The Quick Read
- Businesses and consumers are expected to spend more than $9 trillion using virtual or digital transactions in 2023
- 73% of CFOs responding to the American Express 2023 CFO Survey said virtual payments would be very or extremely important to their business in the next 12 months - 78% said ESG would be important
- Virtual payments can cut carbon emissions associated with transactions by up to 80%
Pressure from customers and investors to meet high ESG standards means that environmental performance is becoming increasingly tied to financial performance. As a result, companies need to understand and take steps to reduce carbon emissions in all areas, including payments.
Traditional payment methods create carbon emissions with every transaction:
- Every time a payment is made using a cash, 22g of carbon is generated
- Every time a payment is made using a cheque, 15g of carbon is generated
- Using a payment card online means that just 3g of carbon is generated [1]
Virtual payments, meanwhile, offer the potential to lower carbon emissions even further than those generated by online card transactions. They are a form of digital transaction that connects vendors and customers more directly than traditional payment methods, providing greater security and transparency. And they have the added benefit of potentially reducing payment-related emissions by up to 80% [2]. This can be achieved in a number of ways [3]:
- Using virtual payments removes the need to manufacture, distribute and use physical cards, cheques and bank notes
- Requesting payments virtually can remove the need to produce and send paper invoices, cheques and remittance advice
- Sending virtual payments reduces waste and recycling costs associated with traditional payment methods
Many virtual payments can be automated, driving up efficiency and reducing labour costs. They can also help organisations to implement consistent spend tracking and analysis, by providing easy, fast access to payment data.
The Deep Dive
Countries around the world have committed to ‘net zero’ carbon emissions by 2050. For business leaders, that means identifying steps that can be taken to reduce carbon emissions and meet statutory and industry targets.
Organisations also need to remember that customers are increasingly likely to buy from companies that demonstrate strong ESG leadership. One recent study found that 83% of consumers expect companies they buy from to be adopting ESG best practices [4], while 78% of CFOs surveyed by American Express said that ESG would be very or extremely important to their business over the next 12 months.
Virtual payments can be a useful way to reduce the carbon emissions associated with payments, helping to drive better ESG performance.
As part of a growing awareness of ESG issues, companies are increasingly considering virtual payments to reduce carbon emissions. The American Express 2023 CFO Survey also found that 73% of CFOs said they expect virtual payments to be very or extremely important in the year ahead. Separately, American Express also found that carbon emissions were one of the top ESG-related KPIs for businesses in 2023.
Organisations that move to virtual payments could reduce carbon emissions by removing many of the physical elements of traditional payments.
Virtual payments can be made using software or virtual cards on existing devices, and do not generate the carbon emissions associated with manufacturing, distributing, processing and disposing of traditional, physical payment products.
Of course, virtual payments don’t eliminate carbon emissions entirely – there are costs and offsets associated with using smartphones and computers to make payments, and for the data centres that process transactions. Companies should consider offsetting these emissions or choosing sustainable suppliers of data services where possible.
Digital payments can include virtual cards and digital wallets such as Google Pay or Apple Pay, where the customer loads payment information in advance and then taps their phone to make a payment. They can also include business virtual payment solutions such as American Express vPayment, which allow businesses to accept online payments through a secure, digital platform. This reduces paper and plastic use, and customers get a quick, seamless experience. Organisations can also look for additional ways to adopt virtual payment services such as digital billing, online invoicing and digital receipts.
These technologies help to reduce carbon emissions by eliminating paper processes and reducing waste. Automation can also help organisations to improve accuracy and efficiency, benefiting both workflow and cash flow. Benefits of virtual payments for businesses can include:
- Reduced operating expenses: using more virtual payments reduces costs such as paper, printing and postage.
- Reduced labour costs: Digital payments are easier to automate, meaning less time is spent on AP and AR processes.
- Improved accuracy: Virtual payments can easily be stored and analysed, allowing your organisation to identify trends, spot errors and optimise workflows.
- Better security: Virtual payments use encryption to reduce the risk of data loss and fraud.
Virtual payments can help organisations to make a big step towards net zero emission targets. To find out how American Express can help on your net zero payment journey, visit our website.
Sources:
[1] Statistica, Digital Payments Worldwide, April 2022
[2] British Retail Consortium, Making Checkouts Greener, 2022
[3] Medium, How digital payments are driving sustainability, January 2020
[4] PriceWaterhouseCoopers, How Much Does the Public Care about ESG, Jun 2021