An example of Sweden & The Netherlands
As more and more countries and their governments across the globe opt for stimulating a cashless economy the pros and cons do not seem so obvious anymore. In these “cashless times”, it is imperative that everyone have an understanding of what a cashless economy is and what its pros and cons are. AS the European Central Bank Statistics show that cashless payments have increased by 8.1% with a values of €98.0 billion in 2019 compared to 2018, with a total value of €162.1 trillion. With such important numbers it is necessary to start with understanding what is behind the notion of cashless payment system(s).
A cashless payment is an economic phenomenon in which a financial transaction of goods and services is not carried out through banknotes and coins but electronically (Paul A, Friday O (2012) Nigeria’ s cashless economy: the imperatives. Int J Manag Bus Stud 2:31–36). Very common cashless transaction instruments used are credit and debit cards, mobile wallets, internet banking and mobile banking. Thus paving the way for a cashless society. According to the Herold Financial dictionary a cashless society “refers to an economic environment where money is not used in physical coins and notes any longer to carry out financial transactions of any kind. In its place, a digital information transfer, represented by electronic forms of money such as that in bank account, moves back and forth between the parties of the transaction.[...]”
In Europe the creation of a Eurozone with a single currency facilitated the development and implementation of cashless payments. Indeed, the E.U. introduced the Single Euro Payment Area (SEPA) which integrated all E.U. electronic payment systems, thus eliminating any technical, legal, and geographic barriers for electronic payments, allowing domestic and cross-border euro payment. The European Central Bank statistics (www.ecb.europa.eu) shows that The European Payment Council, a self-regulatory body had also developed a SEPA payment for credit transfer and direct debit. The implementation of SEPA enables all forms of electronic payments possible in the Euro area creating multiple economical growth opportunities. Furthermore, from an E.U. state perspective the argument behind moving towards a cashless society was to cut down on: terrorism funding and financing as well as organized crime’s international money laundering. From an E.U. consumers’ perspective, the acceptance and rapid use of cashless payment methods was based on not carrying to much cash to avoid being robbers to robbers as well as being able to counter pick pockets, furthermore, a trend of general consumers advocate that by using less cash they have a better grip on their spending and a clearer overview of their spending patterns. The core reasons for moving towards a cashless society are numerous which offers an increased convenience daily and also improve digital footprints, which means less scope for corruption and illicit activities. The cashless payments instruments such as mobile apps which many banks provide offers bank account holders online banking solutions with an easy-to-view of all their expenses and income(s) received. Which helps tracking daily, monthly and yearly expenditures and ultimately can improve financial budgeting. From a business entities’ point of view cashless payments helps preventing costs and risks associated with cash transportation, as moving cash around costs money and requires more and more strong security measures to protect such a resources. Cashless payments allow for improved transaction speed and thus smoother international payments and transactions; it also leaves a trail which either for data purpose, legal or business ones provides a comprehensive tool to make better informed decisions and analyses.
However, cashless payments comes as well with its own sets of challenges. The first concern expressed towards cashless payment instruments is the fact that even anonymous transactions leave a digital print which if in the wrong hands can have devastating financial consequences as Cyber criminality is increasing all over the E.U. During the Covid-19 restrictions and lock-downs many consumers and businesses turned towards online solutions, which prompted an increase in Cyber criminality ranging from attacks on information systems (fake bank websites) to online fraud and forgery at a large-scale such as identity theft, phishing, spam including malicious codes through text message or Whatsapp and illegal online content.
Moreover, according to the European Commission Statistics database (https://ec.europa.eu/eurostat) we know digital payments are not completely safe yet from malicious hackers, hence people easily finding themselves with emptied bank accounts and Bank institutions taking a long time to restores these funds and to update their online security. Which leads us to the technological concerns that exists in most of the cashless payments instruments. Social and economical equality are part of the 17 SDG’s (Sustainable Development Goals) Green-deal 2030 (https://sdgs.un.org/goals). However, cashless payment might disrupt this goals as a portion of society could be left behind such as for example: the elderly being further isolated, the non tech-savvy consumers, the un-banked consumers. Small businesses paying fees for non-cash transactions do not profit from the costs reductions cashless instruments promote. In order to see what a cashless society looks like lets us take a closer look at leaders such as Sweden and the Netherlands in the run towards a cashless society.
Like the Netherlands and its Scandinavian neighbors, Sweden is among the front-runners in the race to a cashless society. Sweden has always been in the front row towards innovative banking developments, it was in Sweden that the first automatic cash machine was inaugurated in july of 1967 which was only a week after the world’s very first automatic cash machine was inaugurated in London in the United Kingdom. Since then the country has searched for ways to simplify, speed up and innovate its financial transactions system. The FinTech (Financial Technology) industry being extremely present in Sweden has helped the country move towards a cashless society at a high speed. In fact numerous renowned FinTech companies were founded in Sweden, just like Klarna, a payment system company founded in 2005 and counting more than 90 million users globally not to mention BioFintech which prompted thousands of Swedes implant a microchip in their hand. This microchip can store different type of data: from ID to door-opening scanners, train tickets, bank cards and more, all by simply waving their hand.
The Swedish Central Banks’ recent data shows that less than 13% of Sweden’s total population uses cash. This transcribes in around 80% of the total Swedish population using cards with 99% of Swedish merchants accepting non-cash payments instruments. These numbers were further boosted by the Covid-19 world pandemic and its restrictions with 82% of the Swedes purchasing online, thus putting the country among the top in Europe. McKinsey shows in its 2020 report of “The accelerating winds of global payments” that cashless payments are getting a boost as an impact of the Covid-19 pandemic.
The cash usage per country in mature markets (percentage use of cash in total transactions by volume %) between 2010 and 2020 is presented below:
It is clear that in ten years, Sweden together with The Netherlands became the leaders of the race towards a cashless society. Hence, the future of Sweden looks like they might reach their cashless society 2025 goal. The Swedish banking future looks very high-tech and focused on artificial intelligence, with FinTech startups and companies like Tink and Rocker are leading the way together with banking apps and Swish (the most popular app for instant payment in Sweden). The easiness of Sweden to lead the way into these cashless payment instruments is stimulated by Sweden’s socioeconomic mentality and thus part of the Swedish lifestyle. According to Ella Johansson, Chair professor in Ethnology at the Uppsala University in Sweden says that this has much to do with the relation between friendships and resources: ‘Swedes see exchange of money and debt as a threat to friendship. In other cultures, like Italy for example, people would fight over being the one to pay the bill for the sake of keeping up the friendly relations.’ This also explains the popularity of instant payments app like Swish as Swedes often split the bill in restaurants, coffee places and bars.
Sweden’s race to a cashless society present serious risks and challenges, as not everyone is as enthusiastic about a cashless society as one would think. In fact there is a real divide in Sweden between the Tech-savvy younger consumers who adapt to cashless payment methods easily and the elderly consumers representing 1/3 of the total Swedish population according to EuroStat that still prefer to use cash. Indeed, Christina Tallberg, the president of the Swedish National Pensioners Organization that represent over 1 million consumers says in an interview with The Financial Post: “We aren’t against the digital movement, but we think it’s going a bit too fast.” and adding “About half of Sweden's 1,400 bank branches no longer accept cash deposits” thus making it logistically almost impossible for the elderly to even deposit their cash into their bank account hence leading to protests against the current high speed cashless society race. The angst is further fed by half Sweden’s nationwide retailers even going further as to announce they will stop accepting cash by 2025, according to an article of The New York Times.
Another serious challenge made the Swedish government adjust its cashless society goal. Fact is that the Swedish financial authorities that were on the front row of a cashless society now readjusted their strategy in the last four years. The authorities explicitly asked Swedish banks to keep producing notes and coins until the government has a clear vision of what a cashless society will mean for the entire Swedish population in the near future. Furthermore, lawmakers and governments have to adapt their laws and regulations to a cashless society which until now shows it was not up to date with the most innovative cashless instruments. Lawmakers in Sweden are in full steam to adjust the national laws and regulations in adequacy of the new financial impacts that might emerge from online payments and bank accounts being subject to a failed electrical grid, servers’ power failures, malicious hackers or even in the event of a war. Even, The RiksBank which is the central bank of Sweden is further developing a digital currency the “e-krona” in order to keep control of the money supply. The RiksBank is not just a money issuer but is also a banker, agent, advisor to the Swedish government, custodian of cash Reserves / Foreign Balances, the lender of last resort, controller of Credit, and protection of depositor's interest. It is for these reasons that a cashless society could mean that RiksBank could loose the state’s centuries-old role as sovereign guarantor, as commercial banks would gain greater control with no central authorities monitoring. This could have advert consequences for Sweden as the country is ahead compared to other countries in Europe because in Sweden there is in general a deep anchored trust in the government, the national central bank and the authorities.
“Cash is a dinosaur, but it will stay,” says Michiel van Doeveren, a senior policy advisor at the Dutch central bank, DNB (De Nederlandsche Bank). However immediately explaining that it’s the logistics of cash transports that makes it more expensive than non cash payments methods which in comparison is much more convenient and efficient. The Netherlands has the 6th largest GDP in Europe (Eurostat) and is one of the most digitally advanced nations with: 98% of its total households population having internet access, 90% of goods and services purchases made via cards and 65% adoption rate of mobile banking and payments. These key figures can be translated into the daily dutch consumers life with restaurants, bar, shops or coffee places having the famous Dutch sign “hier alleen pinnen” (here only payment by cards) a trend that was the result of Dutch consumers behaviour preferring card over cash.
The innovative development is led in Sweden by FinTech companies and commercial banks reacting to its innovations however in The Netherlands, the financial market enjoys a large degree of cooperation between the banks and other industry stakeholders. This led in 2005 banks to the ‘Convenant Betalingsverkeer’ to lower the cost of debit card payments with unanimous support (‘PIN’) from banks and retailers alike. Also in that same year, iDEAL which is an online banking enabled payment method for e-commerce was successfully launched. Nowadays, iDEAL accounts for around 85% of e-commerce transactions, thus easily able to compete with credit cards and PayPal, according to the dutch Centraal Bureau voor de Satistiek(CBS). According to the World Bank the Dutch financial market is one of the best functioning, having one of the lowest cost banking markets internationally, it’s a low-risk market that even in the peak of the latest world financial crisis managed to keep defaults of retail mortgage to a minimum. Moreover, the Dutch consumers are protected by supervision of the government and an ombudsman helping boost the cashless payment methods at a high pace.
A clear example of the popularity and daily use of cashless payments in The Netherlands is ABN AMRO successful Tikkie app brought on the market a few years ago. The Tikkie app enables quick, simple payment requests to friends. The Tikkie app’s popularity grew fast as users from all banks can use it; which led to a record number of +5 million users with 200 thousand ‘Tikkies’ per day in 2020, according to ABN Amro Bank’s annual report. It is safe to add that once an app is incorporated into a daily language it also shows how consumers’ behaviour has changed.
FinTech Also plays a crucial role in The Netherlands just like in Sweden; an example would be Bunq a Dutch start up founded by Ali Niknam in 2012. Bunq quickly became a prominent challenger to traditional banks with its mission to become the most loved bank in Europe. Bunq is an innovator in mobile banking and aims to be fully transparent. This mobile bank offers personal and business accounts, focusing on the simplification of transactions. Its features differ from most online payment app as Bunq focuses on making it easy for its users to budget as well as to create: savings goals, automatic savings, payment requests, split payments and a travel card that aims to help users to go spend a budgeted amount on holidays without overspending. Bunq according to their website counts 35,000 users, its market share steadily growing.
In this journey towards a cashless payment society, The Dutch Payments Association Stakeholder forum plays a crucial role. It facilitates creating and developing a shared vision, not just for the association itself or banking and financial institutions but to all its members which includes: payments and electronic money institutions; this in order to thoroughly cover the full spectrum of the industry’s supply side. In fact, it is this multi-stakeholder model that sees the Netherlands as one of the most efficient, leading and innovative payments markets in Europe.
However just like in Sweden the race to a cashless payment society comes with its risks and challenges. As a matter of fact, the fast paced rise in digital payments in The Netherlands could lead to vulnerable groups having limited access to goods and services according to the DNB and “De Consumentenbond”(CB) which is the most popular Dutch non-profit organization promoting consumer protection. The DNB is thus the same course set by Sweden’s central bank, Riksbank and warns that seniors, the less educated as well as tourists vacationning in The Netherlands are suffering under the rise of cashless transactions which might have a serious negative impact on the country.
In fact, according to the World Bank, about 1.7 billion members of the global population remain un-banked, which means that “digital payments tied to major institutions pose a risk of financial exclusion.” according to the World Bank President David Malpass. Letting us having food for thought as to what a cashless society truly will look like and what socioeconomic, legal and environmental impact it will have on the entire population in Europe as more and more countries get on board, each at their own pace, of the cashless payment society train.