What can we learn from Sweden’s journey to a cashless society?
A longstanding innovator when it comes to finance and currency, Sweden is leading the way to cashless adoption, with reports predicting it will be fully digital by March 2023. The country, which was the first in Europe to introduce banknotes back in 1661, could become the first in the world to officially end the issuing, handling and processing of cash in every aspect of its economy.
The transition won’t happen overnight; a delicate combination of private sector innovation, government support and societal adoption has led to Sweden becoming a front runner in cashless payments, and it’s important for other markets and financial services providers to learn by the country’s example. Crucially, however, at a time when more than 1.7 billion adults still don’t have access to a bank account, private and public sectors must work together to ensure that the movement towards cashless doesn’t become a catalyst for financial exclusion.
For many, Sweden’s journey to becoming a cashless society has been quietly building momentum for the past two decades, spurred on largely by the Swedish public’s willingness to embrace digital payment methods. According to figures from Riksbank, Sweden’s central bank, the proportion of citizens using cash has fallen from 40% to just 9% over the past 10 years, with cash predominantly being used by older demographics for smaller payment amounts. By comparison, findings from the Federal Reserve found that cash still makes up more than a quarter of all transactions in the US. The public’s progressive outlook on digital payment methods meant that Sweden was well prepared for the challenges brought on by the COVID-19 pandemic, with nearly half (48%) of citizens saying they would use contactless payment for most purchases moving forward.
Public sector support
The fact that consumers are so willing to embrace change when it comes to payments is no accident, and in fact has been ushered in by progressive legislation on the government’s part. Throughout the retail and hospitality sectors, it’s not uncommon to see ‘card only’ or ‘cash free’ signs at point of sale. This is thanks to a law that gives merchants the right to only offer digital payment options, despite cash still being recognised as legal tender.
Likewise, children from the age of seven are legally able (and encouraged) to have their own debit card to better prepare them for digital-first payments. In contrast, children in the UK must be eleven years old before they can apply for a debit card from most traditional banks, or seek out fintechs that offer dedicated parent and child products.
Moving forward, the Swedish government has furthered its commitment to financial innovation through the development of its own digital currency – the e-Krona – pioneered by Riksbank. The e-Krona pilot scheme was first launched in 2019, and the Swedish digital currency (the first of its kind to receive national state backing) will be further explored throughout 2021. It’s thought that investment in e-currency will allow for a safer, more efficient payments ecosystem as the country transitions to a cashless society.
Private sector innovation
If the Swedish government has helped foster a space for innovation, and consumers have incentivised the shift to digital through continual demand, it’s the country’s private sector that has truly helped pioneer its market-leading technology and infrastructure.
Sweden has long been a hotbed for technological innovation across a wide range of sectors, with global brands such as Spotify, King and Skype all originating in the country. The financial services sector has been no different; over the past 20 years Swedish companies have helped to drive innovation in the space that would go on to be adopted across the global economy.
In 2003, Swedish financial services providers collaborated to develop BankID, a computer based electronic identification system. As part of the service, users were issued a unique six-digit code, which acts as an identifier to improve security when making payments. The platform has developed over time and is now a mobile app which is thought to be used by 94% of Sweden’s population. BankID allows for seamless digital payments while also functioning as a trusted electronic identity document, which is recognised alongside the likes of passports and driving licences.
Like BankID, which is supported, operated and managed collectively by the main Swedish banks, Swish is also a testament to the banking sector working together for the common good. In 2012, the six largest banks in Sweden worked together to build an instantaneous mobile payment platform – Swish - to help make electronic payments easier for their customers. The app is so ingrained into the Swedish cultural zeitgeist that in bars and restaurants one customer will usually pick up the bill, with friends and family ‘Swishing’ funds to them shortly after to settle up.
Investing in these technologies ahead of the digital curve has not only empowered Swedish financial institutions by providing the infrastructure for a truly cashless future, but also laid the groundwork for rapid fintech innovation. Buy Now, Pay Later (BNPL), one of the biggest embedded finance trends to sweep the industry, has largely been popularised by Swedish fintechs. Similarly, Zettle (formerly known as iZettle), the POS device manufacturer which has largely democratised access to card payments for small businesses, also has its roots in the country.
The financial exclusion challenge
In spite of this widespread innovation, the move to a fully cashless society won’t be without its challenges. Financial exclusion, and the wider movement to provide better financial services to the economy’s unbanked, continues to be a key focus domestically. In fact, Sweden recently passed a bill mandating that banks need to provide an adequate level of cash services to better serve groups such as lower income workers, rural communities and migrants, who still don’t have consistent access to financial services.
Coming at a time of such rapid change, the move highlights the global tension between technological progress and the widening gap between those who do and don’t have access to financial services. As with any question on the topic, the solutions needed to solve the problem aren’t solely financial. Governments must first invest in utilities and infrastructure such as telecoms networks and electricity throughout rural communities, to better allow consumers access to digital-first services. They must also expand upon and educate customers about the benefits of embracing financial products, to allay concerns from communities that have historically predominantly used cash. Finally, following Sweden’s lead, they must make sure that cash is readily available, and accepted, until every citizen is in a position to adopt digital payment methods.
The complex path to cashless
The range of complicated challenges thrown up by Sweden’s move to cashless calls into question whether 2023 is an achievable target. That being said, countries around the world can stand to learn a lot from Sweden’s example as the global shift towards cashless accelerates. From implementing electronic identification to placing digital payment platforms at the heart of the purchase cycle, Sweden has repeatedly demonstrated its ability to future-proof its payments ecosystem by investing in solid bedrock and infrastructure.
Swedish regulators have paved the way for technological innovation and ushered in changes in consumer behaviour, which has fostered a space in which private firms can pioneer some of the world’s most forward-thinking fintech products. As consumers continue to demand better financial services, both governments and financial services institutions should look to Sweden’s collaborative model to succeed and thrive.
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