Sixty percent of consumers say their concerns about climate change have increased in the past two years (Bain & Company, 2024). Those concerns influence who they decide to bank with. Neobanks are well-positioned to take advantage in this environment.
Growing demand for environmentally responsible services also happens to be coupled with increasing regulatory pressure to report on carbon emissions. So, neobanks are turning to green initiatives to position their brand, stay ahead of regulators and gain a greater foothold in the market. Here’s how they’re doing it, and how you, too, can win on the green playing field.
Win Buyers’ Attention With Green Initiatives
Firstly, what counts as a “green initiative?”
We define it as businesses taking action to be more sustainable or to enable others to be more sustainable.
That might look like anything from financing eco-building projects to setting up a tree-planting day for your local branch staff. (Or, providing transaction-based carbon emissions calculations to retail and business customers.)
While taking sustainable action is worthy in itself, the plain fact is banks are competing for buyer attention and green initiatives are a great way to differentiate. In particular, they are a powerful lever for neobanks to distinguish themselves from their more established counterparts:
“By committing to sustainable initiatives, a neobank not only appeals to a conscientious customer base but also builds trust and loyalty, setting itself apart from traditional banks that may prioritise profits over purpose.”
— Rose Jimenez, Chief Finance Officer, Culture.org
Why Are Neobanks Sprinting Ahead?
Challenger banks do not face the legacy issues of incumbents:
- Portfolios heavily invested in fossil fuels
- Outdated infrastructure and tech
- Bureaucratic complexity
- Stakeholder politics
To name but a few.
For example, on MotherTree’s Bank League Table, Barclays has the highest tCO2e per £10k in a current account: a measure for the carbon footprint of its portfolio. So when Barclays tries to take more sustainable action, that portfolio is a heavy weight impacting its ability to play effectively. This leaves the bank open to accusations of “greenwashing” (when companies play up green credentials to seem environmentally friendly).
That’s not to say such institutions should avoid green initiatives altogether, but they do require careful handling. It matters because the world requires big banks to step up and fill the financing gap in the fight against climate change. Barclays announced a target to facilitate $1 trillion of Sustainable and Transition Financing between 2023 and the end of 2030. We’d call that a substantial step in the right direction.
Here’s your first key takeaway: Perfect is the enemy of good. Radical honesty is a powerful tool banks can use to demonstrate progress while being transparent about past actions and future commitments.
Partner with Technology Providers
To make rapid headway, neobanks are collaborating with providers, expanding their offerings and embedding new technologies. (Of course, partnerships are not always about technology. For example, N26 have partnered with Plastic Oceans, who remove plastic from the oceans.)
In terms of technology partners, though, look no further than Connect Earth. We offer **embedded carbon emissions estimates on digital bank platforms.**This technology allows your customers to see the carbon impact of their transactions. And, receive relevant insights and links to products and resources, neatly tying this technology into your green product ecosystem.
At this stage of early adoption, embedded carbon data is a tangible, eye-catching way to support customers to be more sustainable in their day-to-day decisions. Our flagship customer, Tide, agrees:
Green Technology Neobank To Watch: Tide
Connect Earth recently launched Connect Insights on Tide’s business banking platform
Tide serves more than 10% of UK SMEs, meaning all those customers are now able to measure and report on their carbon footprint, which is huge. This initiative was deployed in line with Tide’s pledges towards Net Zero, showing progress towards those goals.
Key takeaway: Many hands make light work. Consider technology partnerships to help you deliver green initiatives, at scale, and meet your ESG goals.
Build a Sustainable Brand Identity
Some neobanks are actively shaping their image as eco-conscious, forward-thinking alternatives to traditional banking. It’s a bold move to align your entire business operations with green values.
Not many banks choose this route, but the ones that do stand out for all the right reasons. Triodos, Tomorrow and Zero (who are about to launch an eco-friendly money app) are good examples.
Josh Couchman, our Head of Data, says, “There’s a big difference between making sustainability a core value and just keeping up with what’s expected. If you position yourself as a leader when you’re not, you can get in trouble. Equally, the real leaders stand out even if they aren’t the biggest players on the field.”
Larger banks are less likely to pivot in this direction because they have an established brand identity, so you benefit from scarcity. Meaning, less competition. Neobanks can’t compete on scale, so they are choosing another way to stand out by going “all -in” on sustainability.
Green Branding Neobank To Watch: Triodos
Take Triodos. It fares far better on that league table we mentioned earlier, with world-leading sustainability credentials in terms of its portfolio, its commitments and its partnerships:
“Having worked directly with sustainability projects, I’ve seen Triodos Bank consistently demonstrate true commitment by exclusively financing sustainable initiatives.”
— Gus Bartholomew, Co-founder, Leafr
Not only that, but Triodos publishes details of every organisation it finances on its website. It runs a foundation offering grants to like-minded projects and charities. Employees are trained in sustainable finance. The marketing team shares information on climate change and sustainability on its platforms. It is a B Corp.
Key takeaway: Fortune favours the bold. Instead of doing just enough, put sustainability at the heart of everything you do. Be a green leader.
Offer Green Financial Products
In Europe and the UK, 84% of banks offer some kind of green financial products. The difference between lip-service and a differentiator then, is the quality, quantity and perceived value of those products.
Ideally, you want to build a green ecosystem of products that encourages eco-conscious consumers to engage across multiple products, maximising lifetime value of that customer.
Here are some examples of green financial products:
- Green mortgages: Mortgages with lower interest rates for homes that meet specific energy-efficiency standards.
- ESG investment funds: Investment portfolios that focus on companies with strong Environmental, Social, and Governance (ESG) practices.
- Green bonds: Debt securities issued to raise funds for environmental projects, such as clean energy infrastructure.
- Green personal loans: Loans for financing environmentally-friendly projects, such as home solar installations or electric vehicles.
- Green business loans: Loans aimed at helping businesses adopt sustainable practices.
- Carbon-neutral credit cards: Credit cards that offset the carbon emissions from purchases made by cardholders.
- Sustainable savings accounts: Savings accounts that invest in environmentally-conscious projects or companies focused on sustainability.
Green Product Neobank To Watch: Kiva
While not your standard neobank, Kiva is interesting because it allows users to contribute to green initiatives and sustainability through a system of micro-loans. Learning from the principle of crowd-funding platforms, this lender facilitates support for entrepreneurs and projects that focus on sustainable agriculture, clean energy and environmental conservation. Five million people have benefited from these loans.
Key takeaway: Think outside the box. When building your green product ecosystem, create an innovative flagship product to differentiate from other providers.
How to Compete With Green Neobanks
In summary, here are your key takeaways again:
- Perfect is the enemy of good. Be transparent about where you’ve been and where you’re going.
- Many hands make light work. Find the ideal technology partner.
- Fortune favours the bold. Laggards will be green with envy as you lead the green revolution.
- Think outside the box. Those green initiatives must be innovative to stand out.
