Written by Dr. Heather Kappes, Associate Professorial Lecturer in the Department of Management at the London School of Economics and Political Science, studies consumer behaviour and marketing.
The concept of ethical finance covers a lot of ground. One UK law firm says the term describes financing that considers environmental, social, and governance factors that affect borrowers or their assets. This could range from bank loans to fund renewable energy production to investment funds that target companies which pay fair wages.
Many of these ethical finance products are intended for larger investors and companies.
etika is a company that applies the idea of ethical finance to consumers with far fewer resources. etika works with retailers to allow customers to spread out payments for goods like computers, sofas or washing machines over time. etika promises “fair and flexible finance without surprises”.
One barrier to success for this kind of company is customer scepticism. In a recent YouGov survey, more than 2,000 people were asked about the biggest barrier stopping them from applying for 0% finance to fund a purchase over £500. Fifteen percent of respondents indicated: “There are probably hidden fees.” This response was similarly likely whether or not respondents had, themselves, previously applied to finance a purchase. With or without experience dealing with lenders, many people are inclined to believe that financing “without surprises” is simply too good to be true.
In the same survey, 86% of respondents said they would not go to a high-interest lender to fund a purchase if they were rejected for credit by a retailer like Apple or John Lewis. Those who said they would, however, were even more likely to think the 0% financing offer probably had hidden fees. It is troubling that those most likely to benefit from an ethical finance offer are also the most sceptical. There is clearly a confidence gap here that retailers must work hard to reduce.
A healthy dose of suspicion about borrowing probably serves many people well, but it shouldn’t become a barrier to taking advantage of beneficial financial innovations. Partnering with trusted retailers is one way for lenders like etika to build trust and convince consumers of their good intentions, since people treat brand relationships like human relationships.
Dialogue around ethical finance suggests that interest is highest in crafting investment options that slow or reverse climate change. But important as the environment is, the credit industry must not overlook the need for socially responsible lending products that help consumers. Retailers can help by connecting customers with companies like etika that have a social mission as well as a profit-driven one.