Cash is declining rapidly in much of Europe, a favourable development that saves money, gives governments greater ability to encourage economic development and even reduces crime.
With the exception of Germany, where 80% of financial transactions are still made in cash and only 33% of consumers own a credit card, other major European countries have embraced electronic payments and are moving away from paper money. Many nations are even capping cash transactions. Italy and Portugal have already imposed a limit of €1000, in Spain it is €2500 and in France €3000. Meanwhile, Germany is considering introducing a €5000 limit.
It is estimated that non-cash transactions will continue to grow in the European market and that by 2020, the number of cashless payments will increase to 177 billion.
In particular in the U.K., electronic payments are flourishing, in part due to innovations such as contactless payments and frictionless payment processes. Commuters in London have been swiping their Oyster cards for many years. When contactless payment cards were introduced to pay for their travel, it was a smooth transition. Nearly a million Londoners choose to do this every day, as it saves them money and the need to purchase tickets daily. It won’t come as a surprise that contactless transactions in the UK have increased by 250% year on year.
Sweden, Finland and Denmark are also on their way to becoming cashless societies. The Danish government is already allowing shops to not accept cash.
In 1657, Sweden was the first country in Europe to introduce bank notes and may well be the first to phase them out. Currently, there are just around 80 billion Swedish crowns (about €8bn) in circulation with only half of that in regular circulation.
Swedish consumers have a tradition of welcoming electronic payment systems. Among other factors, Sweden’s move towards a cashless society has been spurred on by the prevalent use of Swish, a direct payment app that can be used for transactions between individuals in real-time.
But why are we seeing this push towards having a cashless society and what benefits will it bring?
Cash costs money to process, to provide security for and to be replaced as notes gets worn out. Prior to accepting contactless payments, London’s public transport provider spent over £30m a year processing cash.
In addition, if many people hoard small amounts of cash, it results in large sums being removed from circulation. This reduces the control that governments and central banks have over monetary policy, depriving them of the ability to influence the wider economy in a positive way.
A move away from cash towards electronic payments will also benefit the global marketplace by making cross-border transactions easier, faster and cheaper.
The shift towards cashless societies has been boosted by governments seeking to crack down on criminal activities, such as drug trafficking and tax evasion. Five years ago, Sweden’s banks were suffering a spate of bank robberies and therefore decided to move away from cash. After this, not only did Sweden’s financial sector become more efficient, but armed robberies hit a 30-year low. However, whilst armed robberies will be more difficult in cashless societies, there is an increasing risk of online fraud, which has more than doubled in the last decade.
Continuous innovation efforts in payments security are countering those attacks and ensure that the industry is now better equipped to deal with and, potentially, eliminate online fraud. Tokenisation eliminates the need to enter personal card details repeatedly and allows for safe ‘one-click’ ordering.
Societies’ payment habits will continue to evolve at different rates due to their own values and customs. The shift towards a cashless economy could occur, which is why tech companies will have to provide a range of solutions for this transition.
Christoph Tutsch is founder and CEO of ONPEX, a Munich-based online payment exchange.
