There is little difference between the environmental impact of using cash compared to digital payments, according to an extensive study by Oxford Economics. The truth flies in the face of a misimpression held by some that digital payments must be significantly more environmentally friendly.
Moreover, the report makes the case that the debate is minor within the context of a country’s total CO2 emissions. “Overall, the environmental impact of both payment systems is rather small,” the report concludes. It notes that an average Point-of-Sale (POS) purchase, with respect to its Global Warming Potential, is comparable to a Google search request (The Environmental Impact of Digital Over Cash Payments, Oxford Economics, April 2024).
The comparative analysis examined the average POS payment made in cash (e.g., banknotes, cash-in-transit) versus digital payments (e.g., cards, smartphones) in Italy, Finland, and Germany. The variations in environmental impact that were noted were mostly a consequence of infrastructure. For example, higher costs for cash are primarily related to the high distance driving to the next ATM and the ATMs itself, while in countries where there are a lot of POS terminals, the impact of digital payments is higher than of cash due to the higher energy costs for POS terminals.
The report notes that cash is considered more convenient by some consumers and that many prefer cash because it makes them more aware of their spending. This is significant, the researchers note, because encouraging more digital payments can create behavioral changes that negate any environmental benefit derived from increasing digital payments, such as by increasing consumption.
So, what’s the answer?
Since digital payments and cash have similar environmental impacts, supporting one or the other seems an unwise strategy to make payment systems more environmentally friendly. Indeed, tilting in one direction or the other can create an infrastructure imbalance that would override any intended reduction in global warming potential. “A large share of ‘underused’ products such as ATMs, terminals or cash trucks can increase the impact of an average payment in both systems significantly,” the report concludes
The report makes the case to policymakers that the entirety of the payment system infrastructure must be supported to make it as environmentally efficient as possible.
“It is important to balance the needs of the cash and digital payment systems to enhance the subsystem’s overall impact or utilization," — Oxford Economics
The potential global warming impact is also not the only issue at play, the report reminds policymakers. “It is also important to note that the environmental impact of a payment system is not the only aspect that needs to be considered by policymakers. Other aspects like convenience of payment, data security and accessibility may impact a consumer’s preference for one or the other payment method.”
Cash is getting greener
The Oxford Economics study found cash has a small environmental impact, but the industry is still making strides to be even greener. From manufacturers to cash management providers, the cash industry is making progress to reduce its carbon footprint of cash and to secure its sustainable future.
Cash: Roadmap to Sustainability, a report compiled by business intelligence consultancy Reconnaissance International, reveals an industry that has undertaken significant efforts to drive improvement in environmental performance.
The study details 106 case studies on how the cash sector is building a sustainable future, which include: more durable banknotes, lower energy manufacturing processes, greener transportation, greener electricity sources, recycling of worn-out cash, and less energy intensive infrastructure in the cash cycle.
Sustainability initiatives by cash industry stakeholders have important ramifications. Despite global growth in digital payments, cash remains central to the world’s payment ecosystem. Cash usage is growing worldwide, used by every person on the planet, and most of the world’s population depends on it, notes the study.
The study highlights 10 companies that are sourcing 100%renewable energy and seven with substantial investment in solar, hydro, wind, and tidal power. All cash-in-transit companies examined in the study have invested in telematics to manage fleets more efficiently to reduce fossil fuel usage and many have started trials with electric or hybrid vehicles. “Some projects and examples range from the simple change to LED lighting, to the more complex, changing from single-use plastic seals to cloth bags, to those based on major capital equipment and investment decisions,” notes an announcement of the report.
The process of making and moving cash has an unavoidable environmental impact, but the physical nature of coins and banknotes has caused society to overestimate its impact compared to digital payments, it suggests. Although less visible, digital payments have considerable energy consumption at its core, which include substantial hardware requirements and energy for payment data processing, data management, and communications, whether at the point of sale, on the internet, or mobile payment.
“Digital payments are not as digital as they claim: cards—often plastic—need to be produced, as do point-of-sale terminals. They also generate a paper trail as payment receipts are printed,” analysts explain. “Either way, there is no such thing as a free lunch regarding payments."