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#Digital

Is frictionless payment always the most sustainable way?

Global Trends
6 Mins.

As banks look to deliver on sustainability objectives and increase their digital capabilities, an eco-innovative way to think about digital payments could help to meet both these goals, all while improving the consumer’s experience

2021 marks five years since Apple and Google launched their contactless mobile payment systems in Europe. Apple Pay and Google Pay, which arrived in the UK in 2016, continue to be rolled out across the continent.

“Cashless made effortless” and “A better way to pay,” as the California-based companies market their respective services, are just two recent examples of how consumers are being helped to pay for goods and services more easily and quickly.

This quest for frictionless payment has been driven by advances in technology – from near-field communications and smartphones to smart speakers and emerging behavioral biometrics – and often from providers outside of the banking and finance industry.

As traditional banks look to keep pace with the growing number of challenger banks and payment providers tempting customers with increasingly advanced digital offerings, it is easy to become sucked into a race that they have no guarantee of winning.

Linking payments to the environment

Removing friction from the payment process has clear upsides, but also some potential downsides. While a frictionless payment process makes consumption easier, not all decisions to consume are based on our most reasonable and responsible choices, as environmentalists or credit scores can testify.

Could there be another way? Improving consumer awareness about the impact of their purchases on the environment offers banks a unique opportunity to change the conversation around payments.

Sweden-based Doconomy is one company that is working in this area. The fintech has developed a new service that calculates how much CO2 a consumer contributes each time they buy something. The Åland Index, which is available as an API for banks to integrate into their digital offerings, analyzes all types of transactions and creates a dashboard to show a user’s carbon footprint. For example, a user can view the carbon footprint of their purchases per month, per category (e.g., transport, shopping, etc.), or per individual payment (e.g., a restaurant bill or a store purchase) on a dedicated app. The company likens it to apps consumers use to calculate the calories they consume.

“Consumers have realized that their purchasing actions have the power to impact positive change“
Nandita Bakhshi
President and CEO of Bank of the West

Other services that Doconomy offers include the ability to nudge users to make more carbon-friendly choices with life hacks, to set specific carbon-related consumption targets, and to invest in climate-friendly impact funds. There is even a carbon-related limit for payment cards that stops users’ spending once they have hit an individual limit.

The power of positive change

A man pays a woman on a market  for some vegetables using a mobile payment device.

G+D has teamed up with Doconomy to recommend these services to banks as part of its Convego® Beyond portfolio – a suite of sustainable payment cards and related services that includes cards made from plastic collected from the world’s oceans and beaches.

“Our purpose is to offer our bank clients the services they need to implement their own sustainability strategy, enabling them to compete better for the attention of their customers. A fast-growing number of eco-conscious consumers are demanding from G+D, from banks, and from industry leaders that we collaborate towards such solutions to serve future generations and protect our environment,” said Mikko Kähkönen, responsible for the smart cards portfolio at G+D.

When announcing the partnership to G+D, Mathias Wikström, founder and CEO at Doconomy, concurred by saying that “Doconomy is based on the idea of collaboration. Working with front-runners in every field expands our mutual abilities to enable everyday climate action.”

A subsidiary of France-based bank BNP Paribas is already using Doconomy’s services. America’s Bank of the West offers the Åland Index and an associated payment card as part of its “1% for the Planet” account, which sees it donate 1% of revenues to environmental non-profit associations.1 “Consumers have realized that their purchasing actions have the power to impact positive change,” said Nandita Bakhshi, President and CEO of Bank of the West.

While still in its early days, Doconomy says some banks that have offered their service have seen 25% growth in new account openings and up to a 30% increase in deposits. Moreover, it boosts brand awareness by 300% and improves engagement with employees.

Helping banks to re-connect with customers

While sustainability issues are a hot topic for many consumers – 85% of adults surveyed by Mastercard said they’re willing to take personal action to combat environmental and sustainability challenges in 2021 – they have a particular resonance with the youngest.2

Climate change is the biggest concern for millennials and those in Gen Z, according to a Deloitte survey, which also found that over four in 10 had educated themselves on the environmental aspects of the brands they consume.3

If banks are to continue to attract this key demographic, offering solutions that act on both the spirit and the letter of their sustainability concerns is crucial. In other words, banks cannot afford to be found greenwashing.

The European Union is doing its bit to mitigate this by helping to clarify what sustainability actually means. The EU Taxonomy Regulation, unveiled in 2020, classifies environmentally sustainable economic activities. Crucially, it includes definitions that companies, investors, and policymakers can use to demonstrate that projects are truly “green.”4

But even if customers are convinced that a bank is genuine in its sustainable endeavors, could enhancing their environmental awareness with tips or nudges during the payment process be perceived as a troublesome friction that could lead to less spending? No, says Doconomy co-founder and CCO Helena Mueller: “It’s not a question of customers spending less, it’s about them spending better. If you build an experience that is fun, engaging, educating, and rewarding then you’ll have the same behavior as with any type of service.”

As banks look to improve customer loyalty, work towards digital and sustainability targets, and stand out in a market that Silicon Valley giants continue encroach on, reintroducing some purposeful incentives and degrees of friction to payments by linking them to the environment could be a profitable new avenue to explore.

  1. The first checking account to give back to the planet, Bank of the West, 2021

  2. Consumer passion for the environment grows as a result of the pandemic, Mastercard, 2021

  3. The Deloitte Global 2021 Millennial and Gen Z Survey, Deloitte, 2021

  4. EU taxonomy for sustainable activities, European Commission, 2020

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