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Could Sweden become the first cashless society?

Sweden is fast becoming a country where cash is on the periphery of payments, and some think it might be the first to become cashless

This article can also be found in the Premium Editorial Download: CW Nordics: CW Nordics: May 2016

In 1661 Sweden became the first European nation to issue banknotes, but today cash is rapidly disappearing from the country.

Swedish buses, for example, have not accepted cash for years, retailers have the right to refuse cash payments and even homeless street vendors take cards thanks to new digital payment systems. But could Sweden become the first cashless society in the world?

“I think we could have a cash-free society [where cash plays a marginal role] in something like 10 years from now, maybe even sooner,” said Niklas Arvidsson, associate professor at Stockholm’s Royal Institute of Technology

Arvidsson produced a study in 2013 that forecast Sweden would become a cashless society by 2030. “The reduction in the use of cash and development of alternatives to cash has been faster in the past three years than I expected.”

The numbers speak for themselves. Circulation of the Swedish Krona has decreased rapidly in just six years, from over SEK106bn to less than SEK80bn (€8bn) in 2015. According to Sweden’s central bank, Sveriges Riksbank, cards have become the main form of payment, and only about 20% of retail payments in 2014 were made in cash, down from 39% in 2010. This remains far below the European retail market as a whole, where cash payments accounted for 71% of all transactions last year.

“Another indicator of the declining use of cash is its value related to GDP, and that is somewhere around 2% in Sweden,” said Arvidsson. “The number is similar in other Scandinavian countries, but if we compare it to the EU, for instance, the average is somewhere around 7%.”

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Swedish banks have been quick to endorse the cashless trend. Out of the 1,600 commercial bank branches in the country, close to 900 no longer offer cash-handling services, and some banks have discarded cash services in their branches completely.

“The central bank or government authorities have not tried to make the market abandon cash. It is a natural process driven by the market trying to find cheaper and more efficient use of payments,” said Björn Segendorf, adviser at Riksbank’s financial infrastructure division.

Payment innovation

But why are Swedes so eager to move away from cash? One factor is the country’s digital readiness. The proliferation of mobile phones and internet connections in Sweden is among the highest in the world, making it easier to adopt new electronic payment systems.

“There is a long tradition of digitised banking systems. Even in the early 1970s we started to get our wages and salaries paid to our bank accounts instead of cash. There have been big investments in IT infrastructure [in banks],” said Arvidsson. “Consumers are also fairly receptive towards digital services, which makes it easy to test these services in Sweden.”

In fact, Arvidsson points to the success of mobile payment application Swish as a major driver for the cash-free trend. The app – developed in collaboration between Danske Bank, Handelsbanken, Länsförsäkringar Bank, Nordea, SEB and Swedbank – uses mobile phone numbers to enable real-time account-to-account payments.

I think we could have a cash-free society [in Sweden] in something like 10 years from now, maybe even sooner
Niklas Arvidsson, Stockholm’s Royal Institute of Technology

It has gathered a strong following, with more than 3.8 million users (almost 40% of Sweden’s population) enrolling for the service since its launch in late 2012. In November 2015 alone, Swish was used to make in excess of nine million payments.

While Swish is not the only mobile payment method available, its real-time operation has made the service a convenient alternative to both cash and card payments. If a user wants to buy a used sofa from a friend, they type in the amount and their mobile number and the payment is transferred from one bank account to another in a few seconds. In 2014, Swish was also expanded to cover consumer-to-business payments, including retail.

“All digital payments systems are moving towards real-time processing in different ways, and not only in Sweden,” said Arvidsson. “We see it in many countries, but the pace varies.”

This cash-free evolution has also been particularly rapid in other Nordic countries, which have similarly low numbers of cash payments. In fact, Finland leads globally in the number of non-cash transactions per inhabitant, while Denmark has put forward a proposal to give selected retailers the right to refuse cash payments.

The good, the bad and the ugly of a cashless society

But is a cashless society an entirely positive thing? One person who does not think so is Jacob De Geer, co-founder and CEO of Swedish mobile payment startup iZettle.

Although iZettle has made it possible for many small businesses – including Stockholm’s street vendors – to adopt card payments by converting their handheld devices into payment terminals, De Geer believes cash still has a role to play in modern society.

“The most important thing for me is privacy. With [a completely] digital economy and electronic payments your privacy is at enormous risk, nothing is a secret any more,” De Geer told Computer Weekly. “I believe 90% or more of all transactions will be electronic in a couple of years’ time, but I hope from the bottom of my heart that there is always backup cash, even though I rarely use any.”

De Geer is not alone in his concerns. Arvidsson noted that some people are worried all transactions will become traceable if cash disappears.

“Some see this as a danger for society; others see [the transparency] as valuable because it makes it more difficult for organised crime and criminals to get away with things,” he said.

Statistics by the Swedish Bankers’ Association show bank robberies in the country dropped to an all-time low of just five in 2012, compared with 51 some 10 years before. There is even a case from 2013 where a man had to leave empty-handed after trying to rob a cashless bank branch in central Stockholm.

The central bank or government authorities have not tried to make the market abandon cash. It is a natural process driven by the market trying to find cheaper and more efficient use of payments
Björn Segendorf, Sveriges Riksbank

On the flip side, electronic fraud has soared in Sweden. According to Swedish Justice Ministry data, electronic fraud has more than doubled in the country in 10 years, reaching 140,000 cases in 2014. 

A further challenge is making electronic payments readily available to all members of a society. The elderly still favour cash and, although rare, not everybody has a bank account or the necessary technological skills to move away from cash. Even in tech-savvy Sweden some rural areas can struggle with stable enough internet connectivity to rely solely on electronic payments.

But these are challenges which can be tackled with time. Both Arvidsson and Segendorf believe the role of cash in Sweden will continue its fast decline as digital innovations continue to transform the payments market.

“My own guess is that if we talk about paper banknotes and metal coins, Sweden will become cashless in the long run. It might still be that the central bank will give out some form of electronic cash, but the kind of cash we are used to now will disappear,” Segendorf concluded.

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