• Andrew Stewart, UK and Ireland Managing Partner at Kearney , Hanno van der Zwan, Partner at Kearney


• 03.12.2024 02:45 pm
#FinancialInnovation #Sustainability

We are pivoting towards a new global market economy following several key elections this year, and sustainability is increasingly becoming an opportunity rather than a risk for organisations to manage. And this is a shift which is going to be absorbed by banking and financial institutions, too. 

While the financial services sector is already making strides in areas such as green mortgages and sustainable investment products, the potential of payments as a sustainability driver remains untapped. This makes it all the more important that we explore its role as an overlooked lever in the transition to a more sustainable future. 

From compliance to driving real value 

Around the world, banks and financial institutions aren’t immune to pressures to integrate sustainability into their operations either. Regulatory bodies are demanding that climate risks are accounted for in day-to-day operations, while sustainability reporting is becoming mandatory across the board. At the same time, we’re seeing another layer of intense scrutiny to communicate authentic sustainability commitments to avoid the pitfalls of greenwashing. 

But the key difference now is that the conversation is evolving, and the industry is no longer adopting a reactive stance.

Leading banks are moving from compliance-focused strategies to proactive, value-driven approaches that don’t just view sustainability as risk mitigation but consider it critical to staying ahead of the competition. 

By being on the front foot, financial institutions are actively tapping into new growth avenues. They are enhancing customer loyalty by making tangible commitments to eco-conscious values, diversifying their offering with new green products like green mortgages and sustainable investment funds, and are even creating additional revenue streams with sustainability-related services. 

But why are payments overlooked? 

Traditionally, payments haven’t been seen as a strategic function. 

Although they are an essential part of how we live, work, and make purchasing decisions, financial institutions have overlooked their role in the sustainability transition. Each transaction serves as a proxy for consumer behaviour, choices and, indirectly, carbon emissions, but they haven’t been leveraged to drive sustainability. 

However, now with fintech, greentech, and neobanks leading the way, sustainable payment solutions are gaining traction, offering transparency, rewards, and incentives for eco-friendly choices that empower consumers to act responsibly. 

Additionally, by embedding sustainability into the payments ecosystem, banks can create a feedback loop where payments data informs other green offerings, such as sustainable investments or green loans. 

This connected approach reveals deeper insights into consumer behaviours and preferences, enabling banks to offer more tailored and impactful green financial solutions. 

Realising the potential of payments 

Firstly, banks need the relevant internal capabilities to develop a compelling sustainable payments proposition. By investing in the right resources, alongside Open Banking technologies that facilitate a customer-centric experience, an integrated digital experience will make sustainable payments an attractive option for consumers. 

Digital wallets and payment links are already popular choices for many consumers, but to take this to the next level, banks need to leverage both off-the-shelf and custom-built sustainable payment offerings. 

By working closely with payment networks, fintech, and other players across the sustainable finance ecosystem, they can minimise the physical parts of the payment chain that have a considerable environmental impact and promote new ways of consumption. 

Complementing innovation and collaboration, having a deliberate go-to-market strategy is equally important. Financial institutions must drive progress in this area while remaining sensitive to regional context and concerns around greenwashing. For example, Dutch bank ING launched a carbon-tracking tool within its mobile app, allowing customers to track the carbon footprint of their spending. ING rolled out this feature in the Netherlands first, gathering feedback and refining the tool before expanding to other markets with similar demand for sustainable banking options. 

In a similar vein, Swedish fintech Doconomy developed a carbon offset program linked to consumer purchases. Doconomy initially partnered with select Nordic banks to ensure strong cultural alignment and mitigate potential greenwashing concerns. 

By starting in regions where sustainability is a priority, these institutions could tailor offerings to customer expectations, refine their messaging, and expand responsibly into new regions.

A catalyst for sustainable transformation 

We all know that payments play a pivotal role in the global movements of money, yet its surprising that their part in the sustainable transition remains undervalued. 

Financial institutions should begin viewing payments not just as a transaction service but as a strategic pillar of their net zero agenda. Some market leaders are already making strides: BBVA, for example, offers a real-time carbon footprint tracker within its app, while Mastercard takes this further by enabling customers to offset the emissions tied to their purchases. 

By reimagining payments as a powerful tool for sustainability, banks can unlock efficiency gains and advance their sustainability goals faster than expected.