Going Cashless: What Can We Learn from Sweden’s Experience?

Sweden is regarded as the poster child of cashless countries and is expected to become the world’s first cashless society by March 2023. This means that cash will not be a generally accepted means of payment in Sweden. This journey has been powered by various factors such as a robust card payment system, strong internet infrastructure, a popular mobile payment app, supportive legal framework and a cultural mistrust of cash.

Jonas Hedman, associate professor at the department of digitalization at the Copenhagen Business School, believes that becoming cashless is inevitable, not just for Sweden, but for other countries as well.

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In a conversation with Knowledge at Wharton, Hedman talks about Sweden’s journey to becoming a cashless society, its implications for the rest of the world and lessons that can be learned. Knowledge at Wharton produced this interview in collaboration with the SWIFT Institute.

Below is an edited transcript of the conversation.

Knowledge at Wharton: You have said, together with Niklas Arvidsson (professor at the KTH Royal Institute of Technology) and Björn Segendorf (adviser and researcher at Sweden’s central bank Sveriges Riksbank), that Sweden could become the world’s first cashless society by 2023. Could you explain what this means?

Jonas Hedman: Niklas Arvidsson, Björn Segendorf and I collectively identified March 24, 2023, as when Sweden would become a cashless society. When we say “cashless society,” we refer to a society where cash is not a generally accepted means of payment. There might still be bank notes and coins left, but you won’t be able to use them in the practical sense.

We arrived at this date through our research in which we surveyed 750 Swedish retailers. We studied their cash management costs and the decline of cash in circulation in Sweden. We found that when cash transactions fall below 7% of the total payment transactions, it becomes more costly to manage cash than the marginal profit on cash sales. When this happens, an economically rational retail management should stop accepting cash.

This is possible in Sweden because even though cash is a legal tender, contract laws have a higher precedence than banking and payment laws here. If a store puts up a sign that it does not accept cash, then you, as a customer, have entered a contract or an agreement with that store that they don’t accept cash. But in other countries, like Denmark for instance, payment laws have higher precedence than contract laws. In those countries, if something is a legal tender, then according to the law a store must accept it. This is one of the key reasons why Sweden is more cashless than other countries — because of its legal framework.

“Even though cash is a legal tender, contract laws have a higher precedence than banking and payment laws here.”

Knowledge at Wharton: How does the use of cash in Sweden compare to countries like the U.S. and the U.K.?

Hedman: Cash [in circulation] has been decreasing in Sweden since 2007. At that time, we had roughly 100 billion Swedish cash in circulation. Today we have somewhere around 45 billion. So it’s a decrease of about 50% over the past decade. When we look at cash in circulation compared to gross national product, we are below 1% in Sweden. In the U.S., it’s around 5% to 7%. In the U.K., it’s around 3%. Countries in South America have around 30%. Sweden is unique in the rapid decrease of cash in circulation.

Knowledge at Wharton: You spoke about Sweden’s legal framework. What are some of the other key drivers for Sweden to become a cashless society?

Hedman: There are many drivers. For instance, the widespread adoption of payment cards from way back in the 1950s, digitalization of bank accounts since the 1960s and the setting up of the internet infrastructure and internet banking in the mid-1990s. Then, in the early 2000s, the central bank decided to outsource its printing and distribution of cash. The central bank said it didn’t see cash as its core business.

Something unique to Sweden was a spate of robberies which resulted in the unions of various organizations like bank employees, bus drivers, cab drivers and others pushing for a cash-free society in order to protect their members. In 2007, in an effort to transform black-market work to white-market work, the government introduced tax deductions for domestic services like home repairs, baby-sitting, laundry and so on.

This meant that people did not need to keep cash to pay for these services. It led to a dramatic drop in the need for cash. In 2012, we got our mobile payment app Swish, which was introduced by a group of Swedish banks along with the central bank. In 2015 to 2017, Sweden replaced its existing notes and coins with new ones. When this happened, cash was deposited into accounts but not all of it was taken out. All of these different reasons have contributed to Sweden becoming a cashless society. More and more stores in Sweden are putting up signs that they do not accept cash. I would not be surprised if we become cashless as early as 2020.

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Knowledge at Wharton: Your research mentions that while 97% of the traders in Sweden still accept cash, only 18% of consumers want to pay by cash. So is this movement towards a cashless society also consumer-driven?

Hedman: Yes, I would say it’s mainly a consumer-driven process. People have stopped using cash because they find the alternative ways of paying like mobile payment, card payment and internet payment much more convenient than paying with cash. The cash that we see in circulation is demand-driven. The central bank supplies the amount that the society or the system requires. Most of the Swedish bank branches are cash-free. It’s hard to find a bank that accepts cash. If you want to deposit or withdraw cash, you have to go to the ATM machines.

Knowledge at Wharton: What are some key trends that you’re seeing in Sweden as it moves towards becoming a cashless society? For instance, news reports mention that at present debit and credit cards are more popular than mobile and internet payments.

Hedman: Our study shows that when it comes to retail and shopping, payment cards are the primary mode of making payments. These cards have become more efficient with the NFC-enabled “tap and go” features, and from a consumer perspective it’s faster and more convenient to pay using them. But when it comes to person-to-person transfers, it’s purely through mobile payment apps like Swish.

“An advantage of a cashless society is that it will be easier to trace criminal activities and we might be able to block them.”

In Sweden, we have had an extremely fast adoption of internet technologies — it was subsidized by the government during the 1990s. I expect that mobile and internet payments will pick up in retail also and will in fact overtake card payments in the next four to five years. We have 100% mobile coverage already, and that will make it easier for mobile payments to catch up. Swedes adopt new technologies rapidly and are very open to accepting changes in the payment systems. One key reason for this is that we have a very good relationship with our government. Unlike most other countries, we trust our government and we trust our banks. This is quite unique to Sweden.

Knowledge at Wharton: Are you in favor of Sweden’s becoming a cashless society? What would you say are the pros and the cons?

Hedman: From a research perspective, I don’t really have an opinion whether this is good or bad. This is the path that Sweden and other countries are heading towards and there is nothing we can do to revert the course. It will have different consequences; some are positive, some are negative. An advantage of a cashless society is that it will be easier to trace criminal activities and we might be able to block some of them. The disadvantage is that everyone can be traced. We will be more traced than we are today. We will lose our privacy. But of course, with Apple, Facebook, Google and others, we have already lost our privacy.

There are concerns for older people with dementia. They could have a problem using smartphones. That’s something that needs to be addressed. Then we have groups of immigrants that are not tech savvy. They will be at a disadvantage. If you don’t have the Swedish central registration number, you can’t get mobile payment solutions. It will also be more difficult for beggars. So there are pros and cons with this evolution. But that’s true with every technology or every major change. There will always be some people that are disadvantaged with any transition.

The movement to a cashless society also feeds into the movement of globalization. The big challenge here is that we will become much more dependent on rest of the world. The world will be more interconnected and there’s a risk that we will be much more dependent on a few North American firms, at least in the western part of Europe.

Knowledge at Wharton: What implications does Sweden’s becoming a cashless society have for rest of the world?

Hedman: Sweden’s impact on the global financial markets is limited. But Sweden has a good brand and other countries will look at what Sweden has done and how it has been doing it. It can be an inspiration for other countries and can serve as an example to them. For instance, the Swedish central bank has a plan to issue digital currency. The reason behind this is that one of the roles that a Central Bank has in any country is to make sure that there’s a functional payment system for the country. When cash disappears in Sweden, we will become totally dependent on the banking system. Digital currency issued by the central bank will ensure that we’re not too dependent on banks. Other central banks may look at Sweden and do something similar.

“There will always be some people that are disadvantaged with any transition.”

Knowledge at Wharton: What are some other lessons that other countries can learn from Sweden?

Hedman: The government of Sweden hasn’t done much when it comes to this issue of becoming cashless. This is a pity. No politician in Sweden talks about it. The only explanation for this is that talking about becoming cashless doesn’t get them votes. I think it’s an important lesson for other countries. Don’t be like Swedish politicians; don’t ignore this.

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I think every country should have a commission that studies the implications of becoming cashless. It could be part of a bigger commission looking into the larger digital transformation of society and must study the various sub-themes of a cashless society. Every country needs to take a holistic approach to issues related to money and payments from an organizational, institutional and individual perspective. They must involve economists, anthropologists, historians, psychologists and others and try to get a broad view of what the issues are.

Every country is different and the issues are very country-specific. So this needs to be done at a country level. Of course, you can be inspired by those that are ahead in the process. Invite them. Understand their thought process. But see what applies in your particular context and then take the necessary measures. For instance, in the U.S., tipping is the norm. We don’t have that in Sweden or in Italy. So there are a lot of different cultural or country-specific factors that are involved in how the future should look like.

Knowledge at Wharton: What are the key prerequisites for a cashless society to be feasible?

Hedman: You need to have a widespread technology infrastructure, including the mobile phone systems. A technology infrastructure that is capable of sending messages across the country.

Knowledge at Wharton: There is a movement in Sweden against going cashless. What is your view regarding the Kontantupproret (cash rebellion) movement which is concerned about identity theft, rising consumer debt and cyber-attacks?

Hedman: The main spokesperson of this movement is the former head of police in Sweden [Björn Eriksson]. It is an organization driven mainly by retired people and they look at the issues purely from an elderly perspective. In some sense they raise importance questions about how will elderly people be able to pay in the future. But I disagree with their arguments about why we need to keep cash.

For instance, they say we need to have cash in case the internet breaks down or the electricity systems break down. That does not hold true. If the internet breaks down, you will not be able to shop anyway because the cash registration systems will not work and no store in Sweden will open without having the cash registration systems in place because that will be illegal.

“Every country needs to take a holistic approach to issues related to money and payments from an organizational, institutional and individual perspective.”

According to Swedish accounting laws, it is a crime to not use the cash registry. So, if the internet breaks down, the stores will be closed. Also, when it comes to grocery and food supplies, a typical store in Sweden keeps enough [goods on hand] for 24 hours. The rest of the food is either in warehouses or in trucks. If the internet breaks down, they won’t know where to ship the things. In fact, they will not even be able to open the doors for the warehouses or the stores. The same thing would happen if the electricity systems were to break down. So having cash won’t help in such a situation.

Regarding the concerns about identity theft and cyberattacks, I think these are likely to happen more because of human error and not because of technology. For instance, most people don’t change their passwords frequently enough or they tend to be careless about whom they share their information with. And, in any case, you could also get mugged if you have cash in your pocket. So, while the cash rebellion group raises important issues, I don’t agree with their arguments.

Knowledge at Wharton: What would you say would be the right argument for a cash rebellion movement?

Hedman: Well, in my view, the move to a cashless society is inevitable. It’s something we can’t stop. Sadly. Or, thank God. I don’t know. We’re heading on that path regardless of what we do.

Knowledge at Wharton: You mentioned earlier that a vast majority of banks in Sweden have stopped allowing customers to withdraw or pay in cash over the counter, or they’ve made it very expensive to do so. Do you think this is a right thing to do?

Hedman: I don’t know if it’s right or wrong. This has been encouraged by the unions. Cash is extremely expensive to manage for an individual branch because of the security — like the vaults and the other measures — that you need to have. So, if I need to withdraw the sum, say, equivalent to 1,000 euros of cash, I have to inform my bank a week in advance. Similarly, if I want to deposit more than say 500 euros, I have to give a few days of notice, otherwise they will not accept it. This is also due to the anti-money laundering legal frameworks that have been put in place over the past few years. There is a lot of debate about whether banks should deal with cash. But when the central bank has stated that cash is not the core business, then why force a bank?

Knowledge at Wharton: According to you, whose responsibility is it to educate the vulnerable populations — the elderly, the immigrants, the uneducated — on how to do cashless transactions? Should this be the responsibility of the banks?

Hedman: I think elderly people are much smarter than we think they are. A large majority of them can pay by cards. When they become so ill that they are dependent on others, they typically have some trustee who could make the payments for them. I don’t think it is the responsibility of the banks to educate the vulnerable population. I think it is society’s task to educate its citizens. We could say it is the task of the education system to teach people about payments. Or, it could be the parents’ responsibility to educate their children. Also, today’s children think cash is something endless that comes from an account. And this, I think, will lead to an increasing amount of people putting themselves into large debt and possibly bankruptcy. So parents need to educate their children also about the value of money.

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