Oxford Economics: Evaluating the environmental impact of cash vs. digital payments

On behalf of the European Digital Payment Industry Alliance (EDPIA), Oxford Economics has conducted a study evaluating the environmental footprint of both cash and digital payment methods across Italy, Germany, and Finland.

In an era where sustainability and environmental impact are crucial considerations across industries, the realm of payments is no exception. On behalf of the European Digital Payment Industry Alliance (EDPIA), Oxford Economics has conducted a study evaluating the environmental footprint of both cash and digital payment methods across Italy, Germany, and Finland. The European Payments Council interviewed Johanna Neuhoff – Associate Director for Economic Consulting Services in Continental Europe at Oxford Economics, who has delved into this pressing issue.

On behalf of the European Digital Payment Industry Alliance (EDPIA), the white paper The Environmental Impact of Digital over Cash Payments in Europe evaluated the environmental impact across payment systems at point of sales in three European countries. To understand the processes in three countries with different rates of digital payment adoption and different geographics, Oxford Economics chose Italy, Germany, and Finland.

To examine this issue, the study utilises a life-cycle assessment (LCA) following the International Organization for Standardization (ISO) guidelines. The LCA is a holistic approach that appraises environmental impacts on a variety of categories across the stages of a product’s life cycle. Which, in this case, includes a total of 18 different categories including, for example, global warming potential, mineral resource scarcity, and ionizing radiation.

Finland has the highest digital payment adoption rate (eighty-one percent), followed by Germany (thirty-seven percent), and Italy (thirty-one percent).

Based on your findings, which payment method – digital or cash – has a smaller environmental footprint in the context of Germany, Italy, and Finland? Were there any surprising factors or subsystems within these payment methods that significantly influenced the environmental impact?

In all the analysed countries, digital payments have a significantly lower global warming potential than cash payments when paying in a shop.

Our results indicate that a cash payment at the point of sale leads to a global warming potential of 5.9 times greater than a digital one in Germany, 2.1 times greater in Italy, and 23.6 times greater in Finland. Moreover, in 17 out of the 18 environmental impact categories, digital payments have a significantly lower environmental impact than cash payments. The only exception is the impact category of ionizing radiation in Italy, where cash performs better than digital payments.

For digital payments in shops, the highest environmental impact lies in the production phase – specifically the production of terminals and cards. For cash payments in shops, the highest environmental impact has been found in the operation phase – especially in operating and using ATMs. It was surprising that smartphone payments had a negligible impact on the total global warming potential – at least in 2022.

What specific policy recommendations would you suggest to policymakers and stakeholders in the payments industry to reduce the environmental impact of payment systems?

Let’s start with the stakeholders of the payment industry. For digital payments in shops, the production of terminals and cards had the greatest negative environmental impact overall. Thus, all options that reduce the share of newly produced “infrastructure” are crucial to reducing the industry’s footprint. Options include moving to a cardless system, using smartphone-based alternatives to payment terminals such as (non)-digital QR-code stickers by retailers in combination with smartphone payments, and extending the lifetime of payment terminals.

In the operation phase, the energy use of data centres is decisive. The more efficient they are and the less fossil-based electricity they use, the less impact the operation phase has on the global warming potential.

For policymakers, regulatory aspects can also help to reduce the impact of digital payments. According to our results, the most important impact during the operation phase of terminals was the printing of paper receipts in all three countries – even more than the terminals’ electricity usage. The requirement to print at least one receipt on paper in Germany, for example, therefore worsens the environmental footprint of a digital payment.

Moreover, supporting options to get cash in shops would be a promising way to reduce the environmental impact of cash payments. Lastly, providing green energy can help to improve the impact of both payment systems.

Read the full interview here