Where Cash is No Longer King
Taking Note of Nordic Countries Going through the Change
When Mark Twain said, “Reports of my death have been greatly exaggerated,” he was not talking about cash, and he was certainly not living in Scandinavia, the most northern corner of Europe where talk of “the death of cash” is far from an exaggeration.
Scandinavians rely on cash for less than 6 per cent of all payments made in direct contrast to the US where around 47 per cent of transactions are made using dollar bills.
This is because the Nordic countries are the early adopters of the so-called cashless revolution. Interestingly, Sweden, which produced the first bank notes in 1661, is now looking to be at the vanguard of their abolition. Meanwhile, one of the country’s most famous exports, ABBA’s Björn Ulvaeus, who ironically wrote the 1970s hit “Money, Money, Money,” is now the country’s biggest cashless campaigner after his son was robbed several years ago. Ulvaeus became an evangelist for the electronic payment movement, claiming that cash was the primary cause of crime and that “all activity in the black economy requires cash.”
Indeed, ABBA the Museum has operated cash-free since opening in May 2013, and Ulvaeus says Sweden “could and should be the first cashless society in the world.” Although the smart money is on Denmark, whose banks and Government have suggested that retailers could throw away their cash registers as early as January 2016 and that businesses such as clothing retailers, restaurants, and petrol stations should no longer be legally bound to accept cash payments, although essential services such as hospitals, pharmacies and post offices, would still have to accept cash under the plan.
In Sweden, 40 per cent of payments were in cash in 2010, but this figure had dropped to 29 per cent last year, a reduction from 1.2 billion Swedish Krona to 0.8 billion in just four years. The public transport system in Stockholm banned the use of cash a few years ago after bus drivers were being attacked to steal their fares. Even street vendors take cards, and Mike Shabwan, selling flowers on a Stockholm square, said sales had risen by 10 per cent since he started use the Swedish service iZettle in his smartphone to accept card payments.
Swedes often make the smallest purchases, such as for chewing gum, with a credit card and can use the Swedish banks’ jointly developed smartphone app Swish to repay a small debt to a friend. Another app allows drinkers to buy beers in a bar without queuing.
Why the Dash to Ditch Cash?
In essence, cash costs money. Reducing the costs and adding the convenience of using cards and smartphones for payments are widely viewed as outweighing the risks of fraud, but some people, mainly the elderly, the disabled, and those without access to technology, fear being left behind.
A report by the Norwegian central bank said the total cost of each cash transaction—including handling notes and coins in banks—was estimated at 7.1 crowns ($0.92) against only 4.1 crowns per card transaction. Now in Norway 50 per cent of banks no longer handle cash.
At the University of West of England’s Follow the Cash Conference in September, Björn Segendorf from Sveriges Riksbank in Sweden and Asbjørn Enge from the Norwegian Eika Gruppen bank told delegates that it was only a matter of time before none of the banks held hard currency although cash remains a “crisis” option.
Sweden, home of music streaming firm Spotify and the Candy Crush mobile phone game, ranks top in the European Union for card payments, with 230 transactions per inhabitant, just above Denmark and Finland and well ahead of Britain at 167, Germany 39, and Italy 28, according to the European Central Bank. But as the Swedish central bank is far from phasing out cash—it will launch new notes and coins this year—it is the Danes who look like they will be bringing home the bacon first with the ready acceptance of MobilePay, an app launched by Danske Bank to allow payments via a smartphone that now has 1.8 million users in a nation of just 5.6 million people. Only essential services, including hospitals, pharmacies, and post offices, would still be required by law to accept cash.
So what are the implications for retail loss prevention in stores where cash payments are in terminal decline, and credit card and smart pay methods will soon eclipse the use of paper money?
The Nordic regions, although reporting lower levels of violent crime than countries such as the UK, claim that cash is a big driver of robbery and assaults. Electronic payment advocates claim there has been less crime reported in their countries due to there being no cash to steal, with armed robberies at banks at thirty-year lows. Some also believe that cash was the primary cause of crime and that the underground economy is cash-driven.
“Carrying cash opens you up to attack, and even though we have relatively low levels of violent crime in Denmark, this is something business owners and employees tell us they worry about,” said Sofie Findling Andersen of the Danish Chamber of Commerce.
Jimmy Läfvenhaug, group CEO of M2 Retail Solutions, said, “Because consumers simply do not want to carry cash any more, retailers are becoming aware of the funding challenges of moving from cash to cashless.”
He said that companies such as Sweden’s giant H&M will get the full benefit of the value chain when they move to full RFID. Here the only currency used by retailers will be more accurate data rather than “guesstimates” over cash discrepancies.
“The real challenge will be the education piece and informing the consumer about what it means to pay on your phone as well as informing them about the risks and how to keep safe.”
To limit risks with MobilePay in Denmark, Danske Bank advises clients to keep their phones locked when not in use and guard them as they would a credit card or cash. And in Norway, Mastercard is experimenting with a fingerprint identification system developed by the country’s Zwipe, embedded into credit cards, hoping to make them more secure.
Banks can also benefit from savings. By eliminating the cost of manual processing of cash and reduced spending on security, the Swedish financial sector has reportedly become more cost-efficient as a result.
“Using cash is expensive because it takes time for salaried employees to handle, and it’s also a security concern,” Findling Andersen added.
It is argued that Governments can benefit from a cashless economy by putting a definitive end to the cash-driven “grey economy.” When all payments are made electronically, there is automatically a means of recording and tracking all transactions, including the payer and recipient.
In addition, the ability to easily audit all financial transactions would serve as a great deterrent to money launderers and tax evaders. The anonymity that was once associated with cash and previously enjoyed by criminals would be removed.
Concerns of Cashless
Not everyone is in agreement. Jarl Dahlfors, the outgoing chief executive of cash handling firm Loomis in Sweden, says the cashless trend may have gone too far for “unbanked people” such as many elderly. But the odds are stacked against long-term retention of cash, and as the first generation of Internet users grows older, it seems likely that attachments to notes and coins will fade.
“It is an ongoing evolution,” said Peter Fredell, CEO of Sweden-based Seamless, which developed the payment app SEQR that handles around 3 billion transactions in stores, restaurants, and e-trade annually.
Sweden’s less tech-savvy elderly—there are 1.8 million pensioners out of a total population of 10 million—may feel marginalised due to lack of access to goods and services because of difficulty finding merchants accepting cash. Only 50 per cent of Swedish pensioners were reported to use card payments everywhere, and seniors’ advocacy groups are urging the Government to allow more time for transition.
Johanna Hållén of the Swedish National Pensioners’ Organisation, said, “Only half of our members use cash-cards everywhere, and 7 per cent never use cash-cards, so we want the Government to take things slowly.”
There is, however, concern about how well Swedes will adapt. “A lot of elderly people feel excluded when you need to use cash-cards or your mobile phone to take a bus or use public toilets.”
The digital payment revolution is also a challenge for tourists, who need pre-paid tickets or a mobile registered in Sweden to catch a bus in the capital. Many have also endured mild chaos at one of the country’s first cashless festivals this summer when the payment system broke down and people ended up resorting to old-fashioned IOUs.
However, this concern is not shared in all countries. Danish pensioners have more fully embraced the change, and the country has one of the highest rates of citizens over the age of sixty that shop online—with its oldest MobilePay user being 104.
While supporters of cashless payments point out that paying by card provides consumers with the ability to budget and manage their finances by tracking their spending, critics raise the issue of personal privacy. When people use cards to pay for their purchases, financial institutions will also be able to track where they shop and how much they spend.
Although traditional crime is reduced when economies go cashless, the risk of fraud online still looms large. Security is still a concern for many; e-fraud in Sweden has more than doubled in the last decade and recorded around 140,000 cases in the last year, according to Swedish Justice Ministry data.
Also, studies as far back as the 1970s prove that we don’t see cards as “real money” and have a tendency to spend more when using plastic rather than cash. At the extreme are casinos where the use of chips “decouples” gamblers from financial reality. Cash is vivid, transparent, and painful to spend.
Debit and credit cards, and just waving your smartphone in front of a scanner, are “easy” and “fun.”
A report for the American Pyschological Association found that, when paying with cash, “There is a tight association between the consumption and the payment, thereby accentuating the ‘pain of paying.’ In the case of credit card purchases, actual parting of the money occurs after the purchase decision, thereby dulling the pain of paying.” In other words, we think, “I’ll worry about that later.” The research also shows that our brains remember cash spending, but we are less able to recall spending on cards. In particular, substituting gift cards or credit notes for the same amount of cash makes us spend as if it’s play money.
Many commentators point at Iceland as the chink in the cashless armour. They argue that it is odd that the end of cash is happening in a country that beats even Argentina when it comes to financial crises. Iceland’s 2008 meltdown, when every major bank went under, was—relative to its population—the biggest financial collapse in economic history. The run on Landsbanki’s Icesave accounts in the UK, where British savers had deposited £5 billion, played a large part in toppling the country’s overblown banking sector, which had grown to eleven times the size of Iceland’s GDP, and the UK is still trying to recoup the debt.
Clearly, more needs to be done to address the growing problem of fraud, especially as smartphones become the payment method of choice for consumers. Criminals will increasingly move away from conventional forms of crime to cyber-crime because of lower risk and significantly higher returns.
Mobile payment fraud is now the costliest of all types of fraud, costing merchants $334 for every $100 of fraud incurred.
In addition to fraud, money laundering is still an issue in the brave new world of cashless transactions, as anti-money laundering (AML) and know your customer (KYC) regulations apply equally to cashless transactions as they do to hard currency.
“Electronic payments still have to be AML/KYC compliant,” commented Stephen Ufford, founder and CEO of global identity verification company Trulioo. “Implementing proper customer due diligence ensures that you know who is sending and receiving the money, making it more difficult for criminals to move millions through the system.”
Having a cashless global economy seems more a question of “when” rather than “if” it will come to pass, especially when we look at how mobile money is gaining popularity in emerging markets such as Africa. However, in many developed countries, there is still a great attachment to cash, where many regard it as part of the national identity.
In such cases, it may take longer for those countries to stop using cash completely until the first generation of Internet users grows older and the concept of cashless payments becomes ingrained in the public psyche. The one thing that may put the brakes on a brave new cash-free Sweden is good old-fashioned sentimentality. When it comes to their coins and notes, a recent survey showed that two-thirds of Swedes think carrying cash is a human right.
Which Other Countries Are Going Cashless?
The use of cash in the UK is steadily decreasing, making up 48 per cent of all payments in 2014, down from 52 per cent in 2013. The proportion of payments made in cash is expected to drop further to 34 per cent by 2024.
A recent survey found that young Brits typically carry less than a few pounds in cash at any given time, preferring to use cards. With the roll-out of Apple Pay, this will likely continue to drive the switch from paying with cash.
However, the British are not as quick to adopt cashless payments as their Nordic neighbours.
“Cash usage is decreasing, but this is a slow, ongoing trend rather than a wholesale move away from cash,” said Mark Bowerman, a spokesperson for the UK Payments Council.
However, one head of profit protection, who has recently commenced operating in Sweden said, “The cashless aspect is not something that we are too concerned about as we see it as more of an opportunity at this stage. The store of the future will be able to handle all kinds of payment, and we will be making huge reductions in cash-in-transit risks. It is a mind shift but not a major problem.”
Kenya is the East African birthplace of M-Pesa, the mobile money solution created by Kenyan service provider Safaricom, and it has become so popular that Safaricom’s parent company, Vodafone, has rolled out the service in nine other countries in Africa, Europe, and Asia Pacific.
Recent numbers released by the Reserve Bank of India revealed that for the first time the number of cashless transactions using ATMs, debit and credit cards, online banking, and digital wallets surpassed those of traditional, paper-based transactions, and the Indian Government is now offering incentives to both merchants and consumers to make the switch to electronic payments instead of using cash.
“Money, Money, Money” may have been the anthem to one of ABBA’s greatest hits, but the country, along with most of the Nordic region, is now singing a different tune. Retailers operating here are feeling their way in this brave new world as they balance the freedom of paying for cash-protection technology with the additional investment in fraud protection. The reports of the death of cash are therefore no longer an exaggeration but will be a reality in the next five years. It is therefore simply a question of which Nordic country is first to put cash in the trash.