Consumers regard sustainability – environmental efforts in particular – as an important criteria when choosing financial services (FS) providers. As more and more people tap into green banking, how can banks and other FS providers communicate their sustainable messages clearly and consistently to consumers? In this blog, we explore 3 ways financial services providers can help consumers navigate and understand sustainable financial products and services.
1. Provide transparency and consistency throughout product offerings
Currently, consumers lack an understanding about the environmental impact of FS providers. Different ratings systems between providers and subjective definitions make it difficult for people to fully gauge and compare sustainable brands. Nearly four in five say they find it difficult to know if one provider is more sustainable than another, while just over a quarter are confident they understand their bank’s environmental record. If this does not change, super-engaged consumers will likely look towards brands with sustainability at their core, while the mainstream will fail to engage fully.
Regulating authorities have been stepping up measures to promote consumer understanding and trust. The Advertising Standards Authority (ASA) have banned misleading climate adverts from banks, while the Financial Conduct Authority (FCA) is proactively looking to address greenwashing. However, further action and collaboration are needed between authorities and the wider industry to build and boost consumer trust in sustainability claims: consistent messaging and transparency is key when it comes to this area.
Banks must highlight the positive efforts they are making in this area while remaining transparent about historical fossil fuel financing. As climate change progresses and action becomes more urgent, ending fossil fuel investments will become a prerequisite rather than a motivating factor for most consumers – simply removing or reducing investments in fossil fuel is not enough. Already we are seeing a greater emphasis on positive action, such as investments in renewable energies. In the longer term, financial services must move towards sustainability, so the onus is not on the consumer to research environmental claims. Until then, regulation and help understanding ratings will be vital, while clear and consistent messaging in green product offerings should help consumers understand sustainability credentials.
2. Show consumers green banking does not cost a premium
The trade-off in cost and convenience is a major issue regarding sustainable financial products. This has often been the case in other industries such as food and drink, although increasingly sustainable options have become more standard and price differences lowered or eliminated. The need for affordable green financial products is further heightened by the cost-of-living crisis. With many households looking to cut back, two-thirds say rising living costs mean they cannot pay more for sustainable financial products.
With many consumers unwilling or unable to shift to sustainable options, it is important providers raise awareness of how green options could actually save people money – such as reducing household bills by boosting energy efficiency. For example, banks should increase the focus on green financial products such as green mortgages, loans for improving energy efficiency and wider guidance and eco-tools such as carbon footprint trackers. Guidance on sustainable investments and pensions could help consumers feel they are doing more without sacrificing in the short term.
In addition, there is scope for incentives that promote sustainability. Banks already compete by offering incentives such as cash bonuses for switching accounts, while savings rates are increasingly important as interest rates rise. Banks such as Santander have looked to offer cashback on bills and essential spending with its Edge account, highlighting how consumers can make their spending benefit them. Similar strategies will be important to reward sustainable spending, this could include cashback or discounts for spending with sustainable brands banks partner with, or rewards for reducing carbon emissions using a tracker.
3. Innovate in the digital space
If high street banks cannot prove their sustainable credentials and instil trust in consumers, there is the opportunity for digital challengers to increase their market share. So far, growth in digital banks such as Monzo, Revolut and Starling has focused on additional accounts. Moving forward, if challenger banks can demonstrate an ethical focus and positive impact on the environment, more people will consider switching their main account. Most digital banks do not have the same history of financing fossil fuel projects as high street banks. Starling Bank, for example, was a founding member of TechZero, a climate action group for UK tech companies, and Starling has stated its direct carbon emissions are extremely low compared to traditional banks. Shouting out these initiatives could certainly help attract a growing number of eco-conscious consumers.
Digital banks can look to make virtual cards the default, rather than plastic or metal physical ones. This could help fight waste and pollution while still providing consumers with choices. In much the same way as banks have offered paperless statements and communications, virtual cards instead of physical cards need to be an option. The main barrier for digital banks to become main accounts will be the trust in their longevity. Even though branch use has declined for many years, the presence of physical branch networks still provide reassurance. For this reason, challenger banks may be held to higher standards of sustainability and ethics if they are to motivate people to change.
Digital banks can seize the opportunity by offering innovation in sustainable finance. This could involve partnerships with carbon footprint tracking brands, air pollution trackers or incentives for sustainable spending. However, it is important that brands raise awareness of Open Banking and the benefits of data sharing. Tools that track sustainable spending and provide rewards and eco-guidance will only thrive if they can access all a consumer’s accounts. Currently, more attention is needed in this area, as just over three in ten consumers understand how sharing their financial data could help them understand the environmental impact of their spending.
Tred app allows users to connect all their other debit cards. Data from these cards can then be used to increase customer understanding of their purchasing habits in terms of sustainability and carbon footprint. Source: Tred
What we think:
With the majority of consumers showing concern over the environment, there is a large market for green financial products. However, it remains difficult for people to know if one provider is more sustainable than another, and greater regulation is needed to standardise green claims and ratings. It is important sustainable bank account options are offered but this must be alongside banks reducing investments in fossil fuels and highlighting renewable energy projects. Otherwise consumers will increasingly look towards challenger brands with sustainability at their core.