Much of the focus on mitigating climate change has been on solutions such as renewable energy, agtech innovation, electronic vehicles, and sustainable fashion. Perhaps surprisingly, initiatives to make payments more sustainable can reduce climate change too. Although many of these payment solutions are domestic, cross-border payments also play a role in sustainability.
A large source of carbon emissions that has a significant payments component is tourism, which creates about 8% of global carbon emissions, according to Sustainable Travel International. While not all of that tourism is cross-border, longer flights and other factors have a significant impact. To reduce emissions from tourism and transport, the World Economic Forum (WEF) suggests using digital payments, which also gives cities information to meet the increasing demand for public transportation. Online payments can provide various insights to transit operators – such as what nationalities most frequently visit their city and what languages they speak. London, New York, and Hong Kong are examples where partnerships between government, banks, and payment networks support sustainable growth.
On the corporate side, consulting giant McKinsey said banks could offer favourable terms on transactions for sustainable assets (or with counterparties scoring high on sustainability) and on digital collections – and sell carbon credits to offset the environmental impact of cash and cheque transactions. Moreover, embedding sustainability-tracking capabilities within transaction banking services can be highly effective in improving companies’ performance on ESG metrics.
Payment schemes as well as companies have come up with a multitude of ways for consumers to reduce or offset their carbon emissions. A common one is represented by tools that enable consumers to calculate their carbon emissions so they can shift their spending toward more sustainable behaviours.
In the Asia–Pacific region, Visa launched Eco Benefits, a sustainability-focused solution that helps cardholders better understand the environmental impact of their payments. Consumers can calculate the carbon footprint generated by their transactions and access options for carbon offsetting or charitable donations.
Visa has also collaborated with the Cambridge Institute for Sustainability Leadership (CISL) to support a low-carbon future through initiatives such as partnerships for sustainable payment cards and global initiatives supporting sustainable behaviours. Among these, mobility and travel were central. The initiatives focused on understanding consumer drivers of sustainable living behaviours and inspiring consumers to live a sustainable lifestyle.
Mastercard has similarly developed a carbon calculator in collaboration with the Swedish fintech Doconomy that uses categories such as food or transport to show the carbon footprint of each transaction and help people understand the environmental impact of their spending.
Online, ecommerce payments firm stripe enables consumers around the world to use Stripe Climate to make contributions to carbon removal projects that are vetted by Frontier, Stripe’s team of science and commercial experts. Adyen also enables consumers to offset the carbon footprint of their purchases by buying offsets for reforestation or other environmental projects.
South Africa’s Sun Exchange allows anyone with an internet connection to buy solar panels online and rent them to businesses, hospitals, schools, and other organisations in Africa, according to the UN Environment Programme (UNEP). Sun Exchange uses the Bitcoin blockchain for cross-border payments to eliminate intermediaries between beneficiaries and investors.
In China, Tencent’s WeBank and two partner organisations have started a Green Mobility Inclusive Platform that leverages blockchain to encourage environmentally-friendly travel in order to reduce carbon emissions.
Along with consumer payments solutions, corporate payments solutions that focus on sustainability are underway as well. McKinsey said it believes that ESG concerns will be at the core of strategies for payments providers, banks, and other financial services firms over the next five years. These companies then need to be clear about their efforts to meet expectations from consumers as well as businesses. Relatively emission-heavy payment products such as cash and cheques may face revision in the quest for carbon-neutral systems. At the same time, consumers want merchants and payment providers to understand and reduce the environmental impact of their purchases.
One solution, according to the American Banker, is an initiative by BNY Mellon to accelerate efforts to reduce cheque payments. It offers financial benefits such as fee waivers, fee holidays, and price discounts for clients that agree to partner on shifting from paper to digital payments. BNY Mellon processes about USD 3 trillion of wire transfers every day, while also estimating that the nearly 300 million cheques it processed in 2021 for its clients would equate to about 60,000 trees. Offsetting the cost of digital implementation can make it attractive for clients to adopt digital solutions, reduce the trees needed for paper solutions, and reduce emissions.
In the supply chain, the UN Economic and Social Commission for Asia and the Pacific noted that governance of international trade results in major environmental costs. Global supply chains are complex and traditionally involve printing, dispatching, processing, exchanging, and ultimately discarding vast quantities of paper documents. Paperless cross-border trade could reduce environmental burdens. Nevertheless, emissions savings from paperless trade can be very high, driven by efficiency gains from handling data digitally.
Looking ahead, one key upcoming development in payments is central bank digital currencies (CBDCs). Testing is already underway for cross-border usage of CBDCs issued domestically by Thailand, China, the UAE, and other countries.
The US Treasury said CBDCs should be environmentally sustainable, preserve economic growth and financial stability, and minimise the risk of illicit financial transactions. A new payments system or improvements to existing payment systems should be compatible with environmental priorities such as cutting greenhouse gas pollution and transitioning to net-zero emissions, the Treasury suggests. A permissioned blockchain consumes relatively less energy than a permissionless one, so it could form the basis of environmentally sustainable payments. The proof-of-work consensus mechanism associated with certain blockchains uses more energy than some countries, so it would be far less sustainable.
While many solutions to reduce the environmental impact affect both cross-border and domestic payments, the climate impact of cross-border activities is huge. Sustainable cross-border payments solutions, then, present a key opportunity to mitigate climate change.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2022–2023, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Richard has more than 20 years of experience in the payments and financial services industry, primarily in the Asia–Pacific region. He has held executive management roles in payments in the US, Japan, and Singapore. He is also a freelance writer for The Asian Banker and other media. He is proficient in Japanese. Richard has a BA from Pomona College and an MBA from Stanford University. He is active in community organisations, including serving on the board of the Jane Goodall Institute.
Payments Consulting Network provides advisory and market research services to the financial services and payments sectors and has presence in Asia–Pacific, North America, Europe, and Africa. The firm also supports organisations in the retail, hospitality, tourism, and not-for-profit sectors lower the cost of payments acceptance and optimise the customer experience.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now