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Out of Pocket: Sweden and the End of Cash

By Sébastien Horion

In 1661, Stockholm’s Branco, the predecessor of Sweden’s modern central bank, became the first European bank to issue banknotes. Today, Sweden, a country of 10 million people, is increasingly becoming a ‘cashless’ society, a trend shared with its Nordic neighbours. Despite being part of the EU, Sweden retains its national currency, the krona, and has no plans to change it. The situation on the horizon is not a different banknote, but none at all. Björn Segendorf, financial stability advisor at Riksbank, Sweden’s central bank, estimates that “bank notes and coins could disappear completely by 2030.” Though surprising, the scenario makes sense when you consider that today just 15 per cent of all transactions are made in cash, and that over two thirds of Swedes assert that they could live in a cashless society.

Converting to cashless

The end of cash made headlines in Sweden on 24 March 2013 when the date was put forward by researchers as marking the end of cashing across all businesses. The widespread acceptance of cashless payments came as no surprise to Bengt Nilervall, a payments expert at Swedish trade organisation Svensk Handel, “since Swedes have a great interest in new technologies and strong confidence in their institutions and banking system.” According to Nilervall, today over 95 per cent of transactions are made by card in Stockholm, the Swedish capital. The public transport, parking, hotel and restaurant sectors are today 90 per cent cashless. “We welcome this wave of digitalisation, but it is important that all the inhabitants of Sweden feel at ease with this phenomenon, including elderly people or new arrivals” Nilervall adds, indicating that the shift might not suit all people to the same extent.

The extent of the cashless trend in Sweden is indeed remarkable. Swedish buses stopped taking money years ago, it is impossible to buy a ticket for the Stockholm metro with cash, and retailers can legally refuse to accept payments in coins or banknotes. Street traders increasingly prefer payments by card or mobile phone.

The Swedish banking sector has welcomed the demise of hard cash. More than half of Sweden’s bank branches no longer keep cash deposits on their premises and a great number no longer have cash machines, particularly in rural areas. According to Niklas Arvidsson, a researcher at Stockholm’s Royal Institute of Technology, the country made a head start in the 1960s when banks convinced employers and workers to use bank transfers for salaries. Over the course of the 1990s, people were encouraged to use debit and credit cards and increasingly did so. In the past, the government was in charge of guaranteeing the supply of cash through the Riksbank, but this responsibility was scrapped following deregulation in 2005. As a result of these combined changes, cards became the principal form of payment, and today Swedes use them three times as often as the average European.

More recently, mobile apps have taken off in a spectacular fashion. Swish, jointly developed by Sweden’s biggest banks, is among the most popular payment app. The principle behind the app is simple: once you have Swish set up on your smartphone, you send money from one bank account to another in real time using phone numbers instead of account details. “As far as payments from one person to another are concerned, Swish has practically killed off cash pure and simple,” sums up Arvidsson. Having been downloaded by over half the Swedish population, Swish is now used to carry out over 9 million payments per month.

The reach of mobile payments isn’t limited to peer-to-peer payments; street traders have enthusiastically adopted iZettle, a simple and cheap system designed to allow independent retailers and small businesses to receive card payments through an application and a mini card reader connected to their phones. Given that the charges incurred are almost nil, this has seen sales figures rise by up to 30 per cent. Even churches display phone numbers at the end of services and request that their congregations use the apps to contribute to the Sunday collection. Klarna, one of Sweden’s largest banks, also offers various alternative systems for online payment, including payments by text message for bus and parking tickets, and also systems for donations and subscriptions. For example, it’s possible to become a member of the Green Party and pay the membership fee simply by sending a text message containing your personal identification number.

Cashless payment, the dematerialisation of money, isn’t limited to well-off or ultra-connected citizens; be it homeless people selling their magazine, Situation, or mushroom pickers by the side of the road, all take payments through Swish. In small and isolated villages where local businesses struggle to make money and lack the means to hire people, online payments have in some cases paved the way for innovation by permitting the opening of new businesses not dependent on staff.

The vulnerability of data

The drive towards digital transactions was spearheaded by a Swedish banking sector fed up with dealing with large piles of cash. Cash, after all, demands a large amount of resources logistics-wise. Cash machines need maintaining and sub-contractors must be hired to refill them, along with the staff needed to count and sort the bank notes. For similar reasons to the banks, increasing numbers of businesses also began to reduce cash payments. For Najib Mardi, a juice bar manager in the north of Stockholm, refusing cash led to a shortfall in revenue at first. Although he estimates losing around 10 per cent of sales revenue during the transition, today he is very positive about the path taken: “For the past three months we have no longer had to handle any money. We don’t need to balance takings at the end of the day or worry about being robbed.” The positive results are seemingly unequivocal: a reduction in crimes against shopkeepers, economies of scale for banks, and lower levels of fraud for the authorities.

However, even if physical robberies are less likely to happen in banks or around cash machines due the elimination of cash, criminal activity has by no means disappeared. An increasing level of online fraud and digital theft is being reported every day. In response, financial institutions invest enormous amounts in risk prevention through wide-ranging measures. According to Yves Dormont, solutions expert for the bank SEB: “Today over 50 per cent of our servers are dedicated to analysing transactions or blocking them in case of suspicious behaviour. In fact, we will need to open a new data centre in the capital.”

The end of cash gives financial institutions the ability to monitor and track every transaction. In yet another example of the all-pervading ‘big data’, banks can collect huge volumes of data around financial transactions. The data on any one individual can be channelled into a ‘data lake’, a virtual file detailing, among other elements, their consumption habits. This data can also be useful when used wisely, such as when the bank Ålandsbanken created the Östersjökort card, which works out the carbon footprint of an individual’s purchases, a calculation which would be almost impossible with cash. Riksbank recently announced its intention to go even further by introducing an ‘e-krona’. This virtual krona could compete with other new forms of payment such as the bitcoin.

Is a dematerialised society a weaker one?

Is society that doesn’t use cold hard cash somehow less robust? Considering the potential risks of major power failures or even foreign cyber attacks, such a question is worth asking. According to the Swedish Civil Contingencies Agency, money is the first thing everyone ought to have at home, particularly in case of a crisis. Nina Lagerkvist, director of the agency’s Stockholm office, acknowledges the risk: “There are real questions. The preparation is currently well-ordered as the various agencies have put in place procedures to examine what would happen in the case of a digital incident on a large scale,” explains Lagerkvist. A society without cash, when faced with a power outage, could witness a situation where mobile phones and card payment terminals don’t function. A cyber attack from abroad or a crash in the banking systems could prove catastrophic.

Despite these worries, in Scandinavia the disappearance of cash does not seem to alarm the population to any great extent. Could this be explained by the legacy of their shared Protestant tradition which holds that people should, in principle, have nothing to hide? A preoccupation with transparency pervades every level of society and questions of traceability and of the respect for individual freedoms have not really emerged in the public debate around digital payment. In summary, if the paradox of the world’s current transformation is that the world’s biggest taxi company, Uber, owns no vehicles, while the world’s largest rentals site, Airbnb, owns no apartments, then what is stopping us from imagining banks without money?

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Out of Pocket: Sweden and the End of Cash

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