As the impact of climate change becomes more and more pronounced, finding sustainable payment solutions for the future has become a marked point of interest in the financial sector. In fact, Environmental, Social, and Governance (ESG) factors have been driving forces behind technological development in recent times. The role of ESG in payments is important, as an ever-greater number of consumers are seeking out low-impact, environment-friendly payment options.
This article will consider key trends in sustainable payment solutions, discussing the technologies supporting them and the challenges faced in implementing them. It will also provide examples of a few success stories while providing an analytical window into the importance of eco-friendly finance for businesses and consumers alike.
Environmental concerns have been on our radar since the days of the industrial revolution, but it wasn’t until the 1990s that the fight against climate change began in earnest. In 1992, the world saw the birth of the UNEP FI — a collaborative effort between UN Environment and the financial sector to address climate change and implement sustainable development.
The world of FinTech looks very different these days, but the core principles for the sustainable development of payment technologies remain the same. Sustainable payment solutions are environment-friendly financial products and services that aim to minimise their carbon footprint and overall ecological impact while ensuring long-term economic viability.
These products and services are developed in accordance with ESG factors, taking into account environmental and social responsibilities while ensuring the final product complies with all necessary rules and guidelines. Some of the ecological considerations at play here include resource efficiency and green financing, while the social factors involve financial inclusion, ethical practices, and community engagement in local economies.
Our real-life, tangible environments are not the only ecosystems impacted by such endeavours; so, too, has FinTech been transformed. Green FinTech and ethical banking have come about directly in response to climate concerns, with private businesses and financial institutions coming together to promote environmentally conscious payments.
At the moment, we are witnessing several broad trends in the world of sustainable payments. In this section, we will consider four of them: paperless transactions and digital payments, eco-friendly cards and devices, climate offsets and carbon credits, and financial products focused on ESG.
In recent years, we have been moving steadily away from paper and plastic cards towards digital payment methods, such as electronic wallets and mobile payment apps. Examples of such applications include Google Pay, Apple Pay, and WeChat Pay, with 150 million, 640 million, and an incredible 1.2 billion users, respectively. According to information published by Statista, digital transactions made involving the use of these services and similar software are predicted to be the fastest-growing payment methods in the world.
Some areas do not yet have the infrastructure to support digital payments. For consumers in these locations, as well as those who avoid paperless payment methods due to personal preferences, eco-friendly cards and devices remain a reliable alternative. Environment-friendly, or ‘green’, cards are made using recycled materials and biodegradable plastics, which helps to minimise their carbon footprints. Similarly, devices and terminals designed with the environment in mind have lower energy consumption rates than their less sustainable counterparts.
Some platforms, such as Stripe Climate and Aspiration, provide users with the option to offset their carbon footprint when making a transaction. Stripe does this by allowing you to pledge a percentage of your revenue to ‘Climate Commitments’, a project that sees all contributions towards carbon dioxide removal technologies. Similarly, Aspiration offers customers the option of contributing to reforestation efforts and buying carbon offsets to minimise the impact of carbon dioxide emissions released by vehicles.
An increasing number of financial products place a strong focus on ESG. For example, there are a number of banking products and investments available that support environmental activities, including fighting deforestation, promoting more fuel-efficient cooking methods in developing nations, and financing the development of renewable energy sources. This increase in ESG-focused products is also reflected by ever-growing preferences among consumers for green bonds and funds. According to recent information from Bloomberg, the issuance of green bonds reached over 1 trillion dollars in 2023, representing a 3% increase on the previous year.
Several technologies have been introduced to support sustainable payment solutions. This section will elaborate on just a few, giving some idea of the innovation driven by the need for sustainable finance solutions.
In the first instance, developers have designed more energy-efficient terminals and devices, including low-energy POS terminals and ATMs. These terminals not only use less energy than eco-unfriendly designs; they also use renewable energy sources.
Similar care is taken when designing environmentally conscious payment cards. These, along with certain financial devices, are made using recycled, biodegradable materials, which helps to mitigate environmental impact and lessen carbon footprints.
Artificial intelligence and machine learning are other forms of technology used to support the development of environmentally conscious payments. The use of these technologies allows developers to optimise the payment process, thereby reducing energy consumption.
One way in which AI can help in this regard is by helping identify periods of peak energy consumption, as well as energy inefficiencies and wastage. By allowing businesses access to this kind of actionable information, AI can enable them to better control their energy usage and implement the necessary management systems to increase overall efficiency.
The final technology we will consider is the use of renewable energy sources, something we have already touched on in previous paragraphs. In an attempt to minimise their impact on the environment, a number of companies in the financial sector have moved to using renewable energy to power their data centres and payment platforms.
Visa and Mastercard are examples of two such firms. In 2020, Visa attained its goal of using 100% renewable energy, and according to its website, it’s still seeking out other opportunities to contribute to the generation of renewable electricity. Mastercard has also confirmed its dedication to using only renewable energy sources and promises to achieve net-zero emissions by 2050.
Despite the positive impact they would have on our world overall, sustainable payment solutions cannot be implemented without first overcoming several challenges. Below, we will take these issues into consideration.
The first obstacle to be overcome is the current lack of appropriate standards and regulations. With sustainable FinTech on the rise, it falls to regulators to close the gap between the world of financial technology and our collective responsibility to the environment. This will no doubt prove a challenge, as policymakers must find a way to establish effective global standards for green finance without hindering innovation and creativity within the field.
The second challenge we must overcome is that of implementation — more specifically, its prohibitive costs. Transitioning banks and FinTech companies from eco-unfriendly to environmentally-conscious technologies will require a significant monetary investment. Existing hardware and software must be upgraded and fitted with the appropriate cybersecurity enhancements.
For example, some business may choose to move their on-site data centres to the cloud; others may opt to continue using on-premises data centres, in which case they will require new energy-efficient cooling systems and renewable electricity integration. This process is not only expensive, but it may also be impossible, depending on one’s location. For example, certain developing economies may only have limited access to green products and services.
Lastly, the final barrier we must overcome when introducing environment-friendlypayment solutions is mistrust and poor public perception. Some consumers may be under the impression that green solutions are slower and less convenient while at the same time costing more. Others may simply be sceptical about their true degree of impact on our environment.
Addressing these concerns and providing customers with relevant information while maintaining 100% transparency will be crucial in convincing individuals to give sustainable payment products and servicesa try. At the same time, companies should be aware that consumers are likely to find excessive amounts of jargon off-putting; their messaging should, therefore, be straightforward without being condescending to the reader.
We have already seen some impressive success stories in the world of sustainable payments. The accomplishments of various banks, businesses, platforms and projects in this field serve as a reminder of the massive impact we can have on our planet.
Firstly, as we’ve already alluded to, there are a number of FinTech companies and banks on the market that make a point of promoting sustainable solutions. The aforementioned Aspiration is an example of one such company.
In addition, we have Triodos, a Netherlands-based bank that places a strong emphasis on funding ecological development and financing crucial sectors like sustainable transportation and recycling. Additionally, they show strong preferences for funding businesses and organisations they believe will have a positive outcome on our environment, culture, and society.
Stripe Climate, Visa, and Mastercard are a few examples of green payment platforms that focus on sustainability. Not only do these firms try to minimise their own carbon footprint as much as possible through the use of renewable resources, but they also put money towards other environmentally conscious projects. A further example can be found in FutureCard, a debit card that allows users to claim 5% cashback on sustainable purchases.
Finally, numerous FinTech businesses have collaborated with various environmental organisations in the past to support sustainable developments. Triodos Bank has collaborated with UNEP FI, for example, signing their Principles for Responsible Banking and contributing to their global sustainability research efforts.
Another financial institution, JPMorgan Chase, partnered with The Nature Conservancy to found the NatureVest programme, which has provided some $3.3 billion to climate-conscious conservation projects. These are just two examples out of many; do any digging at all, and you’ll see for yourself that collaboration is a powerful force driving innovation in the field of sustainable payment solutions.
Now that we’ve covered what the sustainable payments landscape looks like today let’s consider what it will look like a little while down the line: what changes can we expect in this field come 2025?
For one thing, we can surely expect to see a continued increase in the number of mobile payments being made, driven by developing technology and customer preferences. Mobile apps may also come to integrate sustainability features, such as the carbon footprint tracker launched by NatWest a few years ago.
Perhaps we can also expect blockchain technology to become more prevalent — for example, through the introduction of central bank digital currencies. CBDCs are already live in a couple of countries, with many more around the world researching or trialling this revolutionary new technology.
Improved AI is also bound to play an important role in the development of the sustainable payment solutions industry. These days, Artificial Intelligence has become a somewhat controversial topic, but there’s no denying that AI-driven data analytics will be key in the implementation of these new technologies. The information collated and analysed through these means will be essential in formulating plans and strategies for the future implementation of green products.
In addition to technological changes, we can expect the regulatory landscape to shift and morph. We can anticipate new policies around data protection, helping to protect client information and maintain healthy, transparent relationships between companies and consumers. Stricter measures will also be placed on ESG reporting and digital payments regulations, with a heavy emphasis placed on financial inclusion.
All of these changes, both technological and regulatory, will be driven by a growing demand for sustainable financial products. As global concerns about climate change grow, so too does the need for green payment solutions — particularly in younger generations.
Recent information shows that millennials and Gen Z value brands that commit themselves to sustainability and are even willing to pay more for products and services offered by such companies. These preferences are no doubt a large part of why the green technology market is expected to grow at a compound annual growth rate of around 20% over the next ten years.
As concerns around climate change continue to grow, an increasing number of financial service providers are stepping up and meeting this challenge head-on. These companies and institutions champion sustainability by providing green payment methods and using recyclable materials and renewable energy.
Such environmentally-conscious innovations rely on various technologies and are susceptible to any number of obstacles, including both logistical and legislative challenges — but, in spite of this, they are met with success. In this article, we’ve covered numerous examples of successful sustainable payment initiatives, indicating that these endeavours have a bright, hopeful future.
Green tech will no doubt shape the payments industry as we know it today. Through the adoption of revolutionary sustainable technologies, FinTech will be driven forward into a new era of integrity and environmental responsibility. Not only that, but companies would be wise to embrace such changes in order to keep up with our rapidly transforming market; the integration of environment-friendly technology is not only necessary for our planet but also for business longevity and long-term financial stability.
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