Cash no longer king in Sweden

Only two percent of financial transactions in Sweden are made in cash. Fitting then that King Gustav Vasa will be replaced by Dag Hammarsköjd in the new 1000-krona bill.

In their hit 2015 two-man comedy show Ägd, Swedish comedians Henrik Schyffert and Fredrik Lindström ran a bit about a Swede walking past a beggar and instead of giving him  or her money, she just pats her pockets and shrugs her shoulders apologetically as if to say she’d give some money, if only she had some cash.

It always got a laugh because it was so easy to relate to. It felt true not only because the citizens of this Scandinavian welfare state have a hard time confronting underprivileged people in person to begin with, but also because nobody in Sweden carries cash with them anymore.

If they can’t pay with a debit or credit card, then surely the seller will accept Swish, an electronic payment solution that connects the users mobile phone number with a bank account and enables quick and secure transactions between consumers.

“Only about two percent of all payments in Sweden are made in cash,” says Jacob de Geer, CEO and co-founder of iZettle, a seven-year-old mobile payments company known for its payment card readers.

According to de Geer, in Scandinavia in general, cash payments account for around six percent of payments, and according to the Swedish Central Bank, about 20 percent of all retail purchases are made with cash and in a 2016 survey of 2000 Swedes aged between 16 and 85, only 15 percent said they had used cash in their most recent payment. Four years earlier, the figure was 33 percent.

These days, we don’t think twice about not carrying cash because there are so many other alternative ways of payment, but the development has been fairly quick. The number of card payments surpassed the number of ATM cash withdrawals fifteen years ago, in 2002.

In 2006, the Stockholm local traffic stopped taking cash as payment for bus fare after several incidents in which a bus driver had been robbed, or had received robbery threats.

Two years later, the deputy director of the Swedish Central Bank predicted that “paper-based payments” would end up in museums because they were expensive for the banks and inconvient for the consumers. The 500-bill is now about to suffer a similar fate as the checks did in the 1990s. When the banks started to take a fee for cashing checks, people simply stopped using them, and started to fill their wallets with credit and debit cards instead.

With the checks already gone, the next obsolete “paper-based” payment methods are called “bills”.

In the almost seven years that iZettle has been in the business, the pace has only accelerated. Cash was already on its way out in 2010 when de Geer got the idea for iZettle after his wife came home from a trade fair frustrated because half of the people wanting to buy something from her only had a card, and she didn’t have a card terminal.

“My first question to her was, ‘why haven’t you got yourself a card reader,” de Geer says, and answers his own question right away: “It was too expensive for her, a one-person company, to do so.”

De Geer made a quick survey (“of few”, as he calls it) and saw the commercial potential in providing financial services for companies that were smaller than small. The micro companies, and the sole traders. Most of the companies founded each year are by definition small, and most stay that way.

“Of the 70,000 companies founded in Sweden every year, 99.9 percent are small, with up to 50 employees. They account for 95 percent of all companies and about 20-30 percent of the BNP,” he says.

There was potential.

There are many reasons for Scandinavia being a leading region in the world, but certainly a big part of it can be traced back to the dotcom boom of the 1990s when the three countries jumped to the front of the line in Internet penetration and digital literacy. According to the Internet Society, Sweden, Norway, and Denmark all have 95 percent Internet penetration and  in the World Economic Forum’s list of countries harnessing information technology, Sweden was ranked third, Norway fifth, and Denmark 15th.

“Sweden is a leading country in Europe when it comes to innovation. We’ve had Spotify, Mojang, King. We’re just as good at this as the Silicon Valley. Stockholm is the Silicon Valley of Europe,” de Geer says.

“Swedes are fairly tech-literate and they also welcome new technology.”

It’s companies like iZettle and services like Swish, which is owned by six Swedish banks, that make it happen. People are tech-savvy.

“In our first six months, we increased the number of points of sale that could accept card payments by ten percent. Today, iZettle has 50 percent of all the card terminals, but obviously not of the sales volume. The number of small companies, and one-man operations that have iZettle’s card readers increases by about 6,000 every year,” de Geer says.

“About 18 months after our launch, I started to notice something interesting on the windows around town,” he adds.

He saw signs of cash being on its way out. Literal signs saying, “we do not accept cash”.

“And I thought to myself that we did that,” de Geer says.

That wasn’t – and isn’t – the raison d’être of iZettle, though. De Geer’s company approaches the challenge from the other direction, the situation in which Jacob found his wife in 2010: A small entrepreneur who was neglected by the banks.

“When we did our original research, we found out that there are 20 million micro companies that were unable to take card payments. Often, they also couldn’t get loans because they didn’t have a credit rating. We can look at their card payment data and see the shape and growth potential of their business and can give them an advance on future card payments,” de Geer says.

“We’re simply creating the next generation’s financial services,” he adds.

Cash is not among them.

Now, cash has still not gone completely the way of the dodo bird. The Central Bank estimates bills to be in circulation “for the foreseeable future” which they estimate to be into the 2030s and even kids still know what to do when they get their hands on a twenty or a fifty-krona bill. Interestingly, though, just as the big break with cash is under way in Sweden, the country also replaces its old coins and banknotes, and in the process, the cultural icons that are on them. (See sidebar).

In 2015, the Central Bank released new banknotes for 20, 50, 200 (a new denomination), and 1000 Swedish krona.

This year, there will be new bills for 100 and 500 krona.

While de Geer says he doesn’t carry cash with him, and the little cash he does have is in a jar at home, he also admits to being a little sentimental with cash.

“I think it’s nice with bills, and I like how they reflect the country’s culture,” he says, “unfortunately, to do something simply because it feels nice is not an economically viable reason to keep doing it.”

There is a real downside to a cashless society, too, he adds.

“Privacy is going to be the big problem because we all have situations in which we don’t want anyone to know what it is we have bought, and not simply because they would be illegal, it can be, for example, a situation in which a person wouldn’t want anyone to know she’s paid for a certain medication.

“And electronic payments can always be traced,” de Geer says.

However, there’s also a flipside to that coin. (Pun intended). When transactions can be traced back, it makes it more difficult for the black economy to flourish and easier for governments to collect taxes. For example, Greece is estimated to have an underground economy the size of a quarter of the country’s gross domestic product.

In 2012, it was reported that the Italian police was given instructions to stop Ferrari and Lamborghini drivers to make sure their tastes for cars matched their income on their tax returns. By May that year Italian officials announced that they had uncovered more that $12 billion in unpaid taxes.

“The only way to battle that is to have data,” says de Geer.

Electronic payments also help drive forward financial inclusion so that people that are currently outside the economic system can participate in it. De Geer mentions people in the Rio de Janeiro favelas as an example.

“Seventy percent of Mexicans don’t have a bank account,” he says, and lets the fact float in the air for a second before he goes on:

“That’s why in Mexico, the entrepreneurs who get iZettle also get a card of their own, with a virtual bank account on it so that they, in turn, can make cash withdrawals, or pay another vendor with a card. ”

So, if cash disappears from the society, there’s a chance we may also lose something else besides colorful paper notes and rattling coins. There are, even in Sweden, people who are off the grid and don’t have a bank account. De Geer sees some of them outside his grocery store in a Stockholm suburb, selling Situation Stockholm, a magazine sold by homeless people.

Except that Situation Stockholm vendors do take credit cards.

“We’ve equipped them with an iZettle card reader. We’ve done the same thing with Big Issue, a similar magazine, in London. And yes, when I see them, I think to myself that we’re doing something right,” he says.

Soon, there will be no excuses to pat your empty pockets.

With Sweden’s new banknote reform, some old cultural icons have had to give way to a new generation.

20 kronor
Old: Selma Lagerlöf, author
New: Astrid Lindgren, author

50 kronor
Old: Jenny Lind, opera singer
New: Evert Taube, folk singer

100 kronor
Old: Carl von Linné, scientist
New: Greta Garbo, actress

200 kronor, new
Ingmar Bergman, director

500 kronor
Old: Charles XI, king
New: Birgit Nilsson, singer

1000 kronor
Old: Gustav Vasa, king
New: Dag Hammarskjöld, UN Secretary-General

From the vault, unpublished.

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