10 ways that ESG brings value to payments

These are the main ways ESG principles can make payment solutions more valuable

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10 ways that ESG brings value to payments. Source: depositphotos.com

Over the last decade, Environmental, Social, and Governance (ESG) business principles have gone mainstream. Socially responsible and ethical investing is what defines the present and future of corporate standards. These non-financial goals are now put at the forefront of corporate agendas. When it comes to the payments sphere, ESG can bring incredible value to existing fintech products and help emerging startups create a successful business strategy.

ESG reduces costs

A strong ESG proposition in payments reduces energy consumption and waste. For instance, digital payment technologies eliminate unnecessary bureaucracy and paperwork on the back-end, allow online applications without paper copies of the basic documents, provide electronic ICRs instead of paper ones, and gradually reduce the need for cash and ATMs which also utilise energy and raw materials. Besides, automated payment processes facilitate corporate work, reducing administrative and office supply costs. Thus, small retailers can use numerous software options to accept payments without costly POS terminals. Additional savings may arise regarding labour costs since fewer human employees are involved in handling payments.

Financial inclusion generates additional income

Many fintech projects are socially-oriented. They solve financial problems of the categories previously excluded from official banking systems (e.g. citizens of remote rural areas, gig workers, those living off remittances, etc). Including more people in the national financial system gives them more credit and investment opportunities. Thus, both customers and payment providers can generate more profit.

Strong ESG is favoured by regulators

Payment providers with a strong ESG agenda have a high level of regulatory compliance. Therefore, they earn more subsidies and government support.

Sustainability has a positive impact on shareholder value

Sustainability achievements are now routinely acknowledged alongside traditional key performance indicators (KPIs). Shareholders pay great attention to the mission statements of the company, its sustainability goals, and the extent to which the company sticks to its pledges. A company’s shareholder value depends on strategic decisions made by its management. Strong ESG growth is one of the signs of wise strategies applied and it impacts the corporate shares positively.

ESG boosts employee motivation

Firstly, payment companies with ESG orientation attract talent through greater social credibility. Putting ethical and social goals on top of the agenda can boost the intrinsic motivation of employees, as they feel their work has great social importance. ESG principles also foster diversity and inclusion among employees, which creates a favourable corporate environment. Policies that specifically promote employee well-being can appeal to prospective employees while also retaining existing employees.

Payment tools help measure individual impact

Innovative payment apps include a range of analytical and statistical tools that may help customers shift their spending toward more sustainable products and behaviour. Digital tools can potentially allow individuals to calculate and limit their CO2 impact based on their payment history. Payment networks provide an opportunity to raise clients’ awareness of the environmental footprint associated with every single purchasing activity and make that data readily and consistently available. Besides, selected payment technologies may help track the product components, sustainability of the packaging used, brand recycling patterns, etc.

The ESG program enhances the reputation of payment providers

Dedication to ESG boosts brand value among both consumers and partners. Firstly, end consumers are becoming increasingly aware of ethical spending and are looking more closely at the ESG practices of the companies they support and the payment providers they use. Corporate clients are also likely to scrutinise their own business constituents to evaluate their ESG impact which includes all their partners and third-party vendors. If you have ESG programs in action, your reputation as an ethical company will help increase customer loyalty and enlarge your customer base.

ESG is closely linked to financial performance

Businesses of various industries have repeatedly confirmed the links between ESG initiatives and improved financial returns. The better ROI is explained by a few contributing factors such as improvement in innovation, operational efficiency, better risk management, enhanced stakeholder relations, and firm reputation. E.g. ESG efforts can proactively mitigate related risks. Thus, efficient internal controls may prevent a failure to properly handle the security of a payment product. This will help the provider avoid lawsuits, gain consumer trust, avoid reimbursements due to data leaks, etc.

Transparency is crucial for payment ecosystems

The “G” component of ESG stands for corporate governance. It includes the transparency of operations. In the payment industry, transparency is critical. If every player in a payments chain receives the full information about their transactions, the number of rejected payments would fall dramatically. Improved visibility into various transactions could also help customers better understand the costs and deductibles involved in their payments. An understandable payment structure is a benefit of any financial solution.

ESG encourages investments

Dozens of fintech startups struggle with initial investments. Proving that your product is viable and competitive may be hard. However, having a solid environmental, social, and governance program may help payment startups stand out from the crowd. ESG investments are growing 15-35% annually. Sustainability-linked shares, bonds and loans are emerging as a new asset class and become increasingly popular. Similarly, payment startups that aim to make a positive change in the impacted community have higher chances to find generous investors.

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