Sustainability in Payments: Why A2A Payments are Set to Play a Big Role in Sustainable Finance
Sustainable finance and sustainability in payments have never been so prominent. Rising temperatures worldwide and a recent spate of natural disasters have brought concerns over climate change and the environment to the forefront of merchants and consumers.
Indeed, the general public’s concern over environmental and social issues has severely pressured the producers of the many commodities we depend on. Companies are now under more Environmental, Social, and Governance (ESG) scrutiny than ever, and consumers expect all enterprises to take their environmental impact more seriously, champion issues of diversity and inclusion, and integrate sustainable practices and materials into their business.
Thus, industries worldwide, including those in the financial sector, must now be more conscious of their impact on the planet and society.
This article explores the role green payments, such as Pay by Bank and A2A payments, will have in fintech sustainability and how brands can integrate these payment options into their existing checkouts. Read on to learn more.
Sustainability in Payments: The State of Play
Although it might not be the most environmentally harmful sector, the payments landscape does affect the environment and society at large, and this means that payment providers and merchants bear some measure of responsibility for the extent of their impact.
Consumers’ expectations make this responsibility all the more profound. Nowadays, consumers are increasingly looking for options that will have less of a negative impact on the environment.
For example, one study found that more than three-quarters (78%) of consumers feel sustainability is important when shopping. In contrast, just over half (55%) stated they would pay more for eco-friendly brands. Similarly, e-commerce merchants are also looking for more sustainable payment solutions to help them with their overhead costs.
However, that’s not to say that this is a bad thing. These expectations have only galvanised the industry at large to do better. Indeed, ESG factors have become the driving force for new technological advances in the payments space.
A2A payments and, as they are known at checkouts, Pay by Bank, are just one example of a more recent payment innovation that has become hugely popular. They could be the perfect solution for merchants who want to provide consumers with a more appealing payment option.
1. What is sustainability in Payments?
Before we discuss green payments, we must consider what sustainability in payments means. We must also consider what separates the newer solutions from less sustainable and more traditional transaction methods to fully understand why one option might be superior.
The scale of the industry
When it comes to the environmental and social impact of the payments space, we need to consider the vast and globe-spanning industry it is designed to service. Remember that payments are the lynchpin upon which our entire mercantile economy depends. Without them, finance, trade, and society would invariably collapse.
However, the modern economy and e-commerce industry are so large and complex that only a supremely efficient and seamless payment system can enable them to function correctly.
If you don’t believe us, then consider that, according to recent figures from Statista, the billions of annual retail e-commerce transactions conducted worldwide over the past year exceeded $4.1 trillion worldwide over the last year. Without a thriving ecosystem of diverse payment providers, this astronomical sum of capital would be incapable of flowing, thus leading to an ultimately stagnant global economy.
Approximately 20% of transactions are still paid for through traditional payment methods, such as credit and debit cards. These payment methods often rely on energy-inefficient infrastructure and lengthy processing times, which have a knock-on effect on energy wastage. Similarly, credit and debit cards contribute to increased plastic production and transaction costs, negatively impacting the natural world.
The problem of fees
The many fees associated with card payments have made them less attractive and less accessible to specific consumers, particularly those with lower incomes who might find these fees prohibitive.
Traditional payment options sometimes fail to offer adequate cross-border payments for specific demographics. For instance, IBAN discrimination can mean customers cannot make or receive a SEPA credit transfer or pay via a SEPA direct debit from their bank account in another Member State.
With all this in mind, businesses that want to appeal to these untapped market segments, reduce cart abandonment rates, and highlight their brands’ commitment to ESG must consider pursuing alternatives to card payments.
A2A payments: a sustainable solution
We must discuss other options now that we know that traditional payment methods aren’t the most sustainable. The above headaches are prime reasons A2A payments have emerged as a potentially more sustainable solution. So, what are A2A payments, and how exactly do they work?
What are A2A payments?
We’ve already explained the ins and outs of A2A payments in our explainer, which you can find on our website. However, for the sake of clarity, we’ll restate it here.
In layman’s terms, A2A payments are a method of financial transaction in which funds are sent straight between accounts without using cards or other payment methods. They effectively bypass the need for any middlemen or payment tools like cards, reducing the number of parties involved who will take a portion of the transaction.
In the past, A2A payments have typically been associated with specific bank account transactions. They are compatible with digital wallets, banks, and all other direct account payments.
They are typically divided into two categories: push and pull payments. Push payments generally transfer one-off sums and require consumers to manually send or ‘push’ their money. Meanwhile, pull payments typically involve a merchant or business withdrawing (or ‘pulling’) money from consumers’ accounts. They are often associated with recurring payments, such as subscriptions or regular bills.
Advantages of A2A payments in sustainability
Now that we know what A2A payments are let’s examine why they are ideal for merchants who want to improve the sustainability of their payment methods.
Lower carbon footprint
First of all, we must acknowledge that A2A payments are a more sustainable payment method because they use less energy. Rather than traditional payment methods, which rely on fossil-fuel-derived resources like plastic and require energy-intensive data centres to function, Open Banking-powered A2A allows consumers to minimise their energy consumption.
Then, we need to consider that, like any non-digital commodity, traditional payment methods depend upon natural resources, some of which have a finite supply. According to Statista, the number of payment cards in circulation worldwide grew by nearly one billion in the space of a year, a figure that is expected to increase further in the near future. All of these cards depend upon plastic in their manufacturing, and they’re all created with an inherent obsolescence: they each come with an expiry date. This almost guarantees that these cards will be destroyed and thrown away quickly, leading to more pollution through microplastics in landfills.
However, switching to digital payment methods that don’t rely upon physical interfaces like cards, such as A2A online payments, can help circumvent these issues and thus reduce plastic and paper consumption and waste, which has a positive environmental benefit.
Fewer steps and middlemen taking a cut
Another advantage of A2A payments, particularly instant A2A payments like those offered by Brite, is that they reduce the number of organisations in the payment pipeline. Streamlining the payment journey with fewer steps and increasing the process’s operation efficiency means fewer third parties are involved in the process overall.
This strategy also lowers the energy consumed per transaction, which is better for the environment overall. It also means that merchants who choose to use A2A payments don’t have to associate with other organisations that might not be as scrupulous about their carbon footprint and whose energy consumption could be adversely high. This will be a significant win for any merchant or provider who wants to appear socially responsible and conscious of their sustainability metrics.
Cost-effectiveness
Another crucial point favouring A2A payments is their cost-effectiveness, which is of enormous importance when many organisations worry that pursuing ESG objectives will hurt their bottom line, which they can ill afford during economic stagnation. Luckily, the opposite is true in this case, where adopting more sustainable payment methods isn’t just socially responsible and environmentally conscious but also financially pragmatic and cost-effective.
Indeed, A2A payments are useful for merchants and consumers who want to save money on their transactions by eliminating redundant steps in the process and thus reducing energy usage. Since transaction fees can be hefty and occasionally involve several layers — which can add up to make these items even more costly — A2A payments can provide a cost-effective substitute by charging a set fee for each transaction and transferring money directly across accounts.
Compliance and security
Compliance shouldn’t ever be seen as a chore by merchants or a restrictive obligation. Although the many disparate pieces of financial legislation they’re expected to abide by can be exceedingly complex, we have to remember that they are ultimately designed with the public’s good in mind — to protect the personal data and private information of consumers and enterprises alike and to ensure that businesses are being conducted safely and sustainably.
The good thing about Pay by Bank and A2A payments is that they can also help merchants with their compliance. They boast better security and strong customer authentication, helping them safeguard valuable and personal customer data. For instance, the EU Accessibility Act, PSD3, Instant Payments Regulation, and AML are all clear examples of new payments and data protection legislation that A2A will automatically help businesses remain compliant with without the merchants having to sweat over the details themselves.
Instant Payments Vs Crypto Currencies
Something that needs to be addressed swiftly is that Instant Payments, such as A2A payments, are much more sustainable than cryptocurrencies. Indeed, a persistent myth that is becoming more widespread is that crypto is an environmentally friendly payment method.
Bitcoin and other forms of cryptocurrency have the most detrimental effects on the environment of all payment methods. This is due to their enormous carbon emissions, electricity use, e-waste production, and resource extraction. According to a recent study in Science Direct, the carbon footprint of one Bitcoin transaction is equivalent to 959,395 Visa card transactions. And then there’s also the additional pollutant of the large volumes of e-waste generated by cryptocurrency due to the rapid obsolescence of the hardware used in mining.
Another drawback is that Bitcoin is rarely used as a real payment method and is instead largely used for speculation. Additionally, it can facilitate money laundering and illicit black market payments. On the other hand, the above study ranked Instant payments, such as Brite’s, very high in terms of environmental friendliness, proving that it is one of the best methods of reducing a business’s carbon footprint.
The future of sustainable payments
The future of sustainable payments depends upon businesses embracing new and lateral solutions. Merchants and businesses can begin integrating open-banking-powered A2A payments into their existing checkouts. These new advancements can help them achieve master, more accessible, more reliable, and safer payment solutions.
Furthermore, a key aspect of sustainability is inclusivity, and by integrating A2A payments as an alternative to traditional methods, businesses can ensure that they are more inclusive of consumers who favour those options. Accommodating more demographics of consumers who might not be able to use credit or debit cards for whatever reason will go a long way towards making your business appear more open and accessible while boosting your consumer base and profits.
Conclusion
Sustainability is more than just a set of arbitrary benchmarks. It should be considered a transformative prism for viewing your business, one that helps, not hinders, your profits and accessibility. Sustainability must become a watchword for anyone serious about enabling fast, efficient, and responsible payment methods.
At Brite, we want to help other e-commerce vendors find more sustainable solutions to their payment problems. Our website offers a wealth of insights to help you get started. So, if you’d like to know more, visit Brite’s resources page now.
