All About Blockchain

Fintech -> Key Driver to Sustainability | Thomas Puschmann

The UBRI Podcast from Ripple Season 3 Episode 7

How does Fintech and blockchain drive the economy toward more sustainable development?

A conversation with Dr. Thomas Puschmann, Director of Swiss FinTech Innovation Lab, University of Zurich. He has studied hundreds of global start-ups focused on  sustainability and financial technology,  providing solutions for environmental, social and governance topics. We  identify major trends in the financial sector future and discuss how the FinTech revolution plays a major factor in driving our sustainable development goals.  



Lauren Weymouth (00:00):

 I'm Lauren Weymouth, director at Ripple, which is a global FinTech company. I don't often talk about Ripple on the show, but given our topic today is about digital finance revolution and its effect on sustainability. How the financial sector is key for all economic activities, from payment infrastructures to directing capital and offering investment opportunities. Ripple is central to this. Since inception, we've understood the potential of crypto to transform the global financial system from changing the way money moves across the globe through near instant payment settlement, to the way we borrow and loan money through DeFi platforms. And the finance sector invests in companies that have high impact on sustainability. We're waking up to the need for green initiatives that move the world in a more sustainable direction. Now, arguably, there are many drivers to reaching sustainable development goals.
For one, we're focusing on recovering from the pay pandemic and generating breakthroughs in collaboration. Companies race to become carbon neutral. We're using stimulus money that is green to kickstart environmental renewals, not polluting industries. Governments are incentivizing taxes based on cleaner versus to dirtier fuels. we're putting price tags on unrecycled plastics and other landfill behavior. There's so much to do here. And today we'll focus on novel approaches and sustainability driven by financial technology. Joining us is Dr. Thomas Puschmann from the department of banking and finance at University of Switzerland.

We were actually set to record this together in Ripple's San Francisco headquarters, but COVID thwarted that appointment. Like so many other events in our lives, we're talking remotely. Thomas has spent decades at the nexus of tech and business and founded the Swiss FinTech Innovation Lab. One of the first FinTech research labs worldwide. He has always been a pioneer. He brought the first local government in Germany online in the early 1990s and introduced the internet at Siemens. I've had the pleasure of spending time with him when he is stateside as a visiting scholar at Stanford. I'm excited to share his work with you. Welcome Thomas.

Thomas Puschmann (02:03): Thank you very much, Lauren, for your kind introduction and also for having me. It's a great, great pleasure. And I still remember the two of us sitting in, San Francisco and discussing our new research program on sustainable digital finance. Which evolved at that time as an entirely new research field, at Stanford. it was an ex- exciting year there, as the sustainability topic, more and more converge with the FinTech domain. I must say the topic has evolved con- constantly, and I'm enthusiastic now about this. As I see that there is at least as much potential in this field, like there was in the web in its early days. Where we were programing the first websites for, as you mentioned, the local governments in Germany, and also some businesses in the early 1990s.

So both the hardware and the software at that time was rather limited. So we used acoustics couplers to dine into the web, which were able to transfer 9,600 bits per second. That were really pioneer times. If you look at the effort now that you have to undertake, for example, to access important environmental data from satellites or other things, it gives you a glimpse of what lies ahead of us. So I think we are almost at the same moment in time that we were many years ago now with a totally different topic. So I'm really looking forward to it.

Lauren Weymouth (03:26):

Starting at the beginning, for those who are not familiar with the term FinTech or financial technology, can you give us a quick overview of what this term means, what's encompassed by this?

Thomas Puschmann (03:36):

Yeah. The term FinTech is a contraction of financial and technology. And what's most probably first mentioned in the early 1990s by Citicorps's chairman, John Reed, in the context of a newly founded smart card forum consortium. Which focused on standardizing at that time chip based personal cards in partnership with some 60 partner firms. This consortium, based approach is in sharp contrast to what the banking industry has done before, where, every financial institution was developing its own solution. So it was more of a collaborative approach. And that is exactly what we are seeing as a core component also of two today's FinTech approaches. This means that as an umbrella term, FinTech encompasses innovative financial solutions enabled by IT. And in addition, it is often also used for startup companies,  who deliver those solutions. it's more of an institutional, view with the startups and it also has some kind of a functional view, which covers, solutions in payments, in financing and also in, in investments. The well known, examples are  cryptocurrency payments or peer to peer lending, robo advisors and so on.

Lauren Weymouth (04:51):

it sounds like you've been following it for over 20 years, what other changes have you seen throughout the decades?

Thomas Puschmann (04:56):

Well, if you look at the industry right now, um, it is reported that we have around 20,000 or even more of, of such startups in that field. when I look back to, um, 2008, 2009, when we launched one of the first banking IT innovation awards in the German speaking area,  by the way, Finovate was held 2007 for the first time in New, New York City. So that was also very  early. Most of the solutions at that time was, that were submitted to this award were centered around payments. So it was very much focused on peer to peer payments, group payments. Over the time, then the, the wealth tech area emerged with online portfolio  optimization robo advisors, social banking, and, and so on. then we saw the, the financing field, which grew as a third domain with firms that focused on online credits and, areas like buy now, pay, pay later, something that we are currently seeing also. only since about 2017 then, we saw the insure tech field, joining. the FinTech club those were applications like, pay as you drive in the auto insurance field or demand insurances. and more recently, DeFi, decentralized finance came around as a fifth area, which covers every, everything. which we  already touched, but, is really focusing on disintemediating all these new approaches. very much focusing on peer to peer transaction.  so this is an, an entirely new crypto or currency or oriented infrastructure we are seeing there which is evolving around, all digital currencies and coins and involves new roads like wallet providers, exchanges, mining services, hardware providers, custody providers, and many, many more. it's kinda an  evolution that we could see over those five phases within the timeframe of like 15 years or, so.

Lauren Weymouth (06:51):

We can really hear the key elements on how it impacts all economic activities. Now, Thomas, your LinkedIn profile says digital shaper, Switzerland, can you explain that to us?

Thomas Puschmann (07:04):

(laughs). So every year the Swiss monthly issued mag- magazine, which is called Balance,  together with, digitalswitzerland, which is the Swiss digitalization association that comprises most of the firms and public organization and universities in Switzerland, elect the top 100, digital shapers which fostered digitalization and innovation in Switzerland. and also in internationally. And, they're focusing on, on different categories. they're awarding corporates, investors and also, thinkers from universities. I was elected to that, category in 2020. that's, something that you get invited to (laughs).

Lauren Weymouth (07:47):

Awesome. All right. So now that we've laid the groundwork, tell us how FinTech and blockchain cryptocurrency drive the economy toward more sustainable development.

Thomas Puschmann (07:57):

So if you look at the financial system, which is currently being transformed, by FinTech and sustainability in parallel, which we can explore and observe all over the globe, I believe that FinTech can be a catalyst for sustainability. Let me give you an example for that, in the 2015, Paris climate agreement, the international community agreed to limit global warming to well below two degrees celsius compared to the preindustrial level. And agreed on a set of,  some binding rules for implementation, and more than 190 countries, support this. So to comply with these, below two degree limit, significant structural emissions reductions are necessary in a global end level. And in order to achieve this global emissions must be half by 2050. and this requires a comprehensive decarbonization process for entire economies on a global scale.

But if you look at the global fuel reserves known today that contain approximately 2,800  gigatonnes of carbon of which 1,541 gigatonnes are in the balance sheets of listed companies assets. however, the remaining emissions budgets that we have to achieve that, Paris goals, is around 900 gigatonnes by 2050. With only around 75 gigatonnes  remaining for the second half of this century. So this results in really a substantial carbon risk for investors and asset owner which is often term as the carbon bubble, stranded assets or transformation risks.

And I think this example also shows that the financial system plays a major role for sustainability. However, one of the major challenges of sustainable finance is the availability of data which can in most cases only be uncovered by the use of technology. And, we can see that innovative startups therefore include the sustainable development goals as a core component in their pre-business models, which is in contrast to the incumbent firms. the idea that a business activity can result in financial, social and environmental benefits without any profit compromise is absolutely in line of what we are seeing here in terms of sustainability.

  Lauren Weymouth (10:22):

All right. So some inventions have materialized in the market, startups that are commercializing, what are some of your favorite examples that are helping to achieve the sustainable development goals of the UN?

Thomas Puschmann (10:35):

So we looked at 126 startups in a recent analysis and, uh, came up with some really in- interesting examples, uh, in the most important industries. So if you look in financial services more specifically, that is of course impacting  investment. people can invest in companies that are sustainable.  for that, of course you need data in order to verify if a company is really sustainable, which requires either the right data or certified intermediaries. A second field there is financing solutions for sustainability projects of all kinds, such as solar projects in developing countries or even in western countries. Another example is a marketplace that brings together startups and investors or investment community to dedicated to renewable energy investing and sustainable energy solutions. Or think of risk management solutions,  for the evaluation of sustainability risks.

if you go into other industries like the energy sector, we also have touch points where the financial services sector can really play a big role. so the energy industry is responsible for around 70% of all greenhouse gas emissions  and therefore has a huge impact. if you look for example at digital platforms, for electric vehicle charging on a marketplace that directly connect companies with green energy producers as well as energy trading platform that allows selling and buying renewable energy these are examples that are very important there. And also require financial services for payments and all other functions as a core component. Or think of emissions trading which currently evolves as an important instrument also for which blockchains hold promising potentials. Today this market is mainly focused on big industrial emitters of carbon pollution due to the high transaction costs

if you could use blockchain for that and can reduce the transaction costs, for example, combining blockchain solutions with IOT and automating the analysis of  pollution levels,  this would really bring us forward, or, think of the SME segment.  the expansion to smaller companies would also increase the reach of carbon trading if we would put that on blockchains. a third field or sector is governments which are also very strong involved in that field.  if you think of entrepreneurship and investing in many countries, the achievement of the sustainability development goals is currently being connected to this field. For example, the Swiss Entrepreneurship Program focuses on supporting innovation  ecosystems in other countries by using FinTech rather than by providing only money for self development. I think this is also an important field. and think of public funding schemes or blended finance that could also be fostered by FinTech, initiatives. That's all, I, I think this is also an important field. financial inclusion, X if we go away from the green FinTech is also very important and also has some kind of connections here. if you think of agricultural supply chains that allow farmers in some countries for more sophisticated financing solutions, and connections to the unbanked, I think this is an important last mile application there.  so there are many, many examples around, not only in the financial sector, but also in many other industries which have connections to it.

Lauren Weymouth (14:19):

Well, thank you for sharing these current initiatives that are helping innovation and fostering green FinTech. You have conducted literature review on hundreds of academic papers, as well as analyzed hundreds of startups in this field and developed an agenda. Can you talk about the platform you are building?

Thomas Puschmann (
14:35):

So what we are currently working on is establishing a more global platform as we were in the beginning, more focusing on the Swiss initiatives. we think that the momentum for this is really great. also having a partnership with, Stanford University, as they are just recently launched the new school of sustainability. With this platform, then we aim at integrating the innovation value chain between academia, public and private organizations, by bridging ideation for new ideas, acceleration, and also incubation by focusing on three major pillars here.

So one is clearly on research. That is something we are strong for years. The other is more focused on creating impact as we can't just stop, on the research side as the borders between academic research and innovation and impact really blur. also to bring entrepreneurs and other visionaries to gather over this platform to discuss this new ideas and also to crowdsource new ideas. And finally of course education is also something that is very important.

Lauren Weymouth (15
:46):
Now, you mentioned partnership with Stanford sustainability project. Are there other partners that you're incorporating into this?

Thomas Puschmann (15:52):
Yeah, we are also talking to other relevant stakeholders from the ecosystem, like financial institutions, for example, and as other  visionaries.  It is planned to launch that by next year and really to come up with a more global platform for this new topic then.

Lauren Weymouth (16:12):
Now you recently ran a global sustainable digital finance forum, I'm sure you invited these stakeholders and parties to that. What were the highlights addressed?

Thomas Puschmann (6
:20):
That was really a fantastic event. It featured speakers from Oxford University and from MIT as well as from some public and private organizations.  and the discussions were centered around the before mentioned questions of how can we ensure and standardize the data, more reliable data for sustainability, reporting and evaluating firms. and that was one of the key questions, really. we also invited applications for the first innovation award in this field and award two firms here. One was Globalance Bank, is one of the world's oldest banks in this category which was founded already back in 1995. They came up with  an novel approach to analyze investment portfolios for their climate in impact hazard in the degree. So you can just share your portfolio with them and you can then see what it really means for  the Paris Agreement, which is really good. The second winner was a startup called Corentics, that develop supply chain finance risk solutions, which allows users to determine real time risks based on real time data. And we're also holding their conference again in 2022. 

Lauren Weymouth (17:33):
How do you go about encouraging startups that have sustainability, digital and finance as part of their business model?

Thomas Puschmann (17:39):
this is also part of the platform that we are currently building what we saw in our analysis was from these more than 20,000 FinTech startups, only a few of them are really,  incorporating these sustainability  development goals. So this is an emerging field. So for this, I think it's very important to really demonstrate that its holding great potentials for them. And as a startup if you are focusing on FinTech, that was something which was I think very successful over the past years also to receive funding from, the venture capitalist. if you now combine that with the question of how you can address a sustainability, I think it will be even more easy. If you look at the European Commission, for example, that really is putting that into the place. Focusing on digitalization and on green finance for the next decade. I think there is plenty of room for innovation here.

Lauren Weymouth (18
:37):
That's great. This might be too big of a question, but I, I wonder it myself because there seems to be so much out there to invest in when it comes to us all trying to overcome global challenges, how can the listener contribute to steering private capital towards overcoming global challenges? How can we weed through all the options out there with startups that, you know, there's Kickstarter and Republic and, and avenues to invest in a lot of these green technologies what would you recommend?

Thomas Puschmann (19
:05):

Well, of course we can all contribute to become more sustainable in our daily lives.  So there are tools out there already, which allow you to analyze your spending behavior, whether this is sustainable or not. And these tools also give you recommendations of what you could improve. for example, if your energy  provider is sustainable. If your food that, that you buy is sustainable or your clothes or anything. So this is something which is really good, where you can just have a first analysis. Then of course starting investing in firms, something where you can also become more  sustainable in the future. Clearly there are applications around, which allow you to more precisely invest in really those firms that are more sustainable than other ones. 

Lauren Weymouth (19:56): You're talking about actively being more conscious about the brands that we buy into and support knowing their behaviors and whether or not they're sustainable.

Thomas Puschmann (20:02):
... Right. Yeah.

Lauren Weymouth (20:03):
And then also making investments in funds that support sustainable companies or practices.

Thomas Puschmann (20:10):
Yeah. Yes.

Lauren Weymouth (20:12):
Got it.

Thomas Puschmann (20:14):
Yeah. It could also be, like credits. there are some so-called green credit, possibilities around now. So there are different options now, so that you really good use. Yeah.

Lauren Weymouth (20:26):
So Thomas, we're on the verge of 2022, what's next for you and the Swiss FinTech Innovation Lab?

Thomas Puschmann (
20:32):

So I think, talking to some other stakeholders that are relevant in this field and to extend our platform to become more global. I think it's very important now. There are some activities out of Switzerland as well, G20 tech sprint, for example, for central banks that was on green FinTech just recently. It is also planned to expand that. the green FinTech network, was co-founded also together with the Swiss government is also something we wanna extend and also position internationally. So there are many avenues right now, which we are exploring. but I think most importantly, staying with the topic itself, because it has just started.

Lauren Weymouth (21
:14):
Is there anything else you wanted to share with us today?

Thomas Puschmann (21:17):
Thank you very much, Lauren. It was a great pleasure.

Lauren Weymouth (21:20):
Okay. Well, where can our listeners learn more about what you're doing?

Thomas Puschmann (21:23):
On swissfintechinnovationlab.ch. On that website, you can learn everything about our research and also about our projects. And of course you can reach out to me in person via,  email or phone, whatever you'll like. I'm very happy to answer every question.

Lauren Weymouth (21:41):

So glad to hear you're open. Thomas you've studied hundreds of global startups focused on this sustainability and financial technology, providing solutions for environmental, social, and government topics to identify major trends in the financial sector future. We enjoyed hosting you on UBRI's podcast, All About Blockchain. And thank you for your work on impact. Listeners, thanks for giving us your time today and continue giving feedback to my ubri@ripple.com email. If you have any questions about this episode or feedback for new episodes, please reach out. Until next time.