October 19, 2023 | By Ed Lee
This article was originally published in Chinese in the October 2023 edition of China Credit Card.
Why should the near ubiquity of payment cards in many regions be a means of supporting the environment?
One answer comes from the opportunities to recycle expired cards, the switch to more sustainable materials instead of first-use plastic, and the use of virtual cards in digital wallets. These efforts all help. But a potentially even bigger opportunity to benefit the environment does not concern the cards themselves.
Rather, the opportunity concerns information around card use. Or more specifically, how card issuers and card networks can help inform cardholders’ choices by providing them with information about the environmental implications of their purchases.
The opportunity comes from cardholder empowerment in two areas. The first is knowledge. A common perception is that only corporations and governments can really make a difference, when in reality everyone can play a role. The second is ease. Caring for the environment can be perceived as inconvenient or costly, but it doesn’t have to be.
Knowledge: Carbon calculations
The United Nations coined the acronym ESG (environmental, social and governance) in its “Who cares wins” manifesto in 2004. Despite endorsement by a score of financial institutions, the idea that investors might incorporate ESG factors in corporate valuations was almost heretical.
Much has changed in the two decades since. For example, a core component of the European Union’s 2021 “Strategy for financing the transition to a sustainable economy” is the standardized disclosure of sustainability data by businesses. Meanwhile, the “Guidelines for investor relations management by listed companies”, released by the China Securities Regulatory Commission (CSRC) in 2022, requires such disclosures.
The EU and CSRC focuses are on sustainability disclosures by businesses for investors, yet a model for disclosures already exists in the Mastercard Carbon Calculator that card issuers can include in their banking apps for individual consumers. The calculator combines consumer-permissioned spend data with merchant category codes to provide standardized estimated calculations of carbon emissions generated by purchases.
The more comprehensive the emissions data shared by businesses, the more accurate that carbon calculations can become over time. A simple category code, such as restaurants, is limited. Information on the type, production and source of the restaurant’s food is more valuable. Cardholders can then understand in detail how their financial footprints pertain to their carbon footprints.
Secure and standardized sharing of detailed sustainability information by businesses via application programming interfaces (APIs) can do more than just serve investors. It can actively involve and engage entire networks of cardholders, many of whom use their cards at those very businesses being evaluated by investors.
Ease: Carbon reductions
Knowledge of carbon footprints generated by card payments is a start; reducing the footprints is another.
Cardholders already seem to care. Consumers in Mexico, India and China seem particularly motivated, according to a 2022 report based on a survey of 10,000 consumers aged 16–40 across ten developed and emerging economies.1 In particular, consumers in China ranked first in responses to two key questions: “How concerned are you about the state of the overall environment?” and “To what extent has your consumption profile changed because of environmental concerns?”
Perhaps most significant is that the high level of concern by Chinese consumers correlates with only a limited belief that regulation is needed for sustainability. The report suggests a greater focus on personal responsibility by consumers in China than in the other surveyed economies.
This amenable consumption environment provides an opportunity for card networks and issuers. The challenge is how to support sustainable consumption without making consumers lurch between the two extremes of spending more on less-preferred alternatives or cutting back on some purchases altogether.
One approach is to combine spending tips with the carbon calculator. That way cardholders can make easier and better-informed switches to eco-friendly products.
Another approach is to help cardholders with carbon compensation—a phrase that tends to be associated with businesses rather than consumers. Yet, like carbon disclosures and calculations, a model already exists in the consumer space.
Card networks currently enable issuers to offer easy donations at scale. Approaches go beyond simple one-off or recurring donations to include dynamic approaches, such as donations from “rounding up” individual purchases or based on percentages of total purchases.
Automatic donations of percentages of cardholder spend is now a selling point for some fintech issuers building a brand around sustainability or for traditional issuers with sustainable offerings within their card portfolios. Card payment processors also play a role by enabling retailers to automatically donate a portion of revenue on behalf of their consumers.
The conversion of card-based donations to card-based carbon compensation requires two modifications. The first simply focuses the donations on environmental causes, such as conservation and reforestation initiatives like the Mastercard Priceless Planet Coalition. The second explicitly ties those environmentally focused donations to cardholder spend so cardholders can see precisely how they are faring in terms of sustainable consumption.
A European digital-born bank includes the Mastercard Carbon Calculator in its banking app and integrates carbon compensations by allowing consumers to plant trees via a partnership with a local foundation. A 10% increase in Gránit Bank’s customers over 22 months was partly attributable to the launch of the calculator and its associated campaign. In addition, 50% of customers opened the calculator and used it three times per month on average, and 12% of those users planted trees.
The power of the network
There are more payment cards than people in many countries. Just under three cards were issued per adult in western Europe in 2021, according to the research & consulting company RBR. Payments with cards, physical or virtual, is accordingly high. In China, 232 billion card payments were made in 2021, according to RBR; the figure is predicted to rise to 526 billion by 2027.
The ubiquity of cards offers a real pathway to support sustainable consumption. Through carbon calculations and carbon reductions, the underlying card network takes cardholders beyond shared payment experiences into shared consumption choices. And in doing so, it reassures them that they are not alone.
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