that we change the way customers see the space and interact with us throughout this journey.”

On the other side of the lending spectrum lies Plend, which bills itself as an ethical consumer lender.

A partner of Ophelos, Plend was launched in July last year in a bid to provide affordable loans to people in the UK who struggle to gain access to credit.

Plend says its mission is to “rebuild the outdated and backward credit system, which discriminates against applicants based on historic and limited data rather than what someone can truly afford”.

The start-up also makes use of open banking to develop an “accurate picture” of customers’ true financial position and use a “fairer way” of assessing creditworthiness to provide loans tailored to an individual’s needs.

In November 2022, Plend landed £40 million in a seed funding round. Last month, it tapped GoCardless for its variable recurring payments (VRP) solution, which will allow its customers to change their payment schedule to suit their financial circumstances and offer instant payment confirmation.

The path ahead

With all of the start-ups mentioned above launching with funding in hand, all three firms seem set on the path towards growth, with a focus on hiring the right kind of talent and onboarding partners that share similar mindsets and values.

“For us, it’s about building our product,” says Ghaiumy. “Ophelos is currently building the right foundations for an organisation that is hopefully going to be around for a very long time.”

That brings us back to the question – is ethical finance here for the long run, and does it mean having to compromise?

“Ethical finance is fantastic, but it has to be as good as or better than the alternative,” says Nejabat. “You can’t blackmail customers with a poor product by saying it’s good for the environment.

“At Algbra, we have built our product in the best of the competition, yet still aligned with our values and true to everything that we do.”