Several major banks in Sweden no longer carry cash, and if you want to buy a candy bar at the corner store, you pull out your phone. Even homeless people selling newspapers on the street take credit cards. By the end of last year, four out of every five transactions in the country were cashless. And new research has found that the amount of money in circulation has dropped around 40% to 50% over the last six years.
An app called Swish, launched by Swedish banks, is helping drive the change. The app allows people to digitally transfer funds between bank accounts as quickly as handing over cash (perhaps more quickly if you’re wallet is very disorganized). “It takes about two seconds to transfer the money, which gives it a character similar to cash,” says Niklas Arvidsson, a professor at Sweden’s KTH Royal Institute of Technology who studies the transition away from cash.
Though other countries have similar apps, like Venmo in the U.S., they don’t work in real time; a transfer might take one day or even two. The U.S. app Dwolla wants to bypass the traditional Automated Clearinghouse system to make instantaneous transfers, but so far only a few banks of signed on to its service. Sweden, on the other hand, has been quick to embrace it: It now has over 3 million users, out of a population of 9.5 million.
Sweden has a history of being quick to adopt financial innovations. The country installed its first ATM machine in 1967, two years before the U.S. Now they’re ripping the machines out (between 2010 and 2012, banks removed around 900 ATMs). The move to digitize everything has been happening for awhile—Sweden was also early to adopt direct deposits and paying with plastic. By this century, unions started pushing to get rid of cash as a way to protect workers like bus drivers from robberies—if you get on a bus now, you can’t pay with paper money.
“There is also a demographic development behind this,” says Niklas Arvidsson, a professor at Sweden’s Royal Institute of Technology who studies the transition away from cash. “Younger people do not start using cash but instead move directly into new services, while older people—who are the most frequent users of cash—reduce their spending as they get older and older.”
The move helps make robberies less likely and may reduce organized crime (the banks that still accept cash are suspicious when anyone tries to make a deposit) and tax evasion. It’s cheaper for the country overall, because electronic transactions cost less than handing cash. And, for most people, it’s more convenient—imagine never having to walk six blocks to the nearest ATM again.
Of course, even in hyper-connected Sweden, not everyone has a smartphone or a debit card. “The main challenges is to create a payment service system that allows everyone in a society to make a payment and to receive money in a convenient way,” Arvidsson says. “There are people without bank accounts, mobile phone subscriptions and access to Internet, and there must be solutions also for them. Cash is a good solution for this group and there must be solutions also in a cashless society.”
Privacy is another issue. “The questions of integrity and freedom are other issues. If all payments are possible to trace and the government—for some reason or the other—is not acting in the best interest of their citizens, there will be problems. Being able to trace money is of course good for a government that wants to reduce organized crime but there is also a possibility that this is abused by corrupt regimes.”
The country won’t become 100% cash-free immediately—the country’s central bank would have to change the law and say that cash is no longer legal tender. “This is not likely to happen before 2030,” says Arvidsson. “There are no indication that politicians are considering that move. The introduction of new Swedish bills and coins, which is happening now, actually points to the conclusion that the central bank and politicians plans for the possibility that cash will be around until at least 2040. Then there will be a need for a decision that either says that we should introduce new bills and coins or to make the step into a 100% cashless society.”
Still, the country may get close to eliminating cash much sooner and could be practically cashless in 8 to 10 years.
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