Green payments: the top 5 challenges and how to overcome them

As the climate crisis unfolds around us, going green has never been more pertinent, or more prevalent. Industries from fashion to construction are being transformed by a drive towards sustainability, and surveys show that the payments industry should be no exception.

Where are we now when it comes to green payments?

Green payment initiatives appear to be primarily centred around two main areas: payment cards manufacturing and materials, and payment products which support the environment or encourage more sustainable choices.

Clearly, using pieces of plastic that take hundreds of years to decompose to make payments is not an eco-friendly option, and both the schemes and manufacturers themselves are taking steps to address this. In April 2023, Mastercard announced that by January 2028, all newly produced Mastercard plastic payment cards will be made from more sustainable materials, and manufacturers such as Thales are also pioneering cards made of recycled and reclaimed plastic, and even plastic substitutes such as corn. Several banks, including HSBC, Santander and NatWest have launched in-branch payment card recycling facilities, which presents customers with an opportunity to do their bit for the environment, and banks with an opportunity to forge those elusive in-person relationships with customers.

When it comes to green payment products themselves, Swedish fintech Doconomy appears to be one of the leading players, partnering with Mastercard, and issuers such as Credit Saison, Standard Chartered, Nordea and BNP Paribas Polska to offer customers an environmental impact index as they transact. Transactions are converted into real-time CO2 and HO2 impacts, and calculations are based on the latest financial and environmental data from S&P Global and validated independently by EY. German rival Ecolytiq boasts similar solutions, and partners with the likes of Visa and Rabobank.

Challenges the Green Payment industry faces

According to a poll by Idemia of 2,800 consumers in 10 countries, 92% of consumers think that their bank should be actively contributing to preserving the planet. This is not limited to younger demographics, either – this figure includes 94% of Baby Boomers.

Nevertheless, as promising as this sounds, the relatively limited uptake of the innovations provided so far suggests that launching a green payment solution is not a straightforward ask. Through the course of our research and analysis, KAE has identified the top five challenges when it comes to sustainable payments, and the key considerations to overcome them.

1. User scepticism. Concerns around greenwashing are rife – consumers and businesses are wise to false eco-conscious claims, and they do not necessarily feel that banking goes hand in hand with sustainability, which could heighten scepticism. According to KAE research, most businesses interviewed do not believe banks have a strong track record for sustainability. Similarly, a report from the EBA indicates that the number of potential greenwashing cases among EU banks “shows a clear increase”, although the EBA was unable to identify whether greenwashing itself is on the rise, or whether intensifying scrutiny of banks has led to more cases being identified. Banks need to ensure that claims to eco-friendliness are supported by robust and transparent data sources, independently audited, and extend beyond the product itself – scrutinise the entire organisation’s sustainability credentials.
2. Cost sensitivity. In the current economic circumstances, cutting costs is more important than ever, and customers may be unable to prioritise green solutions if they come at an additional cost. Research from GlobeScan indicates that although a majority of consumers still maintain that they would be happy to pay more for an environmentally friendly product, their willingness to pay more is declining. KAE insights suggest that the products which appeal most to customers are those which come with value-added benefits beyond going green, such as loyalty programmes or cashback, or from a commercial perspective, those that enable banks to demonstrate their own green credentials to prospective clients.
3. Limited usefulness and poor user experience. Given these concerns, solutions need to go beyond sustainability for sustainability’s sake; they need to add meaningful value to the customer, and be easy to use. Research from Mail Metro Media shows that among consumer drivers of choice, sustainability loses out to almost everything – including convenience. Marketing messaging and functionality focusing solely on sustainability is likely to alienate the majority of your customer base. Banks need to carefully assess the needs of their target audience, be it consumer or commercial, and within the latter, Micro, Small, Medium or Large. Consider where customers are on their sustainability journey and what might add the most value for them. Even something as simple as removing paper and plastic-based payment methods by accepting digital wallets, or promoting payment links rather than physical invoices, can simultaneously promote convenience and sustainability for your customers.
4. Lack of awareness. Although sustainability as a general theme carries broad appeal, don’t assume that your customers are all eco-warriors – they may need a little convincing of the necessity of green payments solutions. While it’s common knowledge that plastic straws and bags are to be discouraged, how many of your customers have considered the carbon impact of their payment card and its manufacturing journey? Ensure that your messaging and branding adequately highlight the benefits of switching to green payments solutions in general, and yours in particular. GoCardless does this well, having commissioned research into plastic pollution and the inefficiencies in payments processes, indicating the ways GoCardless’ account-to-account product can circumvent these issues. Similarly, Bank of Scotland’s “6 reasons to go green” highlight the advantages of sustainability for businesses, alongside advertising their own green financing lending products.
5. Regulatory uncertainty. Changes in legislation can affect any new product launch, but being a nascent area, sustainability is particularly susceptible to fresh regulatory scrutiny. For example, the UK is considering adopting rules to clamp down on greenwashing, by putting pressure on companies to publish their Scope 3 emissions (indirect emissions relating to areas other than electricity, heating or cooling – such as supply chain and commuting). Meanwhile, KAE research found that regulation is one of the major barriers to adopting green payment solutions among businesses, with a lingering perception that paper receipts are still required by law in some markets.

Given the relatively niche status of the green payment initiatives that exist today, launching a sustainable payment product is likely to be a key competitive differentiator, allowing incumbent banks and fintechs alike to get out ahead of the curve – it’s clear that customer demand is there. The keys to success therefore involve careful planning and collaboration, not just with internal stakeholders, but also with external experts to carefully assess user needs and attitudes to ensure the product makes waves with the target audience.

For similar content, see Emily Beeby at KAE.