By Kirsty Tull
Sweden is expected to have a cashless economy by the year 2030 and already is predominantly cashless. Swedes make approximately 80 percent of their retail purchases with debit cards, credit cards and mobile payment apps. Five of the nation's six biggest banks are cashless, and buses in Stockholm no longer accept cash fares on board.
While academics, financial experts, and digital-security specialists debate the pros and cons of Sweden's transition from paper and coins, the payments industry, merchants and policymakers should take notes of Sweden's progress and pitfalls.
Banks and credit card companies have supported a move away from cash for years, but one high-profile Swede's concern about crime brought the cashless idea front and center. Former ABBA band member Björn Ulvaeus is an outspoken advocate of a cashless Sweden ever since his son's apartment was burglarized twice several years ago.
The burglars took items that could be sold for cash, and Ulvaeus believes getting rid of cash can end drug-related property crime. "We can be absolutely sure that the ensuing exchange of goods never would have taken place in a cashless society," Ulvaeus wrote on the website for ABBA the Museum, explaining why the museum takes only noncash payments. Ulvaeus is not the only one with concerns about crime. Niklas Arvidsson, an associate professor of industrial dynamics at the Royal Institute of Technology in Stockholm, told The Guardian that robberies spurred many of the country's banks to go cashless several years ago. In 2011, there were only 16 bank robberies in all of Sweden, compared to 110 in 2008, according to London-based industry publication Total Payments.
Robberies have declined, but fraud is a growing problem for the Swedish economy, with 148,000 cases reported to the authorities in 2013. The Swedish National Council for Crime Prevention said that figure is most likely too low, because not all incidents are reported. The council also noted that fraud reports "more than doubled" over the past decade. As cash disappears from Sweden's economy, digital security and fraud-prevention methods must keep pace with the growing number of fraud attempts.
Sweden isn't alone. MasterCard Worldwide listed Australia and Canada among the countries making the most progress toward cashless economies. Australia stands out for its world-leading rate of contactless payments, which comprise half of the small retail purchases made by MasterCard users there. That number will grow as payment system company EFTPOS rolls out nearly 40 million chip-embedded debit and credit cards over the next two years, along with compatible merchant terminals. The upgrade will give Australians with EFTPOS-only cards the option of contactless payment. Canada is also poised to go cashless, with roughly 90 percent of all payments now made without cash. Canada has replaced paper banknotes with plastic ones that include multiple security features to reduce counterfeiting. And the last Canadian pennies were minted in 2012, when the cost of production was deemed too high to be worth the effort.
The convenience and cost savings of noncash payments have been an economic advantage in many developing countries, as well, by helping underserved individuals and businesses "leapfrog" over gaps in banking infrastructure. For example, nearly half of all Kenyans now handle cashless mobile payments – roughly 10 percent of the country's total gross domestic product – through M-Pesa, a Nairobi-based payment company founded in 2007.
M-Pesa has expanded to countries where bank access is often limited, especially for low-income households and rural businesses. In Africa, M-Pesa now also serves Tanzania, the Democratic Republic of Congo, South Africa, Lesotho, Egypt and Mozambique. The company's other markets are Fiji, India and Romania.
One may ask why it could take another 15 years for Sweden to eliminate cash transactions if cash comprises just 3 percent of that country's economy today. Experts in Sweden say that many pensioners there are either reluctant to change their cash-spending habits, are intimidated by the new technology or live in rural areas that aren't yet served by digital payments.
One major economy that may hold out for years to come is the United States, where 2012 data suggests the average consumer still uses cash for 40 percent of monthly transactions. That figure may be influenced by the number of consumers whose income level is too low for ready access to banks and cards, and by the fact that the U.S. payment infrastructure is not as digitized and mobile as countries such as Sweden. Buses, vending machines and small-item purchases in the United States still usually require cash.
Regardless of those habits and preferences, the changeover to a cashless world is coming. It will be driven, in part, by banks and credit card companies seeking to streamline operations and reduce costs, partly by residents of the developing world adopting mobile payment technology, and also by the digital habits of younger consumers. Even in the United States, about a quarter of consumers under age 30 carry little to no cash, and most of them think carrying cash is a security risk.
Indeed, cash has a unique set of management costs and risks, such as secure storage, transportation and oversight; heightened risk of theft and violent crime; and ease of anonymous use by criminals. Replacing cash with digital payments can cut overhead costs, increase public safety and reduce the incidence of property theft for resale. The other side of the coin, so to speak, is the likelihood of more sophisticated digital fraud efforts. But the advantages of a cashless world for the banking and payments industries, national economies, and individuals around the globe appear to greatly outweigh the merits of continuing on with paper and coins.
Kirsty Tull is marketing manager at BillPro (www.billpro.com), follow on twitter at @Billpropayments.
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