Will Sweden be the first cashless country?

As Sweden was the first European country to use cash for payments back in 1661 it’s unsurprising that it’s the first European country that wants to be cashless. This is why, for several years, I’ve been watching the regular speeches by Lars Nyberg, Deputy Governor of the Sweden’s central bank, the Riksbank, talking about eradicating the use of cash in Sweden.

February 2003

Cash is still the king. Given the rapid increase in the use of cards in Sweden, particularly in the late 1990’s, cash should have been expected to fall in importance. This, however, does not seem to have happened. The use of cash, measured as the ratio of the value of currency in circulation (M0) and GDP, fell during the first half of the decade, but have been fairly constant since then, lately even increasing somewhat.

January 2005

Swedes, however, seem to be using more cash than other Nordic countries … Swedish banks do not implement any fees for cash withdrawals while such fees do occur, for example, in other Nordic countries. Thus, differences in pricing can be expected to be an important factor in explaining the differences we observe in the use of cash.

February 2008

Cash payments still account for a large proportion of the number of transactions in the Swedish economy. But it comes as no surprise to anyone if I say that they have declined in significance in recent decades. As a per cent of GDP, the share of Swedish banknotes and coins in circulation (M0) has more than halved since the 1950s, from around 10 per cent to just around 3.5 per cent. In the past fifteen years, however, the trend has levelled off.

January 2010

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.

May 2011

The number of paper-based giro payments is falling rapidly and it also appears that the use of cash is declining. The value of the banknotes and coins in circulation has fallen from 9.6% of GDP in 1950 to 2.9% in 2010. So, the question is: Should cash be compared with the extinct Neanderthals … I intend to talk about today is why I believe that cash will continue to play an important role in our payment system for the foreseeable future (even though not 85 million years) and why cards and other technological developments will not be able to fully take the place of cash.

Lars left the Riksbank in 2011 beliveing that cash would stick around for the long-term.

That might be wrong as he was talking before mobile wallets arrived, with Sweden being the  frist Noridc country to develop a bank mobile payment service called Swish in 2014. As a result, Swedish consumers have moved to digital payments fairly quickly:

• Between 2007 and 2015, cash in circulation decreased by nearly 15% and the number of cash payments in shops almost halved, from 39% to 20%.

• Over the past ten years, cash withdrawals declined by around a half, both in number of withdrawals and volume of cash withdrawn, over the past ten years.

• By far the most common way of paying for goods in shops is by debit or credit card. Around 97 per cent of the population has access to a card.

• Sweden is one of the countries in the world where the most card payments are made. The average Swedish citizen made 290 card payments in 2015. The average for the European Union is 104 card payments per year.

• In Sweden, about 85 per cent have access to online banking. The number of electronic invoices (e-invoices) sent to online banks has increased sharply, from 5 million to 108 million between 2005 and 2015.

• The Swish payment service, developed by the major banks, enables payments to be made between bank accounts in real time and round-the-clock. The service currently has almost five million users and can be used by shops, companies.

Within a year, half of Swedish consumers were using Swish, and the Riksbank is experimenting with a digital currency, the e-Krona.

All of these efforts has made Sweden a leading example of how to become cashless with 80% of all payments made digitally in 2015. This is why McKinsey research shows Sweden up there with Singapore, the Netherlands and France as the least cash-reliant countries in the world.

Image: Mastercard/McKinsey via the World Economic Forum

Even so, the Riksbank says that “an entirely cashless society is still a long way off.”Meanwhile Turkey estimates it will be cashless by 2023, whilst the Tier 1 Chinese cities will be cashless by 2020.

Chris Skinner is Chair of the European networking forum: the Financial Services Club. He is best known as an independent commentator on Fintech through hisblog,and asauthorof the best selling book Digital Bank and its new sequel ValueWeb.