Payments for net zero: How industry can contribute towards decarbonization
Gurkirat Bedi, Siddharth Maheshwari, Senior Product Manager, Publicis Sapient
Why the push towards Net Zero?
In 2015, the United Nations took a monumental step by signing the Paris Agreement, with the shared aim of limiting global warming to "well below" a two-degree average temperature rise. Central to this agreement is the commitment to reduce global emissions by 45 per cent by 2030, and ultimately achieve 'net zero' global emissions by 2050.
In response to the Paris Agreement, both UK government and European Union have taken significant steps by enacting legislation that binds them to become net zero emitters by 2050.For companies operating within these regions, net zero is no longer merely an aspirational objective; it has become a legal imperative. This means that businesses need to take proactive measures to reduce their carbon footprints and align their operations with the trajectory of net zero emissions.
Opportunities for Payments & Fintechs towards the “Decarbonization” of key systems
Financial transactions, such as credit card and online payments, contribute to carbon emissions through energy consumption and data processing. The payments industry holds a pivotal role in promoting sustainability across key systems to achieve “net zero” by implementing measures to reduce or offset carbon emissions resulting from banking financial operations. Additionally, it can drive decarbonization by introducing impactful solutions to specific sections of the economy where payments play a crucial role.
Here are some key areas & the aligned strategies that banks, fintechs and payments networks can adopt:
Sustainable Retail banking
Around the globe, there is a rising demand for eco-friendly and sustainable banking solutions, both from banks and consumers. Payments networks are well-positioned to seize this opportunity by creating compelling and innovative sustainable banking products and services.
Decarbonizing Urban Transport:
The global market for transit and ground passenger transport is expected to reach $630 billion by 2025, indicating payments industry has a significant role to play in decarbonizing sustainable transport. By offering streamlined payment solutions, payments can make low carbon transport more accessible and affordable.
Decarbonization in the Collaborative Economy
The payments industry can significantly promote transitioning from the current 'take, make, waste economy' responsible for 50% of global emissions to a sharing economy. Payments networks can facilitate safe, convenient, and affordable leasing of products, encouraging consumer participation.
Recommendations for Payments networks & Fintechs
To narrow the significant opportunity gap and fulfill their complete role in the transition to a net-zero economy, payments networks have the potential to pursue the following four outcomes and options:
Embracing Net Zero as a Vital Strategic Avenue for the Core Business
It is crucial to involve senior leaders in comprehending the compelling reasons for both commercial and societal urgency to decarbonize. Furthermore, gaining insight into how various stakeholders (ranging from employees, investors, and regulators to civil society) are progressively aligning with the necessity for businesses and society to undergo decarbonization will fortify the approach. This alignment creates a potent mandate and a unique opportunity for the payment network to discern and investigate its distinct role in facilitating the transition towards net zero.
Exploring Potential Opportunity Areas
Payment networks & fintechs should allocate sufficient resources to explore alignment between their core capabilities and sectors/systems needing to decarbonize. This may involve investing in sustainability and climate change expertise within core teams such as data, product innovation, and strategy. Additionally, conducting robust research on trends and carbon impacts in various economic sub-sectors can help overlay payments networks' capacities to pinpoint net-zero solutions. Engaging with external stakeholders can also aid in identifying and testing potential opportunity areas.
Collaborative Exploration of Net Zero Solutions with Stakeholders
After identifying opportunity areas, the next step is to diagnose and test net zero solutions within those areas. This involves setting boundaries, defining success outcomes, and involving relevant stakeholders. The process includes consulting domain experts, initiating collaborations or partnerships with entities like think tanks or innovation hubs. Value networks are used to identify potential solutions, and payment networks can facilitate stakeholder engagement and solution-building.
Co-Innovation for Net Zero Payments Products and Services
Rather than developing payment solutions in isolation, payments networks can collaborate with stakeholders to co-innovate on broader net-zero solutions. This approach ensures that the payment mechanisms are seamlessly integrated into sustainable initiatives. To test the effectiveness and feasibility of these solutions, pilot programs can be implemented and evaluated in collaboration with stakeholders. For instance, a specific integrated transportation app could be tested in partnership with a municipality and transport operators in a particular city. Upon successful testing, these net zero solutions can be replicated and scaled up in other markets, fostering a more sustainable future.
Influencing the external enabling conditions
Payment networks / fintechs have a crucial role to play, in influencing external enabling conditions (such as regulations, infrastructure development, and the creation of end-user demand), and ultimately facilitating the scaling up of net-zero solutions. To achieve this, positive advocacy becomes essential in creating and aligning appropriate regulations that foster a sustainable ecosystem. Additionally, we may need to adapt or establish new standards, especially concerning the creation, collection, and sharing of various types of data.
