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Sweden going cashless

For as long as I can remember, I’ve been hearing about a War on Cash.  The war, as illustrated by India’s recent demonetization, is not on cash itself but on the illegal use of cash and, by association, the fraudulent creation of cash.  Both fraudulent notes and coins along with large cash denominated amounts transferring between criminals, spurs the governments of the world to try to get rid of cash.  Not only that, but cash is dirty.  Literally.  Most cash has some form of cocaine and other drugs residue, along with faeces and other unhygienic materials.  That was part of what prompted the Canadian and now UK governments to introduce plastic money.  Plastic money is not only more secure from fraud, but can literally be washed to get rid of bad deposits.  Now that’s what I call money laundering.

Anyways, one of the first governments to really crack down on cash was Sweden.  Interestingly, the Swedish government has been the first to talk of an eKrona digital currency, and that is in part because they were the first to introduced paper money back in 1661.

I remember a speech given by the Deputy Governor of Sweden’s central bank Sveriges Riksbank seven years ago, where he was talking about the war on cash and how they could get payments to move to cards but cash was still preferred for amounts under SEK100 (USD$10):

“Despite the fact that card payments predominate in terms of both the number and value of payments, the Swedish public still prefers cash to cards for purchases of less than SEK 100. Our survey shows that as many as 22 per cent choose cash for purchases between SEK 100 and SEK 500. For amounts under SEK 100, cash is preferred by 63 per cent. There are no fully–comparable figures from any of the surveys carried out in 2006, but in 2006 the “average consumer” did not choose to pay by card until the purchase sum exceeded SEK 123.”

Sweden demonstrates the conundrum in many European economies: how to get rid of cash for small payments?  Merchants often have signs up saying cards only accepted for payments above €20, and many now have signs saying cheques not accepted.

Things have changed in the last seven years though, thanks to mobile and contactless payments.  In fact, Sweden continues to lead the race to try to be a fully cashless society in this context.

According to the Riksbank, in 2015 cash transactions made up barely 2% of the value of all payments made in Sweden – a figure some see dropping to 0.5% by 2020. In shops, cash is now used for barely 20% of transactions, half the number five years ago, and way below the global average of 75%.

And astonishingly, about 900 of Sweden’s 1,600 bank branches no longer keep cash on hand or take cash deposits – and many, especially in rural areas, no longer have ATMs. Circulation of Swedish krona has fallen from around 106 billion in 2009 to 80 billion last year.

This is why the world’s oldest central bank, has now announced that it’s exploring the concept of a digital currency (the eKrona) to accompany its Swedish kroner notes, which could ultimately save tourists a trip to the currency exchange desk.

It is surprising therefore that Sweden comes sixth in the Global Digital Money Index.

The Index is produced by Citi and Imperial College London, and ranks ninety countries for their readiness to be cashless and move entirely to digital money.

The Index ranks every country by four factors: government and market support; technology and financial infrastructure; digital money solutions; and propensity to adopt.  Although Sweden is almost #1 on the last factor, it falls below others on the remaining three.  Surprising really.

In fact, I disagree with the report, as it has Singapore at #1, but USA and UK at numbers 2 and 4 makes no sense to me.  USA is way behind everyone when it comes to digital money – they still send me cheques and I still find many places where cash is preferred.  As for the UK, sure we can be cashless in London, but get out of the Cities and try and pay for your pack of chewing gum with a contactless card and you’ll get a bemused look.

Maybe I’m misreading the report – it doesn’t explain why these countries are ranked this way – although it does provide a great case study on the Indian economy, demonetization and the Aadhaar scheme, which I can recommend you read.

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Tom Wills

    The (missing) evaluation criteria used in this report have got to be flawed, Chris. (I wonder if that’s why they’re missing). From glancing through the report, one thing I’m quite confident the researchers didn’t do is spend time on the ground in the various markets, looking at what’s actually going on. And further to your observations about the US and UK, which I agree with, there’s no way that Singapore could be #1 on this list. I live in Singapore, and cash is not only alive and well here but the overwhelmingly dominant consumer payment method. Yes, Singapore should rank high (though not above Hong Kong) on readiness factors—but when it comes to usage, digital money here is marginal at best as compared to cash

    Closing the gulf between readiness/supply and usage/demand is a core problem in the so-called “war on cash” (I don’t much like that term), and one that doesn’t seem to get nearly enough attention for some odd reason. People in the payments industry have a strong tendency to believe that average consumers and SMEs want the same things they do, which has led to a lot of extremely costly “field-of-dreams” (i.e. build it and they will come) market development and product strategies. EMV in the USA is one example that comes immediately to mind … how many billions of dollars have gone into that, and how many dollars of fraud prevented, with no evidence of consumer/ merchant demand? … I can think of many, many more. Trusted Service Provider infrastructure for telco-driven mobile payments. NFC-based mobile wallets (including, possibly, the latest generation of “Pays” from Apple, Android, etc. though the jury is still out). Many more.

    Stitching together top-down data from the World Bank and similar sources, which I suspect is what’s happening with the ICL/ Citi report, can provide a useful perspective but really doesn’t give you an accurate picture of the reality on the ground in a given country, which is invariably a lot more complicated than meets the eye. I’m as much in love with the idea of replacing physical cash as the next person—it’s why I work in the industry—but if you want to really understand how to make that happen, there’s no substitute for pounding the pavement and observing how people actually use and think about payments. When you do that, you find out it’s about culture (which varies a lot) and basic human needs (which don’t vary too much)—way more than by the availablity of Internet connectivity, mobile gizmos, etc. It’s something The Industry has never understood all that well, at significant financial cost to itself.

    • Chris Skinner

      Great comment Tom and totally agree

  • Liron Lightwood

    I keep reading that cash made up 20% of transactions by number and 2% by value in Sweden. However, where does that data come from?

  • Anna Sofie Blakstad

    Sweden and Finland are two of the countries most ready to go cashless. UK and US are definitely not. A joke in the Nordics is that if the beggars have QR codes you’re ready to ditch the cash. Except it’s not a joke.

  • It’s a war on cash alright. Reserve ratios can go to infinity theoretically if zero cash can be removed from the system. Get a clue dude.