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Bumps in the road ahead for Nordic cashless societies

Sweden and Norway are global leaders when it comes to reducing the use of cash in the economy – but what about the Nordic region as a whole?

The Nordic countries are at the forefront of a shared ambition to become cashless societies.

A recent study by the Federal Reserve Bank of San Francisco, which looked at 42 economies, found that in all countries apart from Sweden and Norway, the increase in the use of cash has either matched or exceeded gross domestic product (GDP) growth.

Globally and particularly rapidly in the Nordic region, digitisation continues its rapid advance in transforming financial systems, while consumer spending behaviour is also changing.

The increase in use of mobile payment apps such as MobilePay, Vipps, Lunar Way, Swish and iZettle is adding to the momentum for reshaping Nordic economies.

The Nordic states have a common long-term objective to phase out cash as a standard form of payment for goods and services. Cash is increasingly viewed by governments, tax authorities, banks and industry leaders as outdated.

In Sweden, less than 20% of transactions are currently done in cash, and it is a similar story in Norway. There is some irony in this because Sweden, through Stockholm’s Banco, became the first European country to issue bank notes in 1660.

King Karl X Gustav of Sweden licensed Dutch financier Johan Palmstruch to set up Sweden’s first bank in 1657. This resulted in Kreditivsedlar, or credit notes, being issued to replace Sweden’s weighty and cumbersome copper coins.

Parallels might be drawn between the launch of the then highly innovative Kreditivsedlar and the recent rise in popularity of mobile payment technology such as Swish, Vipps, MobilePay and iZettle. Both developments reflect changing societal needs and the evolution of more sophisticated ways to pay for goods and services.  

However, governments are aware that not all citizens will want a rapid or complete transition to cashless payments, and support the shift from cash to traceable bank card and mobile payments.

Cash fuels every nation’s “grey” economy, which governments have found difficult to tax and control. Unlike the main economy, activities in the shadow economy are not included in a country’s gross national product (GNP) or GDP and the grey economy, which is reckoned to equate to 8-12% of Nordic states’ GDP, would struggle to exist in a cash-free society.

Read more about going cashless in the Nordic region

But cash continues to play a role, albeit diminished, in the functioning of society and the consumer economy, and is not expected to flatline any time soon.

Given the underlying complexities of removing cash completely, it may be some time before bank notes become extinct. But Norway’s Conservative prime minister, Erna Solberg, has proposed to fast-track the process.

Norge Bank, the country’s central bank, regards the cashless goal as overly ambitious in the medium term. In fact, the bank pleased Norway’s “cash is king” brigade in November by issuing new 100- and 200-kroner banknotes. The move was welcomed by national organisations that oppose the idea of a totally cashless society that would force citizens to use only mobile and online payment methods.

In Sweden, a survey by the Royal Institute of Technology (RIT/Kungliga Tekniska Högskolan) found that 66% of the country’s distributors plan to stop accepting cash as a legal payment method by 2030. “The momentum to reject cash is moving forward quite quickly,” said Niklas Arvidsson, a research analyst at the RIT. “For banks, cash handling involves cost. Cash will only exist as long as people and shops demand it.”

Nordic financial services’ move towards cashless societies gained momentum after 2010, when leading domestic banks implemented a mass closure of high-street branches. The “new normal” was the arrival of the cashless branch. High-street offices were fitted with self-service cash machines, with fewer staff and bank teller points.

This lightning-fast conversion to cash-free branches, coupled with many branch closures, left many smaller Nordic towns without a single bank in their community.

Many communities have struggled to adapt to this and the banks’ collective push to move their customers onto more cost-efficient self-service mobile and online platforms. The banks suffered damage to their public image, especially those downsizing their rural branch networks.

One example was the Kilpisjärvi primary school in Finnish Lapland. School administrators blamed Nordea’s decision to centralise cash transactions to its branch in Rovaniemi for the loss of its field trip fund. With the closest Nordea branches refusing to accept cash deposits, school administrators had to travel 1,760km (1,100 miles) to deposit the fund’s money in a dedicated bank account.

But the trip was unsuccessful, forcing the administrators to return to Kilpisjärvi and put the cash in the school safe pending a further attempt to bank it. Then, tragically, the school suffered a fire and the safe, along with the fund’s €10,000 in cash, was destroyed.

Finland lagging behind

The march towards cashless societies is not uniform across the Nordic region, however. While Sweden and Norway are progressing rapidly, Finland is lagging behind.

Nordea Bank estimates that just 10% of Finnish purchases over the 2017 Christmas period will be charged to credit cards, while 90% of transactions will be either by cash or debit card, with the cash element expected to be 20-30%. “Cash transactions are still important,” said Nordea economist Olli Kärkkäinen. “Low credit card usage reflects the prevailing caution by consumers not to over-spend beyond their budgets.”

A Nordic survey by Deloitte, published in November 2017, found that 33% of Danes have used their smartphones to buy goods or transfer money. The corresponding figures for Sweden, Norway and Finland were 26%, 10% and 6%, respectively. Youth-targeted events, such as Denmark’s popular Roskilde music festival, are already cash-free.

“Mobile payment solutions like Danske Bank’s MobilePay reduce the need for cash,” said Frederik Behnk, Deloitte’s head of technology, media and telecommunications in Denmark. “Denmark is well positioned to become the world’s first cash-free society.”

The creation of more innovative mobile payments systems will reduce the need for cash for everyday transactions in Scandinavia, said Ken Villum Klausen, CEO of Lunar Way, the first Nordic app-only neo-bank. As a neo-bank, the company has no physical high-street branches and operates solely through a smartphone app.

“The products offered by banks are essentially identical, given that conditions, such as interest rates, are the same for all,” said Klausen. “In our world, cash is an obstacle rather than an asset in people’s lives.” Lunar Way’s financial services are delivered in partnership with Danish bank Nykredit.

But the disappearance of cash in the emerging fintech-driven digital services environment is not to everyone’s taste. Denmark’s DaneAge Association (Ældre Sagen), which represents more than 750,000 senior citizens, has criticised bank service providers for restricting cash-based transactions and closing branches across the country. Denmark had 3,656 bank branches in 1985, but by the end of 2016, after four years of intensive reorganisation by the leading banks, the number had fallen below 1,000.

“Cash remains the most significant means of payment for many people in Denmark,” said Jens Højgaard, senior vice-president and political analyst with DaneAge. “Over 250,000 Danes aged 65 and above are not internet users or do not have access to online banking. The cashless bank is a huge problem for our members.”

Read more on Information technology in the Nordics

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