Recyclable non-plastic credit cards and benefits for consumers who go green get plenty of attention amidst the increasing focus on mitigating climate change. While initiatives behind the scenes in operations get less attention, financial institutions (FIs) have also taken also taken big steps to mitigate climate change with their practices for payments in the back office.
While paying with a card might seem to have little impact on the environment, everything from making cards and payment terminals to using cards and running data centres creates carbon emissions. As Worldline explains it, the environmental impact of the payments business comes from the cost of manufacturing hardware devices compared with their short lifetime, printing receipts that land in the trash, the energy used by data centres, and more.
“A single debit card transaction has about the same impact on climate change as turning on an 8-watt low-energy lightbulb for 90 minutes.” – Central bank of the Netherlands
Researchers commissioned by the central bank in the Netherlands showed, for example, a single debit card transaction has about the same impact on climate change as turning on an 8-watt low-energy lightbulb for 90 minutes. The raw materials, energy, transportation and eventual disposal of equipment all play a part, with the materials and energy for payment terminals alone causing about 75 per cent of the impact.
Producing cards does have a big effect too. Making the chemicals and plastics or even alternative substances for cards uses energy that creates carbon emissions. Mining metal for the chips and magnetic stripes takes a toll on the environment. And sending cards and paper statements to consumers creates greenhouse gasses too.
The plastic alone adds up. On a micro basis, G+D told the American Banker that producing a PVC payment card creates about 160-170 grams of carbon emissions. Globally, according to card manufacturer Thales, producing the 3.5 billion cards in circulation created more than 500,000 tons of CO2 emissions, equivalent to the emissions of 300,000 people flying from New York to Sydney.
Amidst pushes by consumers and corporates to demonstrate action to mitigate climate change or achieve “net zero,” financial institutions and card manufacturers are touting their initiatives to replace plastic with other materials. Card manufacturer G+D, for instance, makes compostable cards or uses ocean plastic for the PVC ones. Switching to a recycled-plastic equivalent material can reduce emissions by 75 per cent.
However, as technology firm Idemia said, “making payment card bodies out of an eco-friendly material is a good start, but not enough. A holistic approach to the entire value chain is better, from reducing the carbon footprint of manufacturing sites to implementing eco-designed packaging, replacing paper with digital services and recycling expired cards.”
Indeed, the researchers in the Netherlands said the environmental impact of the entire debit card payment system could drop by 44 per cent by using renewable energy in payment terminals and data centres, reducing the standby time of payment terminals and increasing the lifetimes of debit cards.
Beyond card production, some leading financial institutions and even retailers have already started to make changes the Dutch researchers suggested and adjust processes for cards, from start to finish. Some changes are specific to payment cards and others are part of broader initiatives at financial institutions to reduce their carbon footprints.
In Japan, for example, SMBC Finance Service has shifted from conventional application forms to paperless credit card application tools that reduce the environment impact. It provides merchants with systems for completing applications using apps and tablets, enabling applications to be completed online. And its account opening app for smartphones allows customers to open an account with a smartphone. Along with being more convenient, the apps cut usage of paper.
In India, ICICI Bank has installed enough solar power capacity to meet 7 per cent of its total electricity consumption needs and it has invested in energy-efficient equipment such as LED lights and Energy Star-labelled IT equipment. ICICI has also reduced internal paper consumption and the amount of paper used in customer interactions by migrating customer communications to paperless modes and communicating using emails, SMS or bitly links. Bank-wide, ICICI saved nearly 12 million pieces of A4 size paper in fiscal 2022, equivalent to saving 1,400 trees and 6 million litres of water.
DBS Bank in Singapore similarly has initiatives to reduce its environmental footprint that include lowering usage of paper and plastics. It began tracking paper consumption in 2018 and has reduced office paper consumption by 35 per cent, with the 208 tonnes less paper used - equivalent to 5,340 trees saved.
Even retailers are getting into the act and reducing emissions from cards. The Australian Retailers Association said some members have started to replace their plastic loyalty cards with apps that allow shoppers to digitise the card and to replace paper receipts with apps that capture shoppers’ data from POS (Point of Sale), so they can push smart receipts to their banking app.
On a global basis, Visa said it has achieved carbon neutrality across its operations since 2020 through energy efficiency initiatives, a transition to renewable electricity and use of carbon offsets to cover its residual footprint. Its carbon offsets portfolio includes forest preservation, reforestation, renewable energy and clean cookstoves. Visa said it also engages suppliers to identify areas for improvement and opportunities for partnership on emissions reduction strategies since the goods and services it procures contribute to its emissions footprint.
Around the world, then, these and other leading payments companies are going beyond consumer-facing initiatives to transform their back offices and mitigate climate change. Leaders are beginning to publicise these back-office initiatives in annual and sustainability reports and use them to attract more customers. Laggards will need to do more to catch up so they too can protect the earth and retain their customers.
Richard Hartung, Research Director, Singapore, Payments Consulting Network.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
12 Jan 2023
25 Nov 2022