13 the Payment Landscape in Sweden

13 The payment landscape in Sweden Niklas Arvidsson Introduction Sweden was one of the first countries to launch government-supported cash, and may become one of the first to stop issuing government-supported cash. The development since 2012 has been very fast in terms of a reduction of the use of cash and an increased use of mobile payment services for peer-to-peer (P2P) payments, but there has also been an increase in the number of new firms in the payment sector and the number of alternative services that are on the market. A likely next step in this development is the introduction of contactless cards—which hitherto have been absent on the Swedish market—and other mobile payment services. This is a step in the progression toward more mobile payments, which also includes person-to-business (P2B) payments. We can also foresee a continued decrease in the use of cash, which is discussed in more detail in Chapter 4 in this volume. This chapter concludes by discussing critical factors that are the most likely to affect the development of retail payments in Sweden in the coming years. The recent history of payment services in Sweden The twentieth century use of payment services in Sweden was deeply influenced by the strong growth of the Swedish economy after World War II as industri- alization was strengthened and international trade grew. Employment was high and real wages grew, which led to a demand for banking services. In the mid- 1900s, the use of cash was widespread, even though electronic payment services were established and gradually growing in popularity. In the 1960s, banks had made efforts to make transaction processing more efficient via digitalization, and influenced employers, unions, and workers to start accepting that salaries and wages were to be paid electronically directly to employees’ bank accounts instead of being paid in cash at the employers’ offices. It was an easy sell for the banks since employers saved costs, the banks got new customers, unions agreed as long as banks did not charge consumers for cash withdrawals, and employees liked it. This transformation laid the foundation for the electronic banking system for retail payments that we have to this day, where the bank account is the centerpiece for making and receiving payments. Another critical The payment landscape in Sweden 239 transformation was made in the 1980s and 1990s when card payments started to become a reality for not only the wealthy, but made available to everyone. The use of cards was low in the early stages, but grew incrementally faster in the latter parts of the 1990s (Nyberg and Guibourg, 2003) and became a domi- nant part of retail payments. Checks were phased out in the 1990s as banks started to charge fees for check handling (Arvidsson, 2013). There was also an attempt by banks to launch prepaid cards, so-called “cash cards,” as a less costly alternative to debit and credit cards. However, these cash cards never gained popularity among merchants and consumers, and the project pulled to a halt. Although the early 2000s saw high expectations for the establishment of mobile payments, it would not be until 2014 for these services to become conventional in the market. The landscape for retail payments had become dominated by card payments (primarily debit cards), even if cash was still quite popular, as discussed by Arvidsson (2013). However, this was about to take a sharp turn. In the mid-2000s, there was an increase in cash-related robberies of banks, merchants, cash depots, and even of the public transportation system. Hence, efforts were made seeking to reduce the use of cash in Sweden. Lobbying campaigns against cash, such as “Kontantfritt.nu,” as well as action by banks and others, such as “Tryggare rörelsen,” started a movement toward reducing cash. Prominent actors in these movements were unions in public transportation, banks, and merchants. Unions and merchants acted primarily from a work environment perspective, and banks both saw the work environment issue but also had a genuine business interest in reducing the use of cash. Banks did not have revenues connected to cash, and would be happy if cash payments were replaced by card payments—an area where banks showed good profitability. The most spectacular robbery was the so-called “helicopter robbery” of a cash depot in Stockholm on September 23, 2009 (Bonnier, 2017). This was a rigorously planned and well-executed robbery of a cash depot where the robbers used a helicopter, explosives, machine guns, and other devices to steal SEK 39 million (approximately EUR 5 million at that time). The robbers used fake bombs to hinder police helicopters from taking off, various tools to stop police cars, and stolen getaway cars. The robbers then dumped the money and landed the helicopter in a remote area where they finally set it ablaze. All robbers, save one, would ultimately escape with the money. In retrospect, it is likely that the use of cash peaked in 2007 in Sweden, when the nominal value of cash in circulation was at its highest level of around SEK 110 billion (Arvidsson, 2013). This figure has decreased rapidly since then, and the nominal value of cash in circulation in Sweden is well below SEK 50 billion in November 2017. The number has decreased by 50 percent in 10 years! Paradoxically, it was at this peak that the Swedish Central Bank, the Riksbank, decided to launch new bills and coins in Sweden during the years 2015–2017. The decision was at the time well motivated by efforts to avoid counterfeit money and to make cash handling more efficient. To this end, the development during the last 10 years was not possible to predict. 240 Niklas Arvidsson Another factor reducing the interest in cash payments from the merchant perspective was the bankruptcy and illegal activities by the cash-in-transit service company Panaxia. The company filed for bankruptcy in September 2012 due to liquidity problems, as well as the subsequent illegal use of their clients’ money in order to cover their own expenses. Some merchants, such as grocery stores, petrol stations, etc., lost significant amounts of money (with some actors losing more than SEK 100 million, or around EUR 11 million at that time). The top managers of the company were later convicted to prison for fraud by a court of law (Svea Hovrätt, 2015). These events made merchants start considering stopping accepting cash payments, an act that is not illegal according to Swedish law. This, in turn, was accentuated by the increase in fees for cash-handling services as competition decreased and the market became dominated by two players. Mobile payment services were anticipated to start growing already in the early 2000s, but given problems related to learning processes (Arvidsson, 2014b) and a lack of interoperable service platforms (Apanasevic, Markendahl and Arvidsson, 2016), they did not start to make a strong appearance until 2012. The growth of new payment services after 2012 has been remarkable. This is attrib- uted to several factors, such as the advancement of new technologies and new competition, along with the growth of an e-commerce industry. Furthermore, there has been a need for new payment services while interest by consumers has increased (especially so among younger consumers), aided by the strong use of apps and smartphones, as well as a general trend toward digitalization in Sweden. One essential new mobile payment service, Swish, was launched by banks on December 12 at 00:12 in 2012 (Arvidsson, 2015). Swish enabled real- time transactions between consumers (person-to-person payments) without fees and became a natural and efficient substitute to cash for payments between consumers. Another important service that has led to a reduction of cash payments in Sweden is that of iZettle, which is a card payment service based on mobile point-of-sale terminals that are connected to smartphones or tablets. It made it possible to relatively easily start accepting card payments in situations where cash payments had been dominating previously, such as in sports arenas, flea markets, temporary stands, and smaller merchants. Another factor that influenced Swedish society to start moving toward the reduction of cash usage was identified in macroeconomic studies showing that the social costs of cash are higher than the social costs of card payments. In a study by the Riksbank (Segendorf and Jansson, 2012), it was shown that the social costs of a card payment were estimated to be SEK 5.55, while the social costs of a cash payment in 2013 were estimated to be SEK 8.32. The study concluded that it would be good for the society as a whole if Sweden reduced its use of cash payments and replaced them by primarily debit card payments. Even if politi- cians in Sweden were not actively engaged in this issue, these studies are likely to have strengthened the idea that reduction of cash usage is advantageous from a macroeconomic perspective. It should be noted, however, that Swedish politi- cians have emphasized that the actual use of cash is to be decided by the demand for cash from banks, merchants, and ultimately consumers. The responsibility The payment landscape in Sweden 241 for the Riksbank to make sure cash services are provided is limited to cases and situations where the market does not provide such services. It is consequently primarily a reduction of demand for cash by consumers, merchants, and banks that explains the decreased use of cash. In recent years, we have seen an intensified debate about the need to ensure cash does not disappear.

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