Flowe is a carbon neutral payments startup. Ouida Taaffe finds out how they make a profit and embed ESG into their operations.
Cristina Toniazzo, is a Happiness, Caring and Service Operations Practitioner. Given that job title, you might be surprised to hear she works for a financial services firm. But she does – for Flowe, an Italian payments institution that serves retail customers.
Flowe, which is backed by Italian incumbent Banco Mediolanum, aims to stand out for its sustainability and its ethical approach. It is a B-Corp, which means it has to demonstrate a “high social and environmental performance”.
Financial services firms that are B-Corps are rare. Most expect their customers to be attracted to low costs and high returns – not ‘environmental, social and governance’ (ESG). Until recently, they would have been right.
Now, it seems customers are starting to expect more from financial providers.
Toniazzo says that sustainability focus has been a major customer draw. “We expected to sign up around 200,000 customers but got 600,000 in the first few months.”
Flowe says it is carbon neutral, offsets its emissions and is transparent about what it does to achieve that. For example, customers are ‘rewarded’ in green ways for signing up and for their transactions. “We plant a tree for every 100 transactions that a customer carries out,” says Toniazzo.
The default ‘card’ for customers is digital. If people want a physical card they are given one made of wood.
B Corp as a business
Flowe currently focuses on payments, which – for incumbents – is a high-volume, low-margin product line. How can a startup that doesn’t have an existing large base make payments pay?
“It’s true that payment margins for incumbents are really thin,” says Toniazzo. “But there are a lot of challenger banks that are able to go to market and get a lot of customers in payments and make it work.”
The biggest factor in that, she says, is that using banking as a service software (BaaS) is “an order of magnitude” cheaper. “If Flowe spends €2m, a traditional bank would have to spend €20m.”
Toniazzo also says thatmost of their customers pay for CO2 compensation packages or have paid-for accounts.
Then, Flowe aims to boost payment volumes by encouraging more use and launching new value-added services.
“We’re talking to [regulators] at the Bank of Italy about a potential post-summer product launch,” she says. “We can’t disclose anything now, though it would involve offering regulated advice.”
One of the biggest buzzes in payments has been around ‘buy now, pay later’ (BPNL). Is it something that Flowe wants to provide?
“We have been thinking about it, but it’s not simple,” says Toniazzo. “BNPL is not currently regulated in detail in Italy and scaling the product in physical stores is complex. Then there is the issue that retailers say they’re interested in ESG, but they don’t always really want to do it.”
ESG does, however, seem to attract customers.
“A landing page that places sustainability before a commercial offer is more appealing to our clients,” says Toniazzo.
She didn’t give a break-down by demographic, though she says many of the clients are aged 30 to 35.
How to attract customers with ESG
Flowe isn’t just a green experiment. The backers already had a good idea that ESG would be appealing before Flowe was set up.
“We launched a visibility study ‘Project Zero’ in November 2018, which took three to four months and Banco Mediolanum liked the idea,” says Toniazzo.
“It took us a few more months to further refine the idea and to hire the core team. We went live with an internal pilot in February 2020 and launched in June 2020.”
Though Flowe is a stand-alone financial services brand, it doesn’t have a bank licence and currently has no plans to become a bank, Toniazzo says.
“If we need to offer loans, we could sell products based on Banco Mediolanum’s licence,” she says.