Not long ago, the concept of cashless society seemed to be deeply rooted in science fiction novels, but recent trends in the realm of financial services and a shift in mentality both at the governmental and civil society level signals the fact that physical money may soon disappear.
Hard currency is at the center of any human society, and it has played a key role in the evolution of modern human organization. So, the transition to a cash-free world will have a deep impact on the socio-economic structure of society as well as how we interact with each other on a daily basis. Over its long history, Sweden has demonstrated on numerous occasion its openness towards change. In 1611 Sweden became the first European country to introduce banknotes in its financial system, and it seems that the country is still maintaining its position as a pioneer in the realm of financial services and payments, as it proposes to introduce its own digital currency in 2021, and become the world’s first cashless society by March 2023. By then, cash will not be accepted any longer as a means of payment in Sweden.
It took Sweden 362 years to transition from being the first nation in Europe to adopt banknotes in 1661, to becoming the world’s first cashless economy in 2023. For the last couple of years, a new trend has emerged in Sweden concerning payments. The majority of all transactions have been paid electronically, by debit/credit card using chip and Pin rather than the old-fashioned magnetic band, using contactless technology, or Swish, a mobile application specially designed to help Swedes embrace a cashless life. Currently, more than 80 percent of all retail transactions have been conducted electronically. Sweden is not the only example, this trend has also surfaced in the rest of the Nordic countries which include Finland, Norway, Denmark, and Iceland. The rapid rate in which the Nordics are embracing a cashless lifestyle strongly contrasts with countries from Southern Europe, where cash is still viewed as a strong form of payment and in some places, only cash is accepted. This is the complete opposite of what happens in Northern Europe where cash is no longer accepted in many establishments.
Moreover, in Sweden by 2023, businesses which still accept cash as a form of payment will are going to move to the new method of payment. It has already become increasingly difficult to find an establishment where they accept cash. You have to be ready to pay by card or by the mobile application Swish. Financial institutions seem to support this change in mentality. In 2012, the six largest banks in Sweden got together to build an instantaneous mobile payment platform to help customers make electronic payments easier. The application, called Swish, quickly became a hit with everyone in Sweden. Both banks and government encourage citizens to adopt the cashless economy. Currently, Swish is close to becoming the Swedish standard for mobile payments, as over half of the population of Sweden uses it. In fact, people who rely on cash as a method of payment have become a minority, as only 13 percent of the total population in Sweden still use it.
These changes have a deep impact on society’s concept and understanding of money. Some Swedish children will never know how it was like to live in a world where cash transactions were widely accepted. And in the near future, the majority of them are going to see printed money only through photos, videos, and museums. Financial institutions are making an effort to push the old model to the sideline. Swedish banks issue debit cards to citizens with from age seven or older (with parental permission), which translates to more than 97 percent of the population.
Cash accounts for less than 1 percent of the total transactions in Sweden, the effects of which can be observed in everyday life. Stores with “No cash payment in this store” signs displayed in the window have become the norm. Over 99 percent of merchants accept debit cards, and consumer payments with cash are less than 20 percent of total transactions and over 80 percent of all transactions are cashless. Several years ago, Stockholm’s public transport stopped accepting cash. Tickets can now be pre-paid, by using a mobile application or bought by debit/credit card from the driver, or ticket machine. Residents usually buy a monthly travel card, which is both more convenient and less expensive than buying individual tickets.
Most Swedes, especially those from younger generations, never carry cash. A benefit of the cashless system is that tourists don’t need to worry about currency exchange. Yet, unsurprisingly, some tourists find it hard to believe that they don’t need any local currency when visiting Sweden. The fact of the matter is that it has become quite hard to get your hands on cash. Even small purchases such as a cup of coffee or trinkets or miscellaneous items from a gift shop don’t rely on cash transactions. Every vendor has a mobile payment chip-and-PIN card reader such as the one offered by the Stockholm-based mobile payments company iZettle, or they accept payments made through the mobile application Swish.
The mechanisms behind a cashless society
In a cashless society, every payment is done through an electronic medium of exchange. Instead of relying on paper money or coins to exchange value, you are required to authorize a transfer of funds to another person or business.
The logistics are still under developing, but we have some hints on what will be the mechanisms which will bring forth a cashless society:
- Credit cards and debit cards are among the most popular cash alternatives in use today. But cards alone aren’t enough. Mobile apps will most likely become a primary tool for payments.
- Electronic payment apps, like Zelle, PayPal, and Venmo, are helpful for P2P payments.
- Mobile payment services and mobile wallets like Apple Pay provide secure, cash-free payments. In developing and developed nations that use cash sparingly, mobile devices are the most common tools for payments.
Advantages of a cashless society
Reduced crime incidence: it’s easy to steal physical money, regardless of the amount. Also, cash is an ideal medium of exchange for illegal transactions (drug and weapon trade and so on). Bank will no longer be subjected to robberies, as they will no longer store physical money. Also, counter fitting money will become a thing of the past.
Paper trails: financial crime will decrease dramatically. It’s harder to hide income and evade taxes when payment records are stored in a digital format. Money laundering becomes much harder if the source of funds is always available.
No cash management: it takes a significant amount of resources to print banknotes and mint new coins. Businesses need to store money, get more when they run out, and deposit cash when they have too much on hand. Moving money around and protecting large sums of cash, will move to a digital environment.
International payments: when visiting a foreign country, you may need to go to an exchange to get the local currency. But payments are easy if both nations rely on a cashless framework. Exchanging currencies can be done from the confront of your phone, just by pushing a button.
Drawbacks of a cashless society
Privacy issues: electronic payments mean less privacy. Although you may trust the organizations that handle your data, payment information can turn up in ways that are impossible to predict. In contrast, cash allows you to spend money and receive funds anonymously.
Hacking: hackers have become the modern-day equivalent to robbers in the electronic world. In a cashless society, the consequences are higher if somebody drains your account because you don’t have any alternative ways to spend. Even if you’re protected under federal law, you face significant inconveniences and other consequences after a breach. Also, your funds are as secure as the security system set in place.
Technology problems: Glitches, power outages, and human errors can also cause problems, which can restrict you from making or receiving payment for a short or long period of time, depending on the severity of the issue. Likewise, merchants have no way to accept payments from customers when systems malfunction. Even something as simple as a dead phone battery could leave you “penniless.”
Inequality: the poorer members of society will have a hard time in a cashless ecosystem. The unfortunate people who live on the streets don’t have access to devices and accounts necessary to operate electronic payments. Efforts are being made in this direction. The U.K. is experimenting with different contactless ways to donate to charities and homeless individuals, but there’s still a long way to go.
Numerous fees: monopoly becomes a threat. The option to choose only between a couple of financial institutions can limit our choices. Payment processors can just cash in on high volumes and eliminate the savings that should come from less cash handling.
Overspending: when you spend with cash, you feel the “pain” of every dollar you spend. But with electronic payments, it’s easy to become reckless with your money and swipe, tap, or click without noticing how much you spend.
Negative interest rates: if the governments charges banks a negative interest rate, they can simply pass it on to customers (in the form of fees) who will no longer have any cash to bail out and avoid negative rates. Dropping interest rates is typically a move which stimulates the economy, but at the same time, a currency loses its purchasing power.