Innovation

Sweden Is Developing the World’s First Cashless Economy

by Mark Hay

November 10, 2015
Image by Tony Webster via Flickr

In 1661 Sweden became the first European country to mint a national paper currency. Now, according to a report released last month by researchers at Stockholm’s Royal Institute of Technology (KTH), the nation may soon become the modern world’s first cashless society. One researcher involved estimates that by 2030 every transaction in Sweden could be digitized, thus effectively antiquating hard currency.

Sweden’s rapid shift to virtual money is especially striking because it’s not the result of one coordinated government program, but an emergent phenomenon arising from many national legal, social, and technological trends. And it’s had a host of unexpected positive effects on Swedish life, beyond just convenience for consumers, with surprisingly minimal drawbacks. Unfortunately for those in other nations who might want to experience these benefits, for now this appears to be an isolated phenomenon rooted in a uniquely Swedish experience. But as the Swedes work out the kinks in this system and create a comprehensive, proven model, the world’s doggedly cash-rooted societies may begin to move towards a cashless existence with greater speed and confidence.

Evidence of the Shift

The KTH study primarily draws its conclusions from the observable decline in the amount of hard notes in the Swedish economy. According to data from Sveriges Riksbank, or Riksbanken, Sweden’s central bank, there are currently less than 80 billion kronor ($9.4 billion) in circulation in the country of 9.6 million people, down from 106 billion kroner in 2009 (about $14.8 billion). Riksbanken has also predicted that between 2012 and 2020, the amount of cash in circulation will decline by 20 to 50 percent. And of the cash in circulation, only 40 to 60 percent is actually in active circulation, with the rest just rotting away in lock boxes or under citizens’ mattresses. Bills and coins currently make up, at best, three percent of the Swedish economy. Put another way, there is likely less than $500 in cash per Swede in active use.

Beyond the amount of cash in Sweden, there’s also good data to show that people aren’t becoming ascetics and hermits with no need for cash—they’re just spending more digitally. This year, 85 to 90 percent of all transactions in Sweden will likely be electronic, using cards, apps, wire transfers, or some other modern mode of transfer. That number’s even higher—95 percent—for retail sales. Swedes are so heavily addicted to cards and apps (more so than any other nation) that five of six major banks in the nation have gone cashless; from 2010 to 2012, 500 bank branches moved to all-digital transactions, and removed 900 ATMs from around the nation, making Sweden Europe’s second worst country for cash machine coverage. The last reliable place to get cash in the nation is the supermarket checkout line, where you can get up to 500 kronor ($57) back per transaction when paying with a card. Even Sweden’s church collection plates have gone digital.

Sweden’s not the only nation in the world moving towards cashlessness. Many Scandinavian countries have slowly begun the process of phasing out hard money over the past half-decade. Denmark for one drew some headlines this spring when it announced plans to allow every service provider in the nation (except essential facilities like hospitals or post offices) to do away with cash registers (which are currently required by law). But Sweden’s digital transaction rates overshadow even these digitally progressive countries. And they absolutely dwarf the rest of the world’s stats on cash transactions: Whereas the Scandinavian economy is only three percent rooted in bills, the US economy is closer to seven percent, and the entire Eurozone is at nine percent. And whereas cash accounts for only about five percent of all payments in Sweden, by some estimates it accounts for almost half of all payments in the US. Whereas almost everything is done by card or app in Stockholm, in 2013 the global average for payments by card was 40 percent, and just 70 percent in developed and highly wired countries like Canada. Sweden’s comparative level of digitization is staggering.

A rare Swedish cash fan. Image by Play Among Friends Paf via Flickr

For years, one of the most vocal advocates of this rapid transition into the financial ether in Sweden has been Björn Ulvaeus of 1970s pop super group ABBA. After his son was robbed twice, the chanteur started to argue in media appearances and op-eds that a world without cash might reduce the incentives for petty crime and make life a little safer. But while it would be awesome to lay this trend squarely at the feet of the man who sang “Money Money Money,” in truth the country’s transition ties to two major trends, one legal and one technological.

On the legal side, in an effort to crack down on organized crime, Swedish authorities have placed strict guidelines on the use of cash in banks. Customers coming in to deposit hard currency have to answer questions about its provenance to avoid money-laundering charges. Any physical cash transaction that tellers deem fishy (the guidelines on what constitutes such a transaction are vague) must be reported to the police. Even beyond banks, these evolving legal norms and cautions seem to have led to a social perception, according to a Credit Suisse report, in which people just assume that if you’re paying for something with cash, there’s probably something weird going on.

Fortunately the strictures of these laws are offset by the development of apps like Swish, a digital wallet jointly created by the Riksbanken and the Swedish financial clearinghouse Bankgrio, with the cooperation of most national and neighboring Danish banks. Coupled with the general undoing of transfer and card transaction minimums, this comprehensive, officially backed app system now allows you to pay for almost anything, anywhere with digital technology, obviating the need to deal with troublesome cash. You can even buy newspapers from homeless people via digitized transactions—Situation Sthlm, a paper which uses homeless vendors, teamed up with the digital payment company iZettle in 2013 to provide paper hawkers with smartphones and even card reader attachments, enabling them to accept all kinds of non-corporeal payments.

Hard Cash Holdouts

There’s been some popular pushback on these shifts from those concerned that undocumented immigrants, tourists, and especially the nation’s massive and less techno-savvy pensioner population might be left in the dust, inconvenienced, or hurt by the change. Elderly Swedes in rural areas have raised a particular outcry about the removal of cash machines from their villages. And Riksbanken data shows that despite opening up all transactions to digitization, people still prefer to make payments of less than 100 kronor ($11.46) in cash, keeping transactions at the nation’s remaining ATMs high enough to keep some machines around. Anious about the needs of those who want to use cash, don’t know how to use tech, or don’t have access to fancy apps, two-thirds of the Swedish population supports hard cash as a human right in surveys. That, and the value of money as a national symbol, is probably why the Swedish government just printed new notes and coins this year and has no official plans (even in the distant future) to totally phase out cash.

Beyond populist attachment to hard currency and fears about disenfranchisement, prominent figures in Sweden’s security sector worry about the safety of rampant digitization.  Their most obvious concern is that digitization could lead to a spike in potentially devastating cyber crimes; Sweden has seen electronic fraud double over the past decade. Then there’s the fear about what happens if a glitch temporarily takes out a digital payment network; all hell broke loose when a local cashless music festival’s system went on the fritz last summer, a conundrum that did not hearten worried skeptics. Through digitization, banks also get to collect perhaps the greatest datasets ever on consumer behaviors, which many consider a breach of privacy and which unscrupulous banks could sell off to invasive advertisers or worse.

Wonky economic types have started to voice concerns as well, noting that Sweden is currently living out a strange economic experiment demonstrating the risks of cashlessness for citizens. For the past few months, the nation has maintained a negative interest rate, meaning that banks are losing cash day-to-day. To date, the banks have eaten these costs rather than pass them on to consumers—but they could garnish their customers’ accounts in the future if pressures grow too high. Traditionally an account holder might withdraw some or all of his or her cash to protect it from erosion. But cashlessness prevents this, meaning in a digital community you could wind up powerless to prevent the evaporation of your currency.

There’s a behavioral concern, too, that not many have addressed. Multiple studies over the years support the idea that when we pay for things with cards or apps, we tend not to feel the expense as viscerally or track our spending as well as we do when we use physical cash. In the past this has allowed governments to jack up tolls on roads with digital payment mechanisms without anyone noticing or objecting, for instance. A sudden cashless shift may subtly change spending and saving habits, impacting micro- and macro-economies in unknown ways. Clearly, abetting spending could be a benefit to businesses and value added tax incomes, but what it means for the overall financial health of an individual or family will be unclear until enough time passes for population-level trends to emerge. 

Image by Karl Baron via Flickr

Managed Misgivings and Unexpected Benefits

Although some of the concerns of cashless critics are valid and daunting, at least the most visceral and immediate problems of accessibility aren’t as huge as they might seem. Swedes are notoriously techno-savvy, ranking first in a number of evaluations of social and economic digitization. They’re the first nation to give every child a government-issued iPad on their first day of school. And unlike other digitized nations, they tend to express great faith in government institutions and large businesses, making them uniquely attuned the adaptation of digital currencies and systems. As noted above, programs exist to help homeless peoples use digital systems. And only seven percent of Sweden’s National Pensioners’ Organization say they never use bank cards, while a full 50 percent say they use cards everywhere. It’s easy to imagine that within a generation or two the well-wired, trusting Swedish population will overcome its final hurdles to access. And as they do, kids growing up on digital currency may lose their principled, nationalistic attachments to coins and bills, enabling an unopposed, true digital society.

That fully digital society comes with arguably as many perks as it does risks, the most obvious being convenience for retailers and consumers. But there’s a financial boon attached to that convenience as well. Banks have supported the shift, developing platforms like Swish, in large part because not dealing with bills lowers the manpower and costs associated with their work—and they like to tell customers that it helps the environment by reducing printing as well. Vendors support it because, although digital transactions all come with minor fees, it turns out those costs are less than those associated (in aggregate) with cash (at least according to one Norwegian estimate)—and the ease for consumers has driven business up.

And for all the concern about fraud and cyber crime, cashlessness actually seems to contribute to physical security, much as ABBA’s Ulvaeus predicted, tracking to a decline in robberies. In 2008, the nation suffered 110 bank heists, which can turn violent fast, whereas by 2012 the number was down to an all time low of five. In 2013 a Swedish robber notoriously had to flee empty-handed when he found the bank he’d targeted had no cash left. There’s data to suggest that digitization has shrunk the space available for black market economies and graft by increasing the transparency of transactions. These observable security benefits have led the Bill and Melinda Gates Foundation and bodies within the United Nations to support monetary digitization worldwide as a means of fighting corruption and improving general quality of life.

The Problems With Sweden as a Model

No matter how much support or potential there is for digitization in Sweden and beyond, it’s unlikely that other countries will rise to this level of cashlessness anytime soon. For developed nations with growing cashless systems in place, numerous issues related to legality, techno-accessibility, and even just trust in local governments and corporations hamper advances—not to mention the challenges of replacing costly for-cash infrastructure in massive nations like the United States. Even in the developing world, where mobile services tend to thrive as a good alternative to costly banking infrastructure, there are serious concerns about security and accessibility (especially for the most rural and marginalized in these countries) that will stymie the development of monetary digitization. And then there’s the problem of the provincialization of systems. It’s hard to coordinate digitization protocols and mechanisms between nations, (not to mention banks within nations), meaning that countries, especially those that do a lot of international business, will likely need cash for a long time to come in order to deal with the complexities of a world with national borders.

Still, if Sweden’s cashless system persists for a few years without any major scandals, creating solid, workable norms for cyber security, personal protections, and behavioral adjustments, then the rest of the world, already working to address hindering issues of technological education and accessibility in general, might feel more secure in and incentivized to make investments in the benefits of cashlessness, perhaps even internationally. But for now, Sweden will likely stay at the vanguard, taking the risks, reaping the rewards, and navigating towards the ultimate promise of a cashless (or at least cash-minimal) existence. 

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Sweden Is Developing the World’s First Cashless Economy