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The Power Behind Payments – Is It Time for the ‘Slow Fintech’ Movement?

Time for Slow Fintech?

According to a freshly-minted piece of research from the Dutch central bank, choosing card payments over cash is not only convenient, it’s also good for the environment. The study considers everything from the origin of cotton that goes into the production of (Euro) banknotes and the environmental impact of armored vehicles to transport cash, through to the energy usage of POS card payment terminals in standby mode.

End result? The environmental impact of the average cash transaction is 36 percent higher than the average debit card transaction – a significant difference, though admittedly not as much as I would have predicted. And of course, the energy consumption and global warming potential of payments systems is rather small in the context of the overall economy – in the case of the Netherlands, the cash payment system contributes only 0.009% to the overall ‘Global Warming Potential’ of the Dutch economy.

To put it another way… swiping (or tapping) your card instead of fumbling for loose change certainly does not offset the environmental impact of that exotic out-of-season fruit that’s been flown halfway around the world. Far from it. But before we disappear down a complicated and potentially controversial consumerism rabbit hole, back to payment systems.

 

Boiling the ocean (1872 litres at a time)

While the energy consumption of cash versus card might not exactly be headline news, one of the many criticisms leveled at Bitcoin, as it climbed towards its all-time high of USD $20,000 last December, was the unsuitability of it as a payment system based on the vast amounts of energy required to confirm a transaction – through ‘proof of work’ – on the blockchain. One transaction using enough energy to boil 1872 litres of water (nearly 500 gallons) in a kettle, or to run a fridge/freezer for a year – there were no shortage of comparisons that put into perspective the shortcomings of bitcoin as a payment method for that new kettle you need to boil all that water.

Admittedly, as bitcoin prices dropped from those heady heights, the calculated energy consumption per transaction has also declined. But the annual overall energy consumption of the bitcoin network, including mining, is still equivalent to the entire yearly electricity use of Switzerland. Some will make the valid point that this energy consumption is not intrinsically evil: it is a question of how that energy is generated – is it renewable hydro-electricity in Iceland (one crypto mining hotspot) or state-subsidized coal-based energy, as in parts of China (the global leader in bitcoin mining).

What the rise and fall (or rise and rise… I’ll hedge my bets) of bitcoin demonstrated, however, is that issues around energy consumption and the environmental impact of financial systems can enter the public consciousness. And if you’re inclined to take the most recent UN Intergovernmental Panel on Climate Change report seriously (I do), then that’s a good thing.

 

Data centers and delivery to your door

There’s also increasing awareness that “in the cloud” actually means “in a data center” – and while the topic of data centers and carbon footprint is not a new one, I would expect to see data center efficiency and sustainability become even more of a focus as cloud-based computing becomes ever-more central to the technology industry. Sweden recently opened the world’s first carbon-positive data center – and while the skeptical might dismiss this as a PR stunt, maybe there will come a time where vendors within the payments and fintech industry, as part of their corporate social responsibility (CSR), look to such solutions.

All of this is a rather long-winded way to get to what I really wanted to talk about. While the overall environmental impact of payment systems might be negligible (remember that 0.009% contribution of cash payment systems to the total environmental impact in the Netherlands?), the environmental impact of shipping and fulfilment for goods that are paid for online continues to rise – a logical consequence of the continued growth in eCommerce globally.

Now, I’m not so blinded by nostalgia that I’m advocating a return to the heyday of the suburban mall – nor suggesting to avoid buying things altogether. And in any case, an attempt at a direct comparison between brick-and-mortar and online shopping would be an exercise in futility – there are simply too many variables to generalize about what option is ‘greener.’

What is clear, however, is that the way in which we shop online – driven by a need for instant gratification and increasing expectations around convenience – can make online shopping a much dirtier business than many would like it to be. The culprit most frequently identified is shipping – or to be more precise, the speed of shipping. Next-day delivery that requires air transportation, followed by last-mile delivery in a partly-filled (read: non-optimized) fossil fuel-consuming van, quickly changes the game – making eCommerce potentially less efficient than a solo car trip a physical store 10 miles away.

You can find advice online about how to minimize impact – i.e. reconsidering express shipping, purchasing multiple items from a single merchant, and looking for eco-friendly packaging options – but perhaps eCommerce really is ready for its ‘Slow’ movement? The ‘Slow Food’ movement emerged in the 1980s as a reaction to the rise of ubiquitous fast food, with an emphasis on provenance, local production and nose-to-tail cooking – not to mention increased attention on ethical consumption. More recently, the ‘Slow Fashion’ movement has arisen based on similar principles – consciousness around a garments’ production, lifecycle, and supply chain, and a reaction to the trend towards fast and disposable fashion.

So, if consumers have a growing awareness of how their food is produced and how their clothes are made, why wouldn’t they want to know about how those things are delivered to their front door? Perhaps we’re not so far away from filling our (online) shopping cart and getting a transparent view of the impact of different shipping options? Or being able to consciously choose a ‘green’ delivery method or pick-up location? It’s already in the interests of logistics and shipping companies to reduce packaging, warehousing and shipping costs – and find the most efficient way to complete the ‘last-mile’ – the logical next step is to marry this to consumers’ desire to better understand the impact of their online activity. Maybe the online checkout page can even indicate the greenest way to pay? (spoiler alert: it’s probably still not bitcoin).