Nov 15, 2020
The Utopia of a Cashless Society
A look at the Swedish case
When it comes to innovations in the payment sector it’s always good to check what’s going on in the Swedish market. This statement is consequence of the historic habit of Sweden to be at the forefront of the payment revolutions, in fact it was the first country adopting banknotes in 1661 and it was also a pioneer in discussing about a cashless future. It’s surprising how it is possible to find articles on this topic since 2012, basically technological eras ago.
Cashless is trendy, but practically what does it mean?
The introduction gave us a bit of the background to better understand the current situation: according to the Riksbank (Swedish central bank), less than 2 percent of all transactions made in Sweden in 2019 were by cash. This figure looks set to drop even further to just 0.5 percent by the end of 2020.
Another measure to give a clear idea of the trend going on in Sweden is the amount of circulating cash relative to the GDP. It’s useful to make a comparison with some other advanced countries, as we can see in the graph below: Sweden is the most virtuous country when we consider the cash circulating, very low, and the 2nd if we focus on cards transactions per person.
It is interesting to understand the drivers of this rapid socio-technical transition. Certainly, expansion of the mobile broadband and pervasiveness of smartphones are playing a major role, together with the entrance in the payment sector by tech giants like Google, Apple and Samsung.
Most of the payments are still made by card, but an increasing percentage is settled through Swish, a bank owned mobile payment app that permits to transfer money instantaneously.
Sweden has a great advantage that is the presence of one of the most important FinTech hubs in the World, hosting several successful startups like Klarna (online payment service), iZettle (chip-card reader and app for smartphone-based mobile commerce) and Tink (personal finance app). The increased competition in the payment sector is driving a great innovation pace.
So, if a cashless society is possible, which are the real effects on our life?
Crimes linked to cash, such as bank or cash-in-transit robberies have declined sharply. At the same time, card and identity frauds increased.
Like many times when a direction is analysed there is a trade-off, but looking at data seems that security in Sweden is by far higher than in most of the other European countries.
With this expression we mean the total costs incurred by all the participants in the market lowered.
Unfortunately, the last extensive analysis of the societal costs associated with each payment system in Sweden dates to 2009, but still it can be interesting to have a look at it. Cash was already certainly not the most efficient mean, and the situation evolved making all the electronic payment systems cheaper thanks to the economies of scale derived from adoption.
Another theme is the security of the payment infrastructures, in fact if cash were completely abandoned there would be increased consequences of cyber-attacks.
The RIX (Riksbank’s central settlement system) encountered several disruptions in recent years, but they never affected the ability of companies and people to make payments. Swish instead uses a different infrastructure (BiR), which gave some more stability troubles.
A cashless society together with the Anti-Money Laundering Act permits to cancel almost completely tax evasion and the use of cash for criminal activities.
The price to pay for this significative result is the partial give-away of privacy: the payment service providers are obliged to know who the customers are, where the money comes from and what are the reasons for the transaction.
It’s relevant to observe that many shops are becoming “cash free”, which means they don’t accept payments with cash anymore. It’s a particular situation because banknotes have legal tender in Sweden, so they basically should be accepted everywhere. This does not happen in reality, since it’s possible for businesses to waive the law by agreement, via what is known as freedom of contract.
This trend of increasing non-acceptance of cash carries a risk to the financial inclusion of elderly people that are not tech savvy, immigrants, tourists and non-digitalized people.
Furthermore, a society in which payments by cash are not accepted anymore would face a problem of responsibility, in the sense that few big private players would become responsible to manage all the payments in the country. Considerations have to be made about the safety of granting them a service of such strategic importance.
Other solutions are under experimentation or scrutiny by the Swedish government in order to exploit the benefits of a cashless society and overcome the threats. Among these, certainly some deserve attention: introduction of e-krona (Central Bank Digital Currency) and project p-27 (aims to establish a single pan-Nordic payment infrastructure).
Overall, trying to balance all the aspects considered, I would conclude that the outcome of abandoning cash for the society is positive, but there’s the necessity to give time to central governments and private actors to build a stable and safe infrastructure, providing also services equivalent to cash in terms of simplicity and accessibility.
Bocconi Students Fintech Society
Author
References
Hammarberg, A. (2020, 01 10). Cashless society. Retrieved from Business Sweden: https://www.business-sweden.com/insights/articles/cashless-society/#:~:text=%20Cashless%20society%20%201%20ONLY%20Two%20PERCENT,cashless%20transactions%2C%20Arvidsson%20doesn%E2%80%99t%20expect%20Sweden...%20More%20
In Svezia non si usa più il contante: l’allarme della banca centrale. (2018, 05 06). Retrieved from Money.it: https://www.money.it/In-Svezia-non-si-usa-piu-il-contante
Kirstine Nilsson Edström, H. B. (2019, 09 26). Sweden: cashless society and digital transformation. Retrieved from European Payments Council AISBL: https://www.europeanpaymentscouncil.eu/news-insights/insight/sweden-cashless-society-and-digital-transformation
Marro, E. (2018, 03 08). L’allarme della banca centrale: la Svezia sta per restare senza contante. Retrieved from Il Sole 24 Ore: https://www.ilsole24ore.com/art/l-allarme-banca-centrale-svezia-sta-restare-senza-contante-AEDTUR9D
Orcutt, M. (2020, 02). Sweden is now testing its digital version of cash, the e-krona. Retrieved from MIT Technology Review: https://www.technologyreview.com/2020/02/20/906146/sweden-riksbank-ekrona-blockchain/
Palmer, K. (2019, 05 05). Sweden, nation that pioneered living without cash, warns: Hoard your banknotes. Retrieved from The Times: https://www.thetimes.co.uk/article/sweden-nation-that-pioneered-living-without-cash-warns-hoard-your-banknotes-6f72jqbf3
Riksbank, S. (2019). Payments in Sweden.
