How payments networks can play a crucial role in the transition to net zero

Recent report identified key roles for payments in developing sustainable retail banking, the sharing economy, data-driven sustainability services, and low carbon transport.

With a record of enabling large-scale socioeconomic change – payments has a role to play in progressing towards the ‘net zero’ carbon emissions target by 2050.

Experts agree that meeting the target will require far-reaching social, economic, regulatory and technological changes in order to avoid locking the world into the accelerating and irreversible impacts of climate change. Few moments have demonstrated that urgency more clearly than the UN’s COP26 summit to agree national contributions, pledges and financing needed to stay well below a 2°C increase in global temperatures.¹

The role of payments in the net zero transition is the focus of new research produced by the University of Cambridge Institute for Sustainability Leadership (CISL) in collaboration with Visa. The report is underpinned by stakeholder interviews and existing research and is the first of its kind to explore the potential role of digital payments in supporting the drive to net zero.

“From supporting low carbon urban mobility to helping banks develop their sustainability approach, payments networks have an opportunity to play a crucial role in facilitating the transition to net zero,” says Ben Kellard, Director of Business Strategy at CISL. “It is clear from our research that this opportunity holds a plethora of potential benefits for those that grasp the nettle, whether that’s building client relationships and revenues, opening up new payment flows and markets or simply driving brand trust and identity.”

Banks, fintechs and regulators, and other participants expressed enthusiasm for the prospect of payments playing a key role in decarbonisation, according to the report. However, participants stressed that success would likely include the adoption of an ‘ecosystem approach’, outside the limits of the conventional payments industry.

“This is a global problem that needs collaborative solutions across the whole ecosystem,” said Jessica Lennard, who led Visa’s collaboration on the report. “We need broad stakeholder partnership outside of traditional commercial relationships. We need to think differently and beyond our own industry, for example working with governments, regulators, universities and other sustainability specialists.”

The interviews also revealed a gap between payments networks seeking to develop new solutions on the one hand, and stakeholders seeking to drive the net zero transition on the other. To bridge that gap the report outlined a framework by which payments networks can build their role in the transition to net zero.

• To enable citizens through product and service innovation, such as the provision of information about purchasing options and their sustainability impacts
• To provide data-driven insight, such as sustainability-focused products and services, including for clients outside the traditional four-party payments model
• To collaborate and form partnerships in order to develop new value networks through experimentation, co-creation and open innovation
• Use advocacy to promote a persuasive corporate narrative on systems transition, for example around consumer empowerment or the benefits of data for decarbonisation

In practice, real-world progress will require applying the framework to sections of the economy upon which payments can have the greatest impact. The report identifies four areas of focus: sustainable transport, the sharing economy, sustainable retail banking and data-driven sustainability services:

Sustainable transport

The global market for transit and ground passenger transport could grow to $630 billion by 2025, up from $412.97 billion in 2020. Meanwhile 60% of urban greenhouse gas emissions come from motorised road vehicles, resulting in dangerous upward trends in urban air pollution in major cities, according to analysis by the Business Research Company.²

Payments can support the scaling of existing, local, integrated low carbon transport with streamlined payment solutions to facilitate customer choice, affordability and convenience, the report states. Other opportunities include leveraging data-driven products and services to advise city authorities and transit companies on system efficiency and optimisation.

The sharing economy

The ‘take, make, waste economy’ is estimated to contribute 50 per cent of global emissions. Moving to a sharing economy, in which goods are re-used, recycled and rented, could generate around US$335 billion by 2025, according to PWC.³

Payments networks have an opportunity to facilitate scaling the sharing economy by allowing consumers to participate through the safe, convenient, and affordable leasing of products, according to the report. The industry can also support efforts to measure the life-cycle carbon impacts of products while leveraging corporate narrative and advocacy to accelerate the adoption of sharing economy services.

Sustainable retail banking

Eleven per cent of European banks are now looking into green credit or debit cards⁴, while studies have found that up to a third of consumers in some EU countries would switch to a bank with a stronger product and service offering in sustainability.⁵

Payments networks have an opportunity to develop and scale engaging sustainable banking products and services, including carbon offsetting services and ‘green loyalty schemes’, according to the report. Other strategies could include supporting public campaigns that promote consumer empowerment through sustainable consumption choices or extending carbon calculator tools beyond carbon impacts.

Data-driven sustainability services

Data-driven insights, products and services can be utilised by businesses, governments and third-sector organisations seeking to develop strategies for achieving climate and other sustainability goals.

Payments data can be leveraged to provide products, solutions or consultancy services to companies seeking to develop net zero strategies, according to the report. For public sector organisations, data can provide insights into everything from urban mobility, city planning and population health performance, to economic performance and planning, tourism, effectiveness of tax incentives and the effectiveness of climate strategies.

The findings suggest that payments networks have an opportunity to support efforts to unlock barriers to data use, while advocating the merits of individual consumers having more control and choice around sharing their own data.

To be successful, the report issued three recommendations for companies:

1. Identify net zero as a strategic opportunity for the core business
2. Seek to use their influence and assets to support net zero solutions; and
3. Identify and test potential net zero solutions with a broad range of stakeholders both within and beyond the traditional payments industry.

“This is the ultimate multi-stakeholder effort,” adds Lennard. “Climate change is never going to be a situation where any one industry or any one company is going to make a huge difference. It is going to be a group effort.”

To view the full report and executive summary visit: Payments for net zero: How the payments industry can contribute to the transition to a net zero economy