The Secret of the Carbon Footprint of Global Payment Systems

Posted on 29/02/24 by

It’s no mystery that businesses are the biggest producers of harmful carbon dioxide on Earth; the number of employees, the nature of the business, the transportation involved all contribute to a business’s carbon footprint. However, this is only scratching the surface.

In today’s article, we will discuss how payment systems specifically contribute to harmful emissions. Anything from Venmo transactions to playing at PayPal betting sites is associated with an increase of the carbon footprint of the specific payment service company.

A big portion of their carbon footprint for can be easily explained, but there is much more to be found which can surprise you.

Traditional Payment Methods

Let’s first start by examining the carbon footprint of traditional payment methods such as cash and credit/debit cards and then comparing it with that of digital payment methods like PayPal and Neteller.

Cash, for example, is associated with manufacturing bank notes and minting coins which use significant amount of energy and fuel. The distribution of cash also requires secure vehicles which produce more CO2 than regular cars.

In terms of traditional banking, the most obvious thing that first comes to mind is plastic; bank cards are made of plastic, more specifically PVC, whose production creates harmful gases, while its later disposal pollutes the environment as the material can take years, sometimes hundreds of years, to biodegrade.

The second thing that comes to mind is paper; banks send bank statements to their clients, along with many promotional materials that contribute to deforestation which in its turn allows for more carbon dioxide to remain on Earth.

In addition, banks boast of massive staff that includes anyone from the bank teller to the corporate investor and more employees translate to bigger carbon emissions. Logistics also come into the equation.

So, these are the obvious things that contribute to the overall carbon footprint of the traditional banking system, but they are far from being the only contributors and are actually the more benign ones.

It’s neither the operation of a physical bank/office or their communication with clients that makes the bulk of a bank’s carbon footprint, but its investments.

The money in your bank account doesn’t just stay there, it’s constantly used to lend to other clients and to make investments. When a bank invests or lends money to a company with massive carbon footprint, it enables the company to not change its less than eco-friendly ways.

Not only that, but banks also invest in fossil fuel development; since the 2015 Paris Agreement, the top four American banks, JP Morgan Chase, Bank of America, Wells Farko and Citi Bank, have invested about $1.375 billion in fossil fuel development.

For instance, a sum as low as $1,000 in a savings account in Bank of America ‘translates to 200,000 mtCO2e per year’. This means that the size of your own carbon footprint is mainly reliant on the bank you choose. Switching to a different bank can apparently decrease your carbon footprint by 60%.

Digital Payment Methods

Digital payment methods are not safe from scrutiny either. While a single digital payment, according to experts, produces 80% less CO2 than its traditional counterpart bank transfer due to its speed and fewer middlemen, online payment services also have big carbon footprints.

In order for a digital transaction to take place, the payment service has to utilise powerful data centres which consume massive amount of energy and since most of the world is still reliant on fossil fuels, this translates to more greenhouse gases released in the environment.

Cryptocurrency transactions especially are big offenders when it comes to their carbon footprint because mining them and using them requires more energy than it’s used for other digital payments. One Cambridge University research estimated that Bitcoin alone consumes as much energy per annum as the country of Sweden which is worrying.

What Can be Done

We identified the main problems leading to harmful gas emissions, so it’s necessary to discuss proposed solutions:

• PVC Cards – Some banks have already unveiled new BIOPVC cards which decompose within 7 years.
• Paper – Many banks are trying to limit their paper consumption by sending bank statements and promotions over email; you can request to receive yours digitally.
• Logistics – To limit the direct production of CO2, some banks have updated their car fleet with electric vehicles.
• Staff – Several banks in the US now have implemented AI as part of their operations to limit the size of their staff.
• Investments – Banks should stop condoning the operations of big carbon dioxide offenders by limiting their investments in such companies. In December 2023, the Partnership for Carbon Accounting Financials (PCAF), which includes participation from major financial institutions, came up with a standard which postulated that banks need to account for 33% of the emissions linked to their capital investments.
• Data centres – New environmentally-conscious data centres are being built to account for the energy consumption associated with digital payments.
• Green Energy – If more companies, and whole countries, embrace green renewable energy, the energy consumption of data centres will consequently be emissions-free.
• Blockchain technology – Although mining cryptocurrency is energy-consuming, the blockchain itself is eco-friendly as it does not rely on large data centres.

Final Thoughts

As you can see, making any sort of payment is associated with harmful emissions. In order to decrease your carbon footprint, you should be conscious of the practices of banks and digital payment services and you should hold those companies accountable when they offend.