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Sweden: A Cash Desert? Or an Electronic Oasis?

Nitin Sumangali |

The cashless society may be closer than we thought.

Sweden’s biggest banks—SEB AB , Swedbank AB and Nordea Bank AB —are stopping manual cash-handling services in 65 to 75 percent of their branches. More and more Swedes are using the web, phones and credit cards to make payments and the banks see less of a need to staff branches with tellers to hand over krona to the people.

“Only five percent of our customers make over-the-counter cash transactions,” Swedbank spokeswoman Anna Sundblad says. Demand for cash services is dropping by about 20 percent a year says a spokesman for Nordea, Scandinavia’s biggest bank.

But perhaps the more telling statistic is from the Swedish Trade Federation: that cash notes are used in only 20 percent of retail transactions. This contrasts sharply with the U.K., where according to the British Retail Consortium, cash usage in retail transaction was 55 percent in 2010 and 58 percent in 2011, and payment with credit cards only represents 11 percent of transactions.

Shifting consumer preference is not the only reason banks in Sweden may be interested in stopping cash handling services. The cost of keeping cash may be a factor in banks’ desire to phase it out as well. Cash cost 0.26 percent of Sweden’s GDP in 2009, with credit cards costing 0.19 percent and debit costing only 0.09 percent, according the KTH Royal Institute of Technology.

If other European nations make this same calculus, the answer may compel banks or other players to design more attractive electronic payment options for consumers. In Germany even large international firms like Ikea do not accept major credit card brands, but take only cash and German EC cards, according to Bloomberg.

Obviously nobody can force consumers to stop using cash, but if countries like Sweden continue to grow electronic payments, it may supply other European nations the incentive they need to innovate. Given the direct costs of handling cash, along with the indirect cost of uncollected tax revenue from unreported transactions, there may not be time to wait for consumer behavior to drive the shift. Banks themselves may have to provide the infrastructure, incentives and support for electronic payments or find themselves holding 20th century money in a 21st century world.

Topics: Payments Strategy

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