Green business practices – lately many people have spent much time talking about how we should operate with an eye towards the environment in nearly every industry, including banking. Unfortunately, the banking sector’s track record falls short of aspirations for many reasons. For some financial managers, ‘going green’ is a new concept. Many grew up in an era before environmental issues were seen as critical: segregating recyclables and trading in SUVs for more fuel-efficient cars marked a major change. Moreover, banking isn’t an industry readily associated with pollution. So is ‘going green’ really an issue where banks can make an impact? And what will it cost? In fact banks can have a profound and positive impact on the environment, although there are obstacles to achieving this goal.
Banking and the Environment: Paper is the Problem
It might seem that bank products do not directly affect the environment and banks are not massive burners of fossil fuels. But banking has historically been a paper-heavy industry and paper accounts for 40.4% of trash in the US, some 71.5 metric tonnes (mt) annually according to the US Environmental Protection Agency (EPA). In addition, pulp and paper mills are heavy producers of dimethyl sulfide; one of numerous toxic pollutants associated with the industry.
The banking industry is in a challenging, somewhat contradictory situation. Most banks provide electronic platforms for numerous retail and wholesale banking activities, yet for security reasons (however misplaced) many of their customers still insist on receiving paper records. So most banks continue to provide these services.
A 2010 study of online banking practices conducted by comScore reported that 58% of consumers were accepting paperless statements, up 5% from the previous year, and annual trends continue this progress. However, paperless penetration rates were lower for credit cards, and much lower for insurance and brokerage. These rates are nonetheless rising, albeit slowly, but banks will clearly be providing customers with paper records and statements for some time to come.
That’s ironic, since customers want their providers to maintain green business practices and have been shown to be willing to give their business to such organisations. But, even given this inconsistency, banks can leverage client preference for hard copies by using only certified paper that is harvested from sustainably managed forests; they can establish a procurement policy that insists on ecologically sound practices from their suppliers and providers; and they can commit themselves to social and economic promotion in the regions and countries where paper is produced – all of which demonstrates to clientele a commitment to protecting the environment.
Paperless Solutions Are the Answer
Because banking touches virtually all businesses around the globe, banks not only can make their own operations more efficient and paper-free but can also provide paperless processing solutions to their clients and customers. This not only offers businesses the opportunity to help make their own businesses green and to shrink their carbon footprints, but also to improve their operating efficiency, reduce processing costs, improve their cash forecasting, mitigate risk and cut down on processing error. Consider, as examples, the effect of a few such paperless solutions:
Electronic Bill Presentment and Payment
Electronic bill presentment and payment (EBPP) is the process of delivering to customers bills and invoices in electronic format, either email or short message service (SMS) text, via the biller’s website and allows a customer to execute payment electronically. The process eliminates not only the need for paper bills and envelopes but cuts the costs of postage and transportation. To give an example, the Natural Resources Defense Council (NRDC) reports that one bank, simply by reducing the mass of its ATM receipts, saved US$500,000 yearly.
Such solutions are easily customisable to a biller’s needs; provide a secure, user-authenticated system; can be used for both one-time and recurring payments; and can be used both with credit and debit cards and with automated clearing house (ACH) payments.
Document Image Technology
Document image technology replaces paper cheques and billing records with images. It can capture a transaction as it is processed, providing an image of corresponding remittance documents such as invoices, cheque stubs, remittance statements, correspondence, and envelopes. These images can then be stored electronically, eliminating the need for paper archiving and also for courier and overnight delivery service of paper materials. Communications are improved and made more rapid as images can be shared via email or fax, and document retrieval is greatly enhanced since transaction records can be located via a variety of search options.
Mobile Bill Presentment and Payment Acceptance
Increasingly banks are developing technologies that allow customers, via their mobile devices, to pay bills, access banking and credit card accounts, receive notices of bills due or payments made or ready to be placed. Mobile devices can also be used as site-of-purchase payment receivers. Along with the obvious benefits of convenience and speed, mobile technology can also serve to generate new business, particularly in developing nations where the number of mobile phone users far exceeds the number of people with bank accounts.
Going Green in the Current Economy
Although banks that develop such paperless, straight-through processing (STP) solutions can then offer them to their customers, the upfront development costs can prove beyond their means in terms of time and money for many small and mid-size financial institutions; a situation exacerbated by the ongoing financial crisis. In addition, technologies are constantly changing and evolving and, for a bank with limited resources, there is the risk of investing in a technology that may be superseded and rendered obsolete by another.
At the same time, an inability to take advantage of paperless solutions and provide them to clients forfeits a bank’s opportunity for cost savings and risks shrinkage of its client base. For such banks a private-label solution, particularly with a non-competing partner, can reduce the risk and cost of investment and enable the smaller partner to benefit from inherent efficiencies and cost savings, and to pass the benefits along to their customers and clients.
Paperless processing solutions and other efficient and ecologically-friendly business practices can increase processing speed, reduce error and risk, save money and attract customers. They can be made available not only to banks but by banks to their customers, with clear and measurable benefits to the environment.
To read more from BNY Mellon, please visit the company’s gtnews microsite.
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