How close is a cashless society?

How close is a cashless society?

By June 27, 2017 News, Research No Comments

The move to a cashless society has been a long, slow grind characterised by piecemeal initiatives such as the removal of high value notes, rounding or withdrawal of small denomination coins and the introduction of sometimes uncoordinated card payment offerings.

And while these changes may be inching us towards the removal of cash, how close really is it? More to the point, who really wants it – and why?

Currently the society that is perhaps closest is Sweden – where it’s not unusual to see shops, pubs and restaurants with “No Cash Accepted” signs in the window. It’s enough to have some citizens worried, and a petition to safeguard the use of cash gained 136,000 signatures in August 2016.

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It’s hard to imagine that happening in the UK just yet – so why is Sweden embracing digital-only money faster than most? One key factor is the coordinated approach that local institutions have taken to providing the rails for cashless payments.  Swish, the Swedish equivalent of Venmo, was created and promoted by a consortium of the country’s largest banks including SEB, Danske Bank, Handelsbanken, Länsförsäkringar Bank, Nordea, Swedbank and Sparbankerna. A huge 52% of the population now use Swish for Person-2-Person payments.

This is particularly significant when you consider that one of the challenges with P2P payments is that the receiver also needs to have the app, or be willing to download it. If the sender is repeatedly unable to send money there is the danger that they give up before a critical mass of users has been achieved.  That critical mass of acceptance has clearly been achieved with Swish.

Sweden is also the home to iZettle, the creators of innovative point of sale solutions for small business, including famously a solution for the sellers of the Swedish equivalent of Big Issue “Situation Sthlm”.

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Considering the above, it’s no surprise that Sweden has one of the highest rates of contactless payment acceptance in Europe. To understand why, we need to look at the fundamental benefits (and beneficiaries) of a cashless society.

One obvious boon is the visibility and traceability inherent in digital transactions, particularly for governments. The ability to see where money is coming from and going to means that assessing whether the correct amount of tax has been paid on each transaction becomes far easier.

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That might go some way to explaining why there is a greater openness to adopting cashless payments in Sweden – because it’s a country with a relatively high compliance with tax obligations.  (In fact, in 1996 the Deputy Prime Minister resigned after failing to pay her TV license and using her government credit card to buy Toblerone – small beer in other countries but in Sweden enough to force her resignation).

The other key beneficiaries of diminishing reliance on cash are the banks. Holding and managing large quantities of cash has significant costs associated with it, costs that the banks are keen to reduce. This appetite for moving customers away from paper transactions can translate into incentives to use digital alternatives – which is exactly what has happened with Sweden’s Swish. There are no fees at all to use the service, and the service is closely integrated with consumers ‘traditional’ retail bank accounts, providing the ability to make payments directly from current accounts as well as from cards.

These aren’t the only advantages, but they are two of the most salient – particularly as they’re almost universally desirable to governments and banks globally. As mentioned, Sweden is especially fertile ground, leading to rapid progress away from cash – but their approach of coordinating with banks and incentivising the public can and very likely will eventually be copied elsewhere.