Scandinavian models and Russian cash

We used to talk about the “Scandinavian model” when talking about the mixed economy and welfare state. But I’m interested in the other Scandinavian model.

In the UK we love a good episode of The Killing or The Bridge. I’m a big fan. (Wallander not so much.) One thing I kept thinking when watching The Bridge recently was how the mobile phone had been integrated into the crime drama. The mobile phone changed crime drama for good. Now you have to have complicated plot devices around why someone doesn’t have a phone, or a signal, or has two phones, or can’t be tracked or whatever. Then it occurred to me that when the Scandinavians get rid of cash, they will have to rewrite the crime drama again.

Get rid of cash? Yes. Look at how things are developing over there. In Sweden for example. In the old days, there were domestic debit cards in Sweden: BankKort and Sparbankskort. These were free to customers, who mainly used them to get cash from ATMs. Credit card volumes were low. By comparison with their Nordic neighbours, the Swedes were heavy users of cash (and hence saw far more armed robberies than their neighbours.

In 1995, the Swedes decided to ditch the domestic debit cards and replace them with scheme cards. So Visa Sweden and EuroPay Sweden sprang up — with a system of bilateral interchange fees (there are now 29 issuers and 10 acquirers who have these agreements, which are not seen — as I understand it — by Visa or MasterCard) — and began to market cards as an alternative to cash. And they had success. Today, there are no paper cheques and debit card transactions dominate at point of sale.

If you look at Swedbank as an example, they have seen debit card transactions go from 12m in 1995 to one billion today while ATM transactions have grown only from 50m to 85m. A pretty successful effort by any measure. More than 97% of Swedes have debit cards (these are issued to citizens from the age of seven years up, with parental permission) and more than 99% of merchants accept cards, with the consequence that 80%+ of retail transactions are card (it’s about half in the UK and about two-thirds in the US).

The Swedish Central Bank’s goal has begun to be achieved, in that Sweden is one of the few countries in the world where the cash “in circulation” is actually falling. However, as the Riksbanken said back in 2012, the use of cash even in Sweden is still far too high compared to where it should be on the basis of social costs (because debit cards have the lowest total social costs. They want to drive cash usage down still further.

Niklas Arvidsson at the KTH Royal Institute of Technology in Sweden predicts that paper money and coins will disappear from Swedish society – “but probably not before 2030,” he says.

[From The cashless society is closer than you think | ScienceNordic]

Cards will not, of course, be the final nail in the coffin for Swedish cash. That honour will go to the mobile phone. But there is still work to be one.

“It would also have to meet several requirements, such as good emergency backups. People would need to be able to pay even during power cuts, or when electronic systems crashed or were hacked. Currently cash payment is the only system that never fails, so it’s difficult to see how we could go totally cashless.”

[From The cashless society is closer than you think | ScienceNordic]

As I’ve mentioned before on the blog, the reason why I am curious about the Swedish situation is that in Sweden the anti-cash alliance is a broad church, embracing not only banks and law enforcement but the trade unions and the retailers.

Swedbank is piloting the use of mobile couponing with merchants in Uppsala, the country’s fourth-largest city which is bidding to eradicate cash as part of a local crime-fighting initiative.

[From Finextra: Swedbank pilots mobile couponing in cashless utopia Uppsala]

Not everyone is heading down this same path, though. While most of the bank branches in Sweden are now “cashless”, there are still reactionary forces at large.

In fact, for three of the four major Swedish banks combined, 530 of their 780 office no longer accept or pay out cash. In the case of the Nordea Bank, 200 of its 300 branches are now cashless, and three-quarters of Swedbank’s branches no longer handle cash… Fewer then 10 of Handelsbanken’s 461 branches currently do not handle cash and the bank’s goal is to have cash in every branch by the first quarter of 2013.

[From Sweden’s War on Cash Runs Into a Wall–and a Heroic Bank :: The Circle Bastiat]

Hurrah for competition. So long as the three major bank’s electronic payments are not cross-subsidising Handelsbanken’s cash then no problem. When I say that the anti-cash movement is broadly-based, by the way, I really mean it. And they have a great figurehead too: Bjorn from ABBA. I loved the interview with him in the “Digital Values” magazine, where he comments that Sweden, Denmark and Norway would be the ideal countries to go cashless first (of course, I’m hoping Scotland will beat them to it after hearing my talk to the FS Club in Edinburgh back in April). But listen to him: he is spot on!

• Go Bjorn! “It is completely incomprehensible why Sweden’s central bank is to issue a new series of notes from 2015”
• Go Bjorn! “Who needs 500 Kroner or 1000 Kroner notes?” (and as far I as understand the situation, the Swedish banks have said essentially the same thing to the central bank).
• Go Bjorn! “The problem of begging isn’t a problem of payments or payments technology”

What a guy. He’s even made the ABBA museum cashless! And when asked about that, he said “some people asked did we want to frighten away the Russians with their bundles of notes”, which might well be a more general comment about activities in a number of European capitals. Incidentally, in the same magazine, Professor Kai Olsen notes that, of course, going cashless wouldn’t eliminate crime but goes on to say that if the Nordics went cashless they would at least export some of their Eastern European criminals (“Digital Values”, p.44). Which brings me to a serious point, that I raised following a super presentation by Kurt Gjesten from the Pan-Nordic Card Association at the PayComm MEETS 2014 event. Why aren’t the general public more outraged about the use of cash to support — indeed, subsidise — a variety of nefarious activities?

Like many other Greeks, Mr. Mantzouranis said, Mr. Kantas would bring bundles of cash to his banker, who would fly to Switzerland to make the deposits when enough cash had accumulated to make the trip worthwhile.

[From So Many Bribes, a Greek Official Can’t Recall Them All – NYTimes.com]

I spoke to Kurt later in the day and we concluded that we (ie, the payments industry) need to become considerably more effective at communicating these issues to the general public. We can’t blame them for remaining ignorant about the pernicious and revolting impact of cash on our civilised society if don’t make an effort to explain them. I intend to start right away.