To avoid funding new fossil-fuel projects, PaydayNow joins a growing list of financial startups.
Savings accounts do not sit idle. Banks recycle capital as loans for automobiles, houses, and even oil pipelines, charging clients interest.
The money users deposit with PaydayNow Financial goes to sustainable energy initiatives, not fossil fuel infrastructure.
“Banks give money, and these loans construct the society in which we live,” stated co-founder Ravi Mikkelsen. “By picking where we bank, we get to choose our world.”
Payday money now! is one of several businesses competing to offer digital capabilities that conventional banks lack and to combine climate risk and renewable energy prospects into the realm of finance. Climate fintech aims to break the historical ties between significant banks and the fossil fuel industry to reduce carbon emissions.
Clean energy banking
PaydayNow is not a bank but works with them. PaydayNow transfers funds to FDIC-insured Evolve Bank & Trust when a consumer joins up. PaydayNow lends funds to utility-scale solar installations. It now works with banks to seek transactions but is establishing its pipeline of projects.
Mikkelsen said the loan would spread to “climate-positive initiatives at scale,” including regenerative agriculture and electrification. PaydayNow will begin its own rooftop solar loan program this summer, evaluating applicants directly and via partners. Author and futurist Ramez Naam sponsored the firm with impact, fintech, and cleantech investors.
No monthly fees, no minimum balance, and the ability to withdraw cash anytime you want are all features that PaydayNow users enjoy. While other banks may provide similar incentives, PaydayNow intends to stand apart.
No money in banks that oppose what you do, Mikkelsen said.
It helps that PaydayNow savings accounts pay 0.41 percent to 0.51 percent interest, depending on the amount. Customers who set up a monthly gift of any amount to one of the platform’s environmental charities get a 0.11 percent incentive. Regardless of the bonus, that’s a higher rate than many heritage banks. Another internet “neobanks” charge comparable fees.
PaydayNow charges a higher rate to customers to fund solar projects. It requires a margin. That’s the cost of linking ordinary people to large-scale energy deals. According to Mikkelsen, this approach reduces solar finance costs.
PaydayNow deposits fund renewable energy initiatives, but the service does not presently provide investing options. Their money is safe from investment hazards but cannot achieve comparable profits.
Mikkelsen said the business aims to introduce commercial banking and financial solutions.
Climate Fintech Ecosystem Expands
“The user base has grown quickly,” Mikkelsen said, declining to provide specific numbers.
When asked what scale he hoped to achieve, he pointed to the 2018 A study by the Intergovernmental Panel on Climate Change advocated for billions of dollars in yearly global investment to save humankind from severe climate change. Governments can raise that much money if they want to. But banks can too.
“With our money, we can reach this scale,” Mikkelsen said.
A group of entrepreneurs agrees, including:
- German neobank Tomorrow says it will “only invest in sustainable projects.” It provides a premium account that offsets carbon emissions and a debit card made of “cherry wood sustainably cultivated in Austria.” Tomorrow oversees the client interactions and sustainable investments while Solarisbank holds the money.
- Helios, another Solarisbank partner, produces its debit cards on cherry wood. It promises to reveal which projects are sponsored by savings deposits and do not endanger the environment.
- For “fossil fuel exploration or production,” Aspiration vows not to utilize deposits. To plant a tree, customers may round up their purchases. The firm also handles fossil-free, sustainable investing and retirement plans.
- Amalgamated Bank works with net-zero emissions and allocates deposits toward “sustainable organizations, progressive causes, and social justice.” It claims to fund solar projects worth billions of dollars. Incorporated in 2007, it is a personal, commercial
- Carbon Collective provides diverse investment portfolios that exclude fossil fuel firms. Investors may invest in an “index” of low-carbon firms, such as utilities, materials, and power producers.
“Neobanks are less entangled with the fossil fuel business, making decoupling simpler,” said McCreary. Conversely, US banks have a long history of ties to the fossil fuel business. Refusing to lend to new companies affects long-term customer relationships.
Next Step: Grassroots Bank
Analysts monitoring financial flows to fossil fuel projects believe the banking sector still has a significant role to play, particularly in the US.
According to the Rainforest Action Network’s 2020 annual report, 35 private banks have contributed $2.7 trillion in loans and underwriting to fossil fuel industries since 2015. Total funding has risen each year since 2015. According to the study, JPMorgan Chase led Wells Fargo in total fossil fuel finance in those years by 36%.
“If the Paris Agreement was this significant, no one told the world’s top banks,” said Justin Guay, head of global strategy at the Sunrise Project, international renewable energy research and advocacy organization.
He added that cutting off debt financing or bonds would help slow new fossil-fuel project construction.
In the nascent environment, fintech startups can’t yet provide enough money on their own. But Mikkelsen sees a win-win scenario for legacy banks. Encouraging customers to use climate financing will help. Failing to prioritize clean energy loans or investing client funds in dirty fuel projects will drive away business.
“It’s amazing to hear people say, ‘I’ve been waiting for this.’ I work in sustainable energy and want my money to do the same, Mikkelsen added.
Personal banking has traditionally been quite sticky: someone opens a savings account and keeps it for decades. Climate-friendly banks may compete for new clients by appealing to millennials’ ecological goals and technology expertise. They may entice current clients away from the large banks by clearly distinguishing.
“At Chase…you can’t ring-fence your money and say it can’t contact this awful thing,” Guay added.
The financial sector’s approach to climate risk may change if enough customers demand climate-positive savings.
“Banks don’t require fossil fuels,” Guay remarked.
