“Cashless Society” Nordics: Key takeaways for payment markets in continental Europe
By far the most advanced payment markets in Europe can be found in the Nordic countries. This is evident in their high number of cashless payment transactions per capita as well as in high transaction values. Non-cash payment methods have dominated the payment space for years and both legislative changes and continual innovation have further added to the diminishing use of cash.
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By far the most advanced payment markets in Europe can be found in the Nordic countries. This is evident in their high number of cashless payment transactions per capita as well as in high transaction values. Non-cash payment methods have dominated the payment space for years and both legislative changes and continual innovation have further added to the diminishing use of cash. As this high level of maturity in the payment market is reflected in many aspects of everyday life, the Nordics are also frequently referred to as the first “cashless societies”. For the less mature European payment markets, the Nordics provide an interesting case study in market dynamics and trends.
A closer look at the maturity of the various European markets shows a heterogeneous picture with a broad spread in the adoption and frequency of day-to-day use. Most Central, Eastern and Southern European countries are at the lower end of the payment maturity matrix. In comparison, Benelux, Portugal, France, and Ireland are already conducting three to five times more transactions per capita per annum. The three most advanced payment markets in Europe, however, are the three Scandinavian countries: Denmark, Sweden, and Norway as the distinct number one, followed in fourth place by the UK.
MATURITY OF EUROPEAN PAYMENT MARKETS
(per capita p.a. in kEUR)
No. of transactions
(per capita p.a.)
Source: ECB Payments Statistics September 2017, Norges Bank Papers Retail payment services 2016
When directly comparing for instance the German and Scandinavian payment markets, the gap is striking. Around 50 card transactions are made annually per capita in Germany, while in Sweden and Denmark the average is around 400 transactions. In Norway, as many as 500 transactions are made per capita. Or to put it another way: on average, Scandinavians conduct 8 (DK, SE) to 10 (NO) times more card transactions than Germans. Consequently, cashless revenues are also significantly higher: While in Germany an average of €3,200 is spent in non-cash payments, cashless spending amounts to €11,000 in Sweden and Denmark and €23,000 in Norway (this is in part due to Norway’s higher purchasing power, however).
Taking a retrospective view of the development, quantitative analysis indicates that many continental markets are currently at a similar stage to that of the Scandinavian markets at the turn of the millennium or even before. Hence having almost an additional generation of experience with cashless payments, these markets provide very interesting case studies that can be used to gain understanding of market dynamics and future developments for continental Europe.
The progression towards a cashless society is accompanied by decreasing cash acceptance at the point of sale (POS), which has brought about significant changes and adaptations in everyday life in the Nordics. Small businesses such as independent shops, restaurants and petrol stations increasingly refuse to accept cash payments. In many cases, micropayments such as for public transport tickets, public washrooms, street magazines sold by the homeless or church donations can no longer be made in cash. The Scandinavian banking sector is also contributing by minimizing counter services (as a cost-cutting factor and for fraud-prevention purposes) and in some cases even refusing cash deposits.
Along with a quite consolidated banking industry, which acts cooperative in the payment market, three main drivers can be identified behind the decreasing use of cash: Regulation / legislation, technological aspects as well as cultural characteristics:
The high penetration of cashless payments in everyday life in the Nordics also shows that a “cashless society” is a realistic scenario, at least to a certain degree. The outlined development gives an indication of where other European payment markets could be headed in the coming years and decades. In order to foster cashless payments in other European markets, key requirements are a regulatory / legislative tailwind supporting the war on cash and a highly cooperative banking industry. In order to accelerate the development of mobile payments, a critical mass of users has to be activated. This requires open solutions addressing the full market and a clear focus on single but relevant and simple use case – as was seen with the launch of MobilePay, Swish and Vipps
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ABOUT THE AUTHORS
Frank is Associate Director and Partner at Arkwright Consulting, Stockholm. He has been advising senior executives of banks, payment service providers, and technology companies for almost 20 years. His focus is on strategy development and implementation, improving results, designing operating models, partnerships, and digitalisation. Frank lives in Sweden, the world’s first cashless society.
Steven is Director and Partner at Arkwright Consulting, Hamburg and works in financial services. He has extensive experience along the entire value chain in the European payments industry and is responsible for a number of corporate development projects including Strategy Development, Business Model Generation, Restructuring, and PMI, as well as M&A support. Steven is head of Arkwright’s payment team in Hamburg.