ISO 20022 for U.S. banks: strategies, benefits & more

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The increasing role of digital payments in promoting environmental sustainability

Randy Rodriguez
Randy Rodriguez
Regional Sales Head, North America, Volante Technologies

When we think about the benefits of digital payments for the financial industry, the first things that come to mind are often reduced costs, enhanced efficiency, and an overall increased capacity for innovation. However, it isn’t only payment service providers (PSPs) and their customers who benefit from payments modernization, and as society becomes increasingly conscious of the myriad challenges facing our environment, we need to do a better job of communicating the increasing role of digital payments in promoting sustainability.

Reducing the carbon footprint of financial transactions

The first and perhaps the most obvious environmental benefit of digital payments is the reduction of harmful carbon emissions associated with physical payments. More specifically, the production and transportation of cash alone results in the release of thousands of tons of CO2 annually, and this is in addition to the detrimental effects on the environment caused by the continued manufacturing of plastic payment cards.

Put simply, as the use of digital payments increases across the globe, including via virtual cards and mobile wallets, the demand for the production of physical cash and cards is reduced considerably, as is their associated carbon footprint.

Additionally, while electronic transactions are not without their environmental costs, rapid advancements in digital payment technology are leading to vastly more efficient and less energy-intensive processes. Instant payments, for example, considerably reduce the energy needed to execute a transaction, and widespread adoption of an expanding network of real-time payment rails across the global financial services sector is leading to an increasingly sustainable digital payments ecosystem.

Increased financial inclusion and support for Green Finance initiatives

Separately, the promotion of financial inclusion and accessibility is critical to improving sustainability and reaching sustainable development goals. As digital payments technology continues to advance, resulting in countless innovations in the realm of instant and cross-border transactions, broader access to payment services can help increase the flow of capital into underserved organizations focused on environmental sustainability.

More specifically, digital payments work to accelerate the realization of UN-backed Green Financing initiatives, which aim “to increase the level of financial flows (from banking, micro-credit, insurance, and investment) from the public, private and not-for-profit sectors to sustainable development priorities.” In fact, in its 2022 report, the Alliance for Financial Inclusion (AFI) highlighted a variety of ways that digital payments innovation is already accelerating progress in green finance, including by increasing the resilience of low-income households and small and medium-sized enterprises to environmental risks.

Conclusion

To be sure, the above only begins to capture the increasingly critical role that digital payment technology will play in promoting environmental sustainability across the globe. For example, in addition to reducing CO2 emissions associated with financial transactions and accelerating support for green finance initiatives and inclusivity, the enhanced accounting and data management and analysis tools provided by modernized payment platforms can also help streamline reporting and increase transparency around sustainable investments.

Critically, while increased awareness around these benefits is crucial for obtaining support for digital payment innovation from global institutions, it should also be a priority for banks and PSPs as they launch or continue on their modernization journey. Put simply, by understanding the unique ways in which digital payments can help promote sustainable development, it becomes much easier to communicate with environmentally conscious consumers and businesses, as well as innovate toward the creation of new value-added services that help clients reach their sustainability goals.

For more on payments technology affecting global change, download our interactive guide that explores 10 markets that are experiencing unprecedented digital transformation over the next decade.

Randy Rodriguez
Randy Rodriguez
Regional Sales Head, North America, Volante Technologies

Randy represents the leading global payments provider to the banking industry in the market, focused on North America. He brings a SaaS background, focus on customer success, and business model innovation to North American banks and payments providers.

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