IssueOne/2014
by Nets
by Nets
Money, Money,
Money- but not in cash
Former member of ABBA Björn Ulvaeus has a vision for Sw...
january 2014, Copenhagen, Denmark.
2013 Digital Values by Nets®. All rights reserved.
No part of this publication may be r...
About Nets
Nets specialise in managing digital values through the delivery of strategic consulting and IT solu-
tions. We ...
Table of contents
The value of digitisation for the future
Nets’ CEO Mette Kamsvåg welcomes
you to the first issue of Digi...
Table of contents
Dansk Supermarked ready for
contactless payments
TheDanishretailchainDanskSupermarked
is preparing for a...
Digital Values is published by Nets, and it is
our ambition to create a magazine packed with
high-quality articles and int...
than any other consumers in the Nordic countries
to accept a cashless society. Finnish consumers
seem to be the most reluc...
Words
Michael Juul Rugaard, Nets
image
Getty images
The use and cost of
cash across Europe
Europe is anything but homogeno...
opposite is the case in the most northerly countries
with large numbers of card payments, where social
costs per cash paym...
Words
Niklas Arvidsson, Associate Professor
The consumer
paradox of cash and
the Scandinavian
opportunity
12
10
8
6
4
2
0
...
C
ash payments have
been decreasing con-
stantly in Sweden in
recentdecadesandare
expected by many to continue
decreasing ...
0 10 20 30 40 50
Danmark
Estonia
Finland
Greece
Hungary
Ireland
Italy
Latvia
Netherlands
Portugal
Romania
Spain
Sweden
CAR...
Sources: ECB Statical Date Warehouse and European System of Centralbanks ▶
0 5 10 15 20 25 30
Danmark
Estonia
Finland
Gree...
banknotes. That bank – Stockholm Banco – went
bankrupt in 1668, was taken over by the state, and
became what is known toda...
with. But this would also mean that the scheme
providers will continue to dominate the payment
industry, which is somethin...
He listens to Beethoven, goes kayaking, drives an electric car, in-
vests in renewable energy, advocates digitisation and ...
O
ne afternoon with towering skies, I meet
Björn Ulvaeus for lunch at Godthem
restaurant, situated in a 19th-century
woode...
MJR: But some would no doubt say that, for your
plan to work, the whole world would have to be
cashless, because otherwise...
MJR: As many of us already are, in part, via the
Internet…
BU: Yes, in many ways we are already, and we are
becoming more ...
Yes to digitisation;
no to nostalgia
MJR: If you were to try to describe what’s hap-
pened since 1976, when no one discuss...
Björn Ulvaeus
21
Cashless society
MJR: So the bottom line is that there’s no use
standing still or going back?
BU: Yes, and that doesn’t only apply to payme...
have to acknowledge that the problem of begging
isn’t about payments and payment technologies.
That’s on a different level...
The museum offers an interac-
tive journey through one of the
biggest success stories in music
history. Here the visitor c...
Nationalbanken (the Bank of Denmark) documented in its report
The costs of payments in Denmark that the costs to society o...
Cutting through
complexity
– reaching the next level
of payment evolution
Payment solutions today rest on the pillars of g...
The mechanics of
consumer payments
The need for exchanging valuables has always
been an inherent part of human interaction...
opportunity to establish new products and services,
on the surface offering convenience and ease of use,
but still adding ...
information for services has seen explosive growth
over the past years, with Google being the leader
of this kind of busin...
With the expansion of civilisations the concept of
payment and the complexity and volume of payments
have grown – similar ...
person-to-person payments from mobile devices,
with no need for a prepaid account, a card acceptance
device or a home bank...
Replacing the leather wallet
With smartphones being an integrated part of
everyday life, it is only natural that commerce ...
The real new feature of the mobile wallet
compared to the physical wallet is not,
as the name suggests, that it is mobile,...
The cashless
society is the
way ahead
Words
Torben E. Hoffmann Rosenstock, Chief Consultant
at the Danish Chamber of Comme...
Although many shops and customers like cash
payments, the Danish Chamber of Commerce
re­commends that shops should be allo...
Dansk
Supermarked
ready for
contactless
payments
The Danish retail chain Dansk Supermarked is preparing for a future witho...
About Dansk Supermarked
Denmark’s largest retailer, Dansk Supermarked, operates the
Føtex, Bilka, Netto and Salling chains...
As the proportion of digital payments increases, we’ll
be able to save on the costs of handling cash. And
at the same time...
Travelling light
One million British pounds in
£20 notes weighs 50 kg, while the
same amount in 500 euro notes
weighs only...
Exporting the
cashless society
Cash and
moonlighting
Michael Juul Rugaard: How important is cash in
terms of moonlighting ...
If you take cash out of the equation
– or even just high-denomination
notes – that would make some
criminal activity very ...
MJR: But there must be a triviality threshold for
tax free payments?
KAO: That’s an important point. Under certain
amounts...
are traceable. So, moonlighting is appealing today
because it’s easy, but if the risk increases, people
will probably defa...
would be a feasible solution, and that for many
reasons, the professional section of the sector would
welcome replacing ca...
Aninterestingpointiswhattheauthoritiesshould
do. If they arrest someone selling hash, should
they avoid using payment info...
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
Nets Digital Values issue one 2014
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Nets Digital Values issue one 2014

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Digital Values is published by Nets, and it is our ambition to create a magazine packed with high-quality articles and interviews that take a probing look from various perspectives at the many opportunities and challenges presented by digital developments in society today.

In particular, we will be addressing the aspects of digitisation that are also the main part of Nets’ DNA, i.e. digital money, digital identities and digital information. That is what we call digital values.

The theme of this first issue of Digital Values is barriers and opportunities on the road to a cashless society. In a series of articles and interviews, we examine progress so far within and beyond the Nordic Region when it comes to reducing the amount of cash in circulation, the positive arguments for striving towards a cashless society, and the obstacles to be overcome along the way.

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Nets Digital Values issue one 2014

  1. 1. IssueOne/2014 by Nets by Nets Money, Money, Money- but not in cash Former member of ABBA Björn Ulvaeus has a vision for Sweden Are people ready to go cashless? New Nordic survey sheds light on the matter Cash or digital payments? A simple question worth billions of euros Say goodbye to large notes How removing them can reduce moonlighting and crime Reaching the next level of payment evolution Will consumers stick to banks as providers of payment instruments? IssueOne/2014 Issue One / 2014 Theme: Towards cashless society 01-01-2014_1
  2. 2. january 2014, Copenhagen, Denmark. 2013 Digital Values by Nets®. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of Nets Holding A/S. Unlawful use of this publication is covered by the Danish Copyright Act. The information contained in this publication has been obtained from sources the proprie- tors believe to be correct. Nets cannot be held responsible for information or statements in this publication which turn out to be incorrect. Furthermore, Nets cannot be held responsible for content that does not derive from Nets but is included in this publication deriving from third parties. If Nets becomes aware of any incorrect information included in this publication, we will make efforts to issue a statement correcting this, but accept no legal liability. DigitalValuesbyNetsispublishedbyNetsHolding A/S, Lautrupbjerg 10, 2750 Denmark. There are twoannualissuesandbothareprintedinBallerup, DenmarkbyRosenbergBogtryk.TheeditorisKlaus Sejr Madsen (ksmad@nets.eu). The contributing editorsareMichaelJuulRugaard(mjrug@nets.eu) and Frode Riis Andersen (frand@nets.eu). To subscribe, please visit www.nets.eu or send a request to subscription@nets.eu, and add your contact details. For any other enquiries or ques- tions relating to our magazine, please contact digitalvaluesbynets@nets.eu. ISSN 2246-2503
  3. 3. About Nets Nets specialise in managing digital values through the delivery of strategic consulting and IT solu- tions. We enable a more efficient society and optimise our customers’ business through the way we handle money, information and identities digitally. We have one of the most extensive product portfolios in Europe and our ambition is to become an even stronger partner to our customers by supporting their business, nationally as well as internationally. Nets has 2,800 employees in Denmark, Norway, Finland, Sweden and Estonia and a yearly turnover of EUR 850 million. Find out more about us at www.nets.eu.
  4. 4. Table of contents The value of digitisation for the future Nets’ CEO Mette Kamsvåg welcomes you to the first issue of Digital Values. The use and cost of cash across Europe Europe is anything but homogenous when it comes to the use of cash and the digital alternatives. However, clear patterns are emerging from region to region. The consumer paradox of cash and the Scandinavian opportunity Consumers in Sweden are favouring card payments over cash in most situations. Given that, it seems plausible that con- sumers would not be concerned if cash disappeared. But do consumers’ ideas harmonise with their actions? According to Niklas Arvidsson, Associate Professor at the Royal Institute of Technology in Stockholm, they do not. Money, Money, Money – but not in cash He advocates digitisation in Sweden, he wants to see cash consigned to the scrapheap, and he has just opened his own – cashless! – museum. Read our interview with Björn Ulvaeus, one of the two Bs from the legendary 1970s pop group ABBA. ABBA The Museum ABBA The Museum – perhaps the first cashless museum in the world – opened to the public in May 2013 in Stockholm, Sweden. In brief … Cutting through complexity – reaching the next level of payment evolution Payment solutions today rest on the pillars of globalised card infrastructure and transfers using automated clearing houses. Will the information age with its technology-driven avalanche of innovative consumer offerings change this, or will consumers stick to banks as providers of payment instruments? The Nets suite of mobile services Nets is in the process of bringing to market a suite of mobile services that will allow banks and merchants to interact with consumers in new ways without having to replace current processes and systems. The cashless society is the way ahead Although many shops and customers like cash payments, the Danish Chamber of Commerce recommends that shops should be allowed to decide for themselves whether they wish to accept cash, going forward. 6 8 10 16 24 25 26 32 34 4 Digital values
  5. 5. Table of contents Dansk Supermarked ready for contactless payments TheDanishretailchainDanskSupermarked is preparing for a future without cash. The first steps are the introduction of new terminals that will ultimately enable consumers to pay using contactless cards and mobile phones. In brief … Exporting the cashless society The Nordic countries are in a unique posi- tion to create the world’s first cashless region. It would save them billions of kroner, e.g. by reducing moonlighting, and could even be the start of a highly lucrative export adventure. Read our interview with Norwegian Professor of informatics Kai A. Olsen. Cashless shouldn’t equal helpless Digitisation and the development of new digital payment solutions need to take all groups in society into consideration. Some groups face particular challenges that need to be addressed and dealt with. Empowering people through digital payments The world’s poorest people are hugely dependent on cash. This contributes to keeping them in a vulnerable position. According to the Bill & Melinda Gates Foundation, financial inclusion and digital payments are part of the solution. Nordic cash survey A brand new survey shows that a weekday without cash is fine for 56% of Nordic consumers. Still, most agree that access to paying in cash is a right everyone should have. Perceived convenience and habits are the main drivers for using cash. Nets’ view: Let’s cash in on digitisation What conditions must be met if a country or a region wants to realise the vision of a cashless society? Towards the digital wallet New contactless payment solutions using a card or mobile phone have obvious advantages for banks, merchants and consumers alike: faster, cheaper and simpler transactions with less cash and greater security. Eika Kredittbank is one of the first banks in Norway to implement these solutions. New payment trends in Finland The Ministry of Employment and the Economy in Finland has set up a working group to find ways to reduce the use of cash in the Finnish economy. In brief … Notes 36 39 40 50 52 56 60 66 70 73 74 5 Cashless society
  6. 6. Digital Values is published by Nets, and it is our ambition to create a magazine packed with high-quality articles and interviews that take a probing look from various perspectives at the many opportunities and challenges presented by digital developments in society today. In particular, we will be addressing the aspects of digitisation that are also the main part of Nets’ DNA, i.e. digital money, digital identities and digital information. That is what we call digital values. Each issue of the magazine will deal with a selected theme, and in addition to our own staff writers, we will invite external sources to contribute knowledgeable insights into the theme in question. The theme of this first issue of Digital Values is barriers and opportunities on the road to a cashless society. In a series of articles and interviews, we examine progress so far within and beyond the NordicRegionwhenitcomestoreducingtheamount of cash in circulation, the positive arguments for striving towards a cashless society, and the obstacles to be overcome along the way. One of the key areas, when it comes to the advantages of eliminating cash, is moonlighting and criminal activity, which is largely dependent on high-denomination notes in particular. We discuss The value of digitisation for the future this with Norwegian Professor Kai A. Olsen from the University of Bergen – see p. 40 – who has been working with this topic for a number of years. He believes the countries that choose to go all the way with digitisation of payments will be able to reduce moonlighting and, in addition, the vision of the cashless society could become a valuable business case in itself. The Swedish Associate Professor of Industrial DynamicsatKTH(theRoyalInstituteofTechnology), Niklas Arvidsson, points out – see p. 10 – that although cash payments have been decreasing in Sweden for many years and although the Swedes prefer digital payments in their daily life, the major- ity of the population still consider cash almost a human right. Niklas Arvidsson calls this phenomenon “the paradox of cash”, and our own Nordic survey – see p. 56 – conducted especially for this edition of Digital Values confirms the paradox: on the one hand, the market overall is evolving towards digitisation; only 45% of Nordic consumers carry cash on a daily basis and many consumers proactively avoid using cash. On the other hand, 53% still agree that access to paying in cash is a right everyone should have. Overall, Danish consumers seem to be more willing Welcome to the first issue of Digital Values, which will be published twice a year in the Nordic Region and northern Europe. 6 Digital values
  7. 7. than any other consumers in the Nordic countries to accept a cashless society. Finnish consumers seem to be the most reluctant. Underthe optimistic headline “Cashless shouldn’t equal helpless” – see p. 50 – Sverre Fuglerud from The Norwegian Association of the Blind and Partially Sighted (NABP) points out what it would take for blind people and other disabled people to experi- ence a future of digital payment solutions as an improvement in their everyday lives rather than yet another barrier. Inthesamevein,TorbenE.HoffmannRosenstock, chief consultant at Denmark’s largest trade organisa- tion, the Danish Chamber of Commerce, contributes an article – see p. 34 – on the potential for reducing the number of shop robberies if Danish shops were grantedthefreedomtodecideforthemselveswhether or not they wish to accept cash. Furthermore, we met Björn Ulvaeus, best known as a member of the former super-group ABBA, but who is now a keen advocate of Sweden’s need to exercise its potential to become the world’s first cashless society – see p. 16. Finally, we also present a number of articles by Nets’ own staff, looking for instance at the costs of using cash incurred by merchants, banks and society at large, and offering some suggestions as to which new payment solutions will contribute to further reducing the amount of cash in circulation and supplementing the types of digital payment we are already familiar with. We hope Digital Values will be of value to you, the reader. And to ensure the magazine is as relevant as possible, we would welcome comments and sug- gestions from our readers. Feel free to write to us at digitalvalues@nets.eu, or to contact one of the magazine editors directly. • Happy reading! CEO, Nets Mette Kamsvåg Mette Kamsvåg, CEO Nets 77
  8. 8. Words Michael Juul Rugaard, Nets image Getty images The use and cost of cash across Europe Europe is anything but homogenous when it comes to the use of cash and the digital alternatives to cash. However, clear patterns are emerging from region to region, and for large parts of Europe, cash will presumably continue to be king for many years to come. S wedenwasthefirstcountryinEuropetotake the progressive technological step towards issuing bank notes. That was in 1661. Today, Sweden is still at the cutting edge, but this time as the European country that uses the least cash – at least, according to the report The social and private costs of retail payment instruments1* (2012) by the European Central Bank (ECB), which looked at the costs and popularity of a range of payment methods in 13 selected EU Member States. Significant differences In its report, the ECB asserts: “On average, cash is still the most frequently used retail payment instrument.” Evidently, cash accounts for as much as 69% of payments in the 13 selected countries (for all EU Member States, the figure is 65%), but this masks significant differences between the countries, with a distinct tendency for cash to be much more prevalent in countries in southern and eastern Europe than countries in northern Europe. At just 26.64% cash payments, Sweden has made the most progress towards replacing cash with other paymentmethods.Denmarkcomessecondat34.85%, and Finland comes a close third at 38.82%. At the opposite end of the spectrum, the keenest users of cash are found in Greece, where as many as 94.99% of the country’s payments are made using notes and coins, Romania at 94.88%, Italy at 82.66% and Spain at 77.86%. As regards the use of payment cards, Denmark came out on top in the study at 44.03%, with Sweden in second place. Romania is at the bottom with just 1.54% card payments. low decrease even in northern Europe Although the use of cash is considerably lower in the north than in the south and east, the amount of cash in circulation is not significantly decreas- ing even in northern Europe – if at all. In a new study, Sweden’s central bank, Riksbanken, compared cash trends in the three Scandinavian countries – Sweden, Norway and Denmark – from 2007 to 2012, and although the value of cash relative to GDP has decreased for all three countries (by 7.7% in Denmark, 16.7% in Norway and 26.8% in Sweden), “Sweden is the only country to show a distinct reduction in the nominal value of cash in circulation. The reduction in the other countries is related to the fact that growth in the amount of cash in circulation is lower than growth in GDP.”2 Costs follow the same pattern Looking at the distribution of the social costs of cash payments versus card payments in the various countries and regions of Europe, there, too, are significant differences between northern Europe and the southern and eastern regions. In the countries of southern and eastern Europe, which are currently massively dominated by cash payments, the price of cash payments is relatively low, while the cost per card payment is considerably higher. The exact * Please find notes for this article at p. 74 8 Digital values
  9. 9. opposite is the case in the most northerly countries with large numbers of card payments, where social costs per cash payment are higher than the cost per card payment. The ECB concludes its report as follows with regard to the striking differences across Europe: “Due to relatively high usage, the cost of cash is nearly half of the total social costs. On average, cash payments show the lowest unit costs, followed closely by debit card payments. However, in some countries, cash does not always yield the lowest unit costs. In fact, in more than one-third of the sample countries, debit card transactions have lower unit costs than do cash transactions.”3 The Riksbanken report compared the three Scandinavian countries with Italy and Hungary, and a very clear picture emerges here, despite the fact that card costs include both debit cards and credit cards (Figure 1). A spLIt conclusion The conclusion, then, has to be that Europe is anything but homogenous when it comes to the use of cash. On the one hand, the reality today in a number of countries remains that “cash is king”. Despite the potential for reductions in the costs to society by way of converting cash payments into digital payments in these countries, the tipping point for favouring digital payments still remains a long way off in the future. Even today, they are hugely dependent on cash, and digital payments remain a long way from the critical mass needed to bring the costs per digital payment down below the cost per cash payment. On the other hand, for a number of countries in northern Europe, further investment via digitisation would seem to make sense in socio-economic terms in order to capitalise on the fact that digital payments now cost less than cash payments. • figure 1: Social costs of cash and cards 2007 2009 ECB 2009 Norway Denmark Italy Sweden Hungary Lowest Highest Average Cash Socio-economic cost (SEK millions) 4,248 8,260 83,900 8,592 7,911 Proportion of GNP (%) 0.15 0.38 0.52 0.28 0.80 0.49 Socio-economic unit cost (SEK) 8.59 10.50 3.50 8.32 2.79 1.38 8.32 4.35 Cards, total* Socio-economic cost (SEK millions) 6,513 5,166 17,800 8,749 1,886 Proportion of GNP (%) 0.23 0.24 0.11 0.28 0.19 0.21 Socio-economic unit cost (SEK) 7.21 5.89 12.59 5.55 10.78 2.34 85.70 14.23 * Includes card payments at the point of sale and for distance selling using debit and credit cards. Sources: Banca d’Italia (2012), Nationalbanken (the Bank of Denmark) (2012), Gresvik and Haare (2009), Schmiedel et al. (2012), Segendorf and Jansson (2012) and Turjån et al., (2011) Total socio-economic costs4 of payments for the 13 countries are assessed in the ECB report as being EUR 45 billion – corresponding to EUR 130 billion for all EU Member States or 1% of total GDP in the EU.5 9
  10. 10. Words Niklas Arvidsson, Associate Professor The consumer paradox of cash and the Scandinavian opportunity 12 10 8 6 4 2 0 120 100 80 60 40 20 0 1950 1960 1970 1980 1990 2000 2010 Share of GDP (%) Nominl value (Billion SEK) Source: Riksbanken Figure 1. Value of cash in circulation in Sweden, 1950–2012 10 Digital values
  11. 11. C ash payments have been decreasing con- stantly in Sweden in recentdecadesandare expected by many to continue decreasing as card payments and also mobile payments gain groundasattractiveservices.Since 2009 we have seen an interesting development as the gross value of cash in circulation denominated in SEK actually decreased for the first time since 1950. The value of cash in relation to GDP in Sweden had been decreasing for a long time, but now we also saw a decrease in actual gross value (Figure 1). But the low use of cash is somewhat unique to Sweden and the other Nordic countries. In 2011, the value of cash in circulation in relation to GDP was 2.4% for Norway, 2.7% for Sweden and 3.5% for Denmark, which can be compared to 7.1% for the USA and 9.4% for the entire European Union in 2010. Looking at market shares of retail payments, we see that the number of cash payments is low in the Nordic countries (figure 2). The Nordic countries are among the most cashless societies in the world. It is clear that consumers in Sweden are favouring card payments over cash payments in most situations when these two alternatives compete. Given that, it seems plausible that consumers would not be concerned if cash disappeared and a more or less cashless society was realised. But do consumers’ ideas harmonise with their actions? Do they “walk the talk”? To actually be able to answer such questions, I participated in a recent study in collaboration with Insight Intelligence, Sigma, Västtrafik and .SE. We designed a survey and engaged SIFO to conduct telephone interviews with a sample of 1,000 Swedish consumers aged 15 and over who constituted a representative sample of the Swedish population in August 2013. The results were intriguing. The walk The consumers’ use of cash illustrates the data from the Riksbank (Sweden’s central bank) that was presented above. Around 64% of the population use cash every week, and it is used primarily in situations where there are few alternatives to cash, such as paying a friend, making payments at temporary markets, small purchases from smaller merchants and paying for pur- chases made from sellers coming to your house. Not surprisingly, this involves smaller amounts. Card payments were used more frequently than cash – 83% used card payments every week – and were used in situations such as e-commerce, at restaurants, for parking, at museums and for public transportation tickets. Thus, consumers use cash but not as much as they use card payments. No news here. So what was the interesting part, you may wonder. Here it comes. The talk Two-thirds of the respondents – 67% – say that cash is a “human right”! There is a strong emotional connection to cash among Swedish consumers that does not match their behaviour. They do not “walk the talk” and this is an interesting paradox. Even if people – in general – do not seem to be dependent on cash transactions, having it is still considered a human right. Another question in the survey gives a hint as to why this is the case. More than a third of the respondents – 39% – believe we will never see a cashless society in Sweden and about a quarter of these – i.e. around 9% of all the respondents – argue that this is because cash is such a deep-rooted tradi- tion that it will never go away. And they have a point. Sweden has had coins for 1,000 years and banknotes sincethemid-1600swhenJohanPalmstruchreceived the King’s permission to start a bank that issued ▶ Niklas Arvidsson 11 Cashless society
  12. 12. 0 10 20 30 40 50 Danmark Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden CARDS 0 20 40 60 80 100 Danmark Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden CASH FIGURE 2: MARKET SHARE IN % OF RETAIL PAYMENT INSTRUMENTS PER COUNTRY IN TERMS OF VOLUME
  13. 13. Sources: ECB Statical Date Warehouse and European System of Centralbanks ▶ 0 5 10 15 20 25 30 Danmark Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden CREDIT TRANSFERS 0 3 6 9 12 15 Danmark Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden DIRECT DEBITS 0 1 2 3 4 5 CHEQUES Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden Danmark 0 3 6 9 12 15 OTHER Danmark Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden Danmark Estonia Finland Greece Hungary Ireland Italy Latvia Netherlands Portugal Romania Spain Sweden
  14. 14. banknotes. That bank – Stockholm Banco – went bankrupt in 1668, was taken over by the state, and became what is known today as the Riksbank. The idea of cash is strong! A cashless society? Can Sweden become a 100% cashless society? Well, theoretically it could, as the number of elec- tronic payment services that can substitute for cash transactions is increasing by the minute. If consumers, merchants, banks, telecom operators and other stakeholders all move in this direction, it could happen. We can at least imagine a society where cash payments are reduced to a minimum. The study showed that 45% of the respondents believe Sweden will be a cashless society in 20 years. But there is a catch. There is always a catch. Or rather, several. First and foremost, the law states that cash pay- ments are legal tender and must be accepted as a payment method. Even if merchants are allowed to state that they do not accept cash, public organisa- tions and banks must accept cash. A cashless society needs a political decision that cash is no longer allowed. In asking whether that could happen, we first wonder when such a decision could be made? Well, Sweden is just about to introduce new notes and coins and the old ones have been around for 30 years. If the new ones have the same longevity – which primarily is decided by the risk of counterfeit money and the quality of the notes and coins – we can expect politicians will have to make a decision to introduce the next version of notes and coins in around 20–25 years from now. That is sometime in the period 2033–2038. Will they say yes or no to another round of notes and coins then? Who knows? But what politician will argue that cash should no longer be a legal payment method when 67% of the population see cash as a human right? Making Sweden cashless is not a political stance that would win an election today, that’s for sure. And this discussion is, of course, based on the assumptionthatSwedenstillhasthegoodoldSwedish Krona. If it has been replaced by the Euro in 2033, we can be certain that Sweden will have cash even after 2045. As we know, the Eurozone is much more in favour of cash than the Nordic countries and it is a daunting task to convince all the countries and all the consumers in the Euro area to disallow cash. Finland is consequently more likely to be stuck with – or (depending on your own view) fortunate enough to have – cash than Sweden, Norway and Denmark 30 years from now. Then we have another catch. Will consumers, merchants, banks, telecom operators and other stakeholders all move in this direction? We have already seen that even if consumers do not use cash, they want it. And of course some consumers do not access the advanced payment services. There are consumers without bank accounts, without debit and credit cards and without mobile phones. They must also be able to make payments if we are to have a cashless society. This is an important challenge. What about the other actors? Well, this is where the interesting strategic game is being played now – right in front of our eyes. Banks are launching their versions of payment services that may substitute for cash. Card scheme operators have their versions and mobile network operators have theirs. And the challengers, innovators and invaders – whatever you prefer to call them – have their versions. Even if most of these want to see cash replaced by electronic payments, they all have their own idea of how this should happen. And sometimes they collaborate, but sometimes they compete. This is, of course, exactly how it should be in a market economy characterised by competition, but it constitutes a transition chal- lenge. How will interoperability – the most critical component in a payment system – be realised in a situation where head-to-head competition to win the largest number of consumers and merchants via new and innovative services is a reality? Perhaps we will see a period of low interoperability in the new services and a large number of providers, followed by a shakeout and increasing interoperability. Not unlikely. Can we hazard a guess as to how this will happen? Well, guesses usually prove to be wrong. One can make some observations, though. The card schemes are already supplying close to global interoperability, and if the new services rest on these schemes, the interoperability challenge will be easier to deal 14 Digital values
  15. 15. with. But this would also mean that the scheme providers will continue to dominate the payment industry, which is something regulators in Europe do not favour. The new Payment Services Directive takes a strong stance against the level of card fees and it is in favour of new actors to challenge the incumbents. Politicians are likely to continue their regulatory efforts to drive down fees in the payment system if card schemes continue to dominate the scene. And, as in all situations where some players are strong, there will be new ones wanting to enter the scene. Some will be new and small, but some will be big and strong in other industries, like telecom operators or social media companies. We will see more intense competition in the payment industry, but an even more interesting question – to me, at least – is: in which areas and how we will see friendly collaboration among peers and others, and in which areas we will see intense competition between peers and others? To achieve a good outcome from this develop- ment, both those who need payment services to sell their products and services and consumers wanting to buy those products and services need to be critical and make strong demands concerning what the payment services should look like. Research shows thatcriticalcustomersconstituteacriticalcomponent if innovation leading to sustainable business models is to be realised. In addition, supervisory agents in the financial markets must assist them. So, am I a pessimist? No, I wouldn’t say so. Even if the Scandinavian markets are small, there is strong innovative capability in firms and entrepreneurs – as seen in the large number of innovativecompaniescomingfromtheScandinavian countries – and the companies often aim to provide solutions that can be used throughout Europe. And – why not? – all over the world. The potential for this to happen is great. I believe we are actually seeing what people in the future will call the birth of the Scandinavian payment cluster right in front of our eyes. This is more interesting than whether or not cash is eliminated (even if the potential problems with a cashless society must be dealt with appropriately). So, the innovation show has started. Play, watch and enjoy! • 15 Cashless society
  16. 16. He listens to Beethoven, goes kayaking, drives an electric car, in- vests in renewable energy, advocates digitisation and wants to see cash consigned to the scrapheap. And he’s sold 370 million records and has just opened his own – cashless! – museum. His name is Björn Ulvaeus, one of the two Bs from the legendary 1970s pop group ABBA. Words Michael Juul Rugaard, Nets Images Claudio Bresciani Money, Money, Money – but not in cash Björn Ulvaeus 16
  17. 17. O ne afternoon with towering skies, I meet Björn Ulvaeus for lunch at Godthem restaurant, situated in a 19th-century wooden villa surrounded by tall decidu- ous trees just five minutes’ walk from the new ABBA The Museum. I’ve just come from the museum, where I stood in the spotlights on a darkened stage and sang “Dancing Queen” from 1976 together with four life-like ABBA avatars, and as I shake hands with the real-life Björn, I still have the melody and the lines “You can dance, you can jive, having the time of your life” running through my head. Both the ABBA museum and the restaurant are located on the recreational island of Djurgården, close to the centre of Stockholm. We order home- made Swedish blood pudding with roast pork and lingonberries, which happens to be the menu of the day, and which Björn says he hasn’t had for ten years. He smiles and fills his glass with sugar-free cola, and before I can manage to formulate my first question, he takes charge of the interview … Björn Ulvaeus: I’m glad you wanted to talk about this matter of the cashless society. I wrote an article for the Norwegian newspaper Verdens Gang about the subject a few years ago because I believe Sweden – and Denmark and Norway too – would be the ideal societies to get it all started, as we have small currencies that are only used within our countries’ borders. In the meantime, I’ve met Anders Borg [Sweden’s Minister of Finance. Ed.] a few times, but I’ve never managed to ask him what’s holding us back. Next time, I’ll remember to ask him. I’ve asked other people, however, including a number of bank directors, and none of them has really been able to explain to me why we don’t just go all the way and eliminate cash, which would make it impossible for the country’s burglars to get away with stolen computers, TVs, jewellery and so on within Sweden’s borders. What do you think? Michael Juul Rugaard: A centuries-old tradition of cash, perhaps? Force of habit; uncertainty about the alternatives? BU: Yes, but if we sort of expose those habits and look more closely at them, they’re quite easy to eliminate.IfyouaskSwedeswhosaynotoeliminating cash, as a gut reaction, to say what exactly they absolutely must use cash for in Sweden today, well, they don’t really know. So perhaps the answer is that if children are going to buy ice cream from a kiosk, it’s practical for them to use notes and coins? But this can be dealt with using a cash card instead, and ultimately, when you get down to the nitty-gritty, cash isn’t absolutely essential anywhere at all. So on closer inspection, what people thought were good reasons for retaining cash don’t really exist. MJR: But apart from tradition, some people resist because notes and coins are perceived as more tangiblethandigitalpayments,whichmayappear more abstract, don’t you think? BU: Maybe, but what could be more abstract than transferring a value to a piece of paper – a bank note? A symbol of value – that’s rather abstract, isn’t it? That’s every bit as abstract as reading a text message on your mobile phone that says an amount has been deducted from your account for a particular purchase in a particular shop. It began with a burglary MJR:Butlet’sgobackastep: Howdidyouactually start thinking about this matter of a cashless society? BU: The reason was that my son had a number of burglaries in his flat, within a short space of time. His computer, stereo, branded clothing and things like that were stolen – things that the thieves could immediately take to their fences and convert into cash. And that got me wondering what they would have done if cash didn’t exist. That was the start, and I enjoy analysing things that puzzle me, so I wrote this article where I asked the question: what would burglars do in a cashless society? And it generated a bit of debate. ▶ 17 Cashless society
  18. 18. MJR: But some would no doubt say that, for your plan to work, the whole world would have to be cashless, because otherwise the thief could just drive his loot out of Sweden and convert it into cash elsewhere? BU: Yes, but that would mean he’d have to get out of Sweden, and he’d have to explain why he had received money in his account in Sweden, because he wouldn’t be able to use euros or any other foreign currency in Sweden, if Sweden had gone cashless. So, what could he do other than have a bank account, with traceable transactions? MJR: But some people would object that if you take away cash, criminals would just come up with something else – maybe they’d start paying in gold instead? BU: But can you imagine how trading in gold would work between the fence and the burglar? And would the gold then be used to buy milk and bread or whatever? Ha, ha… how could that possibly be practical? It just wouldn’t work… MJR:Ormaybetheycouldpayinvirtualcurrencies like Bitcoins? BU: Yes, but the burglar is a consumer like you and me, and he might have a family and all sorts of things and lead a normal everyday life like the rest of us, and you can’t lead a normal life in Stockholm if you have to base it on Bitcoins. You can’t buy a train or bus ticket with Bitcoins or go shopping in the supermarket. It just wouldn’t work in practice … forget it! MJR:Ihadachatwiththetaxidriveraboutcashless society on the way here today, and his concern – which many others no doubt share – was that this is another step towards a Big Brother surveillance society. What do you think about that concern? BU:Butwe’realreadyasurveillance society, and removing what’s left of the cash from society wouldn’t make any difference, unless you’re a criminal and you’re trying to conceal your illegal activities. It’s just an irrational feeling that can easily be punctured if you’re open to reason. Anonymity is hyped MJR:Butaren’tpeoplerighttobe concernedthatgoingdigital–as has been happening in many areas in recent years, especially in the Nordic Region – means we become less free as citizens, and that our chance to be private and anonymous is being taken away from us? BU: I’ve given that a lot of thought, and I’ve come to the conclusion that it doesn’t matter at all if people see me when I’m walking around the streets of Stockholm, and for people to know who I am. It doesn’t matter to me, and I think it’s OK to live in such an open society. And basically, it’s probably unavoidable. I picture the whole Earth as a single gigantic network where everyone is ultimately linked to a single enormous brain. Björn Ulvaeus 18 Digital values
  19. 19. MJR: As many of us already are, in part, via the Internet… BU: Yes, in many ways we are already, and we are becoming more and more linked, and it really doesn’t bother me. I mean, what would I use my anonymity for anyway? MJR: And you’re saying that even though you’ve been famous in most parts of the world for years and years… BU: Yes, of course, I’m a bit different in this respect, but as long as there are places I can retreat to for a bit of peace and quiet, that’s fine by me. MJR: And is that possible? BU: Yes, it’s entirely possible, and I don’t see how that could be changed. No one is allowed to install cameras in my house, so it’s enough for me to have the freedom to be myself in my own home. When I’m walking around in public, I don’t have a problem with being visible. And when I’m paddling my kayak in the Swedish archipelago, I feel a great sense of freedom, and I don’t mind if there’s a satellite somewhere up there watching. So the anonymity you’re talking about in defence of cash – it’s of no value to me. I don’t think that’s a valid argument for maintaining the cash system. MJR: But let’s assume you were living in a country that’s not democratic, and where you didn’t have yourconstitutionalrightsandfreedoms:wouldn’t makingallpaymentstraceablegivethoseinpower the upper hand against their citizens? BU: Actually, I think countries with under-developed democracies could benefit from eliminating cash because that would be an effective way of combating corruption. Corruption holds democracy hostage, and it would be great to be able to dismantle cor- ruption by ensuring that funds earmarked for a particular purpose were in fact actually used for that purpose and didn’t disappear via corrupt channels. If all payments were traceable, things like passing money under the table just wouldn’t work anymore. That’s the sort of thing the Bill & Melinda Gates Foundation has realised when they advocate micro- payments and direct digital payments in the Third World. As long as you have a mobile phone, you can get around the dictators and corrupt officials. MJR: A while ago, a survey indicated that 45% of Swedes believe Sweden will go cashless within 20 years. What do you make of that? BU: I think those answers must be due to the way the question was formulated. In other words: “Do you believe Sweden will be cashless in 20 years’ time?” I would expect most people to say it will happen within five years. But I think 45% is rather low. MJR: Presumably that also means there are still quite a lot of Swedes today who don’t think Sweden will ever go cashless? BU: Yes, but it’s a matter of teaching and information. That information has to come from somewhere, and that’s why we’re sitting here today. You have to inform people and make them reflect on the fact that there’s really no reason to hold onto the payment system we have today. In practice, they’re already letting go, as they choose to use alternatives to cash more and more. MJR:Sowewanttoholdontosomethingalthough we don’t really know why, and in practice we’re rejecting the very thing we say we want to keep? BU: Yes, exactly. You’d hope the national banks would take the lead, so it’s completely incomprehensible why Sweden’s central bank, Riksbanken, has decided to issue a new series of notes from 2015. Who needs a 500 or 1000 kroner note? Only those who have something to hide. So we could start by taking the high-denomination notes out of circulation. MJR: The Serious Organised Crime Agency in the UK demonstrated a few years ago that 90% of all 500 euro notes in the UK were in the hands of organised crime… BU: Yes…that’ssomething I’d liketo askthe governor of Riksbanken directly: Why are you printing 1000 kroner notes when none of us need them? ▶ 19 Cashless society
  20. 20. Yes to digitisation; no to nostalgia MJR: If you were to try to describe what’s hap- pened since 1976, when no one discussed the future of notes and coins, and you wrote the hit song “Money, Money, Money” – what sort of development and momentum have we seen in society since then? BU: Well, let me reveal that the song “Money, Money, Money” has absolutely nothing to do with money. It was just a sound I heard in my head. I had different lyrics in mind at first, but they didn’t sound right, and then the sound of “money, money, money…” came to mind, so I had to write the lyrics on that subject. But the sound came first, and there was absolutely no connection at that time with any thoughts of a cashless society. But apart from that, in answer to your question: there has been a massive shift to digitisation in society since the 1970s. MJR: And what do you mean by digitisation? BU: I mean the transition from analogue to the digits 0 and 1. And I experienced this transition in a very concrete way in the recording studio. In the early years, we recorded on analogue tape recorders, and we had a limited number of channels to work with. As I remember it, we recorded analogue up to and includingthelastLPwithABBA,butwhenweworked with Chess, we had bought digital equipment, so that’s when I had front-row seats to a very definite technological shift. But it happened in all sorts of areas of society in those years, and when you look back on it now, it’s been a revolution. MJR: Have you always embraced digitisation, or are you also critical of this development? BU: No, I’ve always embraced development and change, because when you can see it’s an improve- ment, there’s no need to get caught up with nostalgia. I don’t feel the least bit nostalgic about vinyl records, for example. I think it’s brilliant that music is so much more accessible today than it was before, via cyberspace. When you write music yourself, it’s as if you’re plucking ideas from a Platonic universe of ideas. Once a melody comes to you, you immediately feel it’s just so right that you think it must have existed out there somewhere beforehand, in this universe of ideas, or in cyberspace. And it’s rather like that for all of us today, now that all music is accessible via online services and streaming, etc. MJR: So you welcome services like Spotify and WiMP? BU: Yes, definitely. MJR: But isn’t there any downside to digitisation? BU: Nope… MJR: No…? BU: I don’t see any downside to digitisation. It makes everything easier and more efficient. MJR:Butwhataboutolderpeopleandothergroups of people who have difficulty using computers and online banking and smartphone, etc.? BU: Well, of course, we have to think of older people or people with special needs, but that doesn’t prevent us from reaping the benefits of digitisation at the same time. To me, these are two different things, but obviously we mustn’t leave people behind if they can’t keep up with developments; we need to help them, of course. It’s clear, too, that some groups in society may be concerned about the implications of doing away with cash because they feel more confident using cash than they do with digital pay- ment solutions, and they’re worried about how they would cope with new technologies, such as mobile payments. That’s why it’s vitally important to develop the new payment solutions intelligently so that no one is excluded; on the contrary, we need to make it easier for groups who are already struggling in various ways. These could be disabled people, or people with special needs, and technological solutions could be designed that are easy for them to use, too. ▶ 20 Digital values
  21. 21. Björn Ulvaeus 21 Cashless society
  22. 22. MJR: So the bottom line is that there’s no use standing still or going back? BU: Yes, and that doesn’t only apply to payments, but to new technologies in general. I’m fascinated by what’s been happening about energy these days, with solar power, geothermal energy and hydro-electric power. I’m involved in a project in my old home districtofVästervik,wherewe’rebuildingahotel,flats and restaurants completely from scratch, and they will be located close to the sea. I’m very interested in developments in things like solar power and how we could harness the latest technologies for our project. And that all links in with digitisation too. The other day, I bought the new Tesla sedan, and I think electric cars are the way forward. I’m not at all nostalgic about petrol stations or tankers on the roads. There’s nothing positive about those, and I look forward to seeing them disappear and being replaced by cleaner technologies. I think some people are mentally predisposed for a future-oriented, non-nostalgic view of life and the world, and I think I’m one of them. I’ve never looked back longingly to the time when I was on stage with ABBA, and thought how nice it was to be there, or wished I could turn the clock back – definitely not. MJR: But how can you say that now that you’ve got your own museum? Not many people get to have a museum about themselves – and certainly not in their own lifetime! Don’t you get nostalgic when you see the whole ABBA story unfolding before your very eyes? BU: No! And that was actually one of the reasons why I was able to get to grips with the project and help to construct the museum. I regard myself today as a different person from the guy in the silly costumes and platform boots, and the ABBA era feels like a long, long time ago. So today I’m able to tell the story of that time without a hint of nostalgia, and if I hadn’t been able to do that, it would have seemed very artificial and narcissistic to build a museum about yourself. MJR: But don’t you feel any tenderness towards the guy in the platform boots? BU: Yes, I do, in a way – great tenderness, but not nostalgia. MJR: When you chose to be actively involved in this ABBA The Museum project, you also made thedecisionthatitwouldbeacashlessmuseum… BU: Yes, and a lot of people were amazed and asked if that was really a good idea, because it would be sure to lead to lots of problems. Some people asked: “Do you really want to frighten away all the Russians with their bundles of notes?” But the truth is that we haven’t had any problems, because it turns out that most tourists actually have a payment card on them, even if they start off wanting to pay cash. And if that is a problem, people can always go into the restaurant next door and buy a cash card there. So we’ve left the back door open, in a way … Unacceptable black economy MJR: As a musician yourself and a firm advocate of a cashless Sweden, you must have given some thoughttowhatthemanystreetmusicianswould do in a cashless society if they could no longer earn their living just by passing the hat around? BU: Yes, exactly – what should we do about them? If society went cashless tomorrow, it would be difficult, but I’m sure the problem will resolve itself in the next few years with the many new payment systems on the way for smartphones and tablets, etc. Actual begging is worse; that would obviously be affected when cash is eliminated, but I think we If all payments were traceable, things like passing money under the table just wouldn’t work anymore. 22 Digital values
  23. 23. have to acknowledge that the problem of begging isn’t about payments and payment technologies. That’s on a different level; it’s a social problem, and the way to eliminate it is to remove the causes of begging, not by developing payment technology. So begging doesn’t carry any weight as an argument against eliminating cash either, in the same way that the right to moonlight doesn’t. MJR: But cash is very important when it comes to moonlighting, isn’t it? And shouldn’t people be able to do a bit of work on the side? BU: Well, we’re assuming, of course, that all people are honest and pay their taxes, and so on. So the black economy, whether it’s “only” moonlighting or crime as such, can’t possibly be part of the argument for retaining cash. But it is an important element, of course, when we talk about the benefits of removing cash – that’s for sure. We need to develop solutions capable of ensuring that the revenues lost because of the black economy are returned to the treasury for the benefit of everyone in society. And removing cash can only help to accelerate that movement, in my opinion. Marginalised people in society will benefit the most from the additional resources that would be available if the black economy was reduced. MJR: If we give up notes and coins, aren’t we also givingtoomuchpowertothemajorcardorganisa- tions, for example, like Visa and MasterCard? BU: I reckon that if they don’t self-regulate, we’ll have to use legislation to ensure that they don’t charge excessive fees, etc., and that’s already happening now. But I believe competition will automatically make sure that those that charge excessive fees will fall by the wayside. The same applies to banks, of course. Banks and their charges are in the spotlight more than ever, and there are some organisations keeping a sharp eye on things like that; there’s also a lot of political awareness here. MJR:IfyouweretodescribeyourvisionforSweden, how would it look? BU: It’s a more honest, more transparent Sweden, whereconditionsaretoughfortheblackeconomy.I’m not saying we can eliminate all crime, and certainly not the sort of crime that goes on in the higher echelons, and that typically doesn’t even involve cash, but at street level, removing cash would make a difference. MJR: Shouldn’t there be more cooperation on this at Nordic level? BU: Yes, definitely. Our vision should be for a cash- less Scandinavia or a cashless Nordic Region. The Nordic Region needs to lead the way here, too, as we have done in many other areas. That’s my vision. It’s worth fighting for; it’s a matter of creating a better society and about setting a good example to the world. MJR: One last question, and it has absolutely nothing to do with notes and coins: When you want a great musical experience, what do you listen to? BU: When I settle down to listen to music actively, it’s usually a Beethoven symphony. It could be any of them, but my favourite symphonies are his first two. I often go for Mozart, too. But not ABBA … ha, ha… • 23 Cashless society
  24. 24. The museum offers an interac- tive journey through one of the biggest success stories in music history. Here the visitor can get close to the band by experiencing whatit’sliketobethefifthmember of ABBA, get on stage together with the other members, enter the Polar studio, see what he or she looks like in ABBA’s legendary costumes, and much more. Agnetha Fältskog, Björn Ulvaeus, Benny Andersson and Anni-Frid Lyngstad tell their own personal ABBA stories through the museum’s audio guide, and ABBA The Museum aims to make its exhibits as interactive as possible. For example, there is a self-playing piano that is linked up to Benny’s studio. If the visitor is lucky, the red light will flash and the piano (Benny) will start playing while he or she is there. The group’s first major hit, “Ring Ring” from 1973, is celebrated by a red telephone in the exhibition. Only four people in the entire world have the phone number … Furthermore,ABBATheMuseumisperhapsthefirstcashlessmuseum in the world. The museum’s website says: “We have a vision of a cashless society. Therefore we don’t handle coins or bills.” During the first three months the museum had 170,000 visitors. • Source: www.abbathemuseum.com ABBA The Museum ABBA The Museum opened to the public on 7 May 2013 at the scenic Djurgården in Stockholm, Sweden. Image Anders Hanser ©Premium Rockshot 24 Digital values
  25. 25. Nationalbanken (the Bank of Denmark) documented in its report The costs of payments in Denmark that the costs to society of a single cash payment in 2009 were DKK 7.36, whereas the costs of making a Dankort payment were just DKK 3.15. In other words a difference of as much as DKK 4.21 per payment.3 In Denmark, 786.3 million cash payments were made in physical shops in 2009.4 715 billion cash payments According to World Payments Report from 2011, in the EU and US combined,715billioncashpaymentsweremadein2009,corresponding to more than 80% of all payments made. The report points out that the potential for converting cash payments into card payments or mobile payments, for example, is especially great in relation to small payments, which account for the vast majority of payments – more than 80% of cash payments in the UK were less than £10 in 2009.1* The cashless church What will happen to church offerings if the cashlesssocietybecomesareality?Sweden’s answer is the “kollektomat” developed by Palatin Technologies AB and the Swedish Agency for Economic and Regional Growth together with representatives of the major Swedish religious denominations. The “kollektomat” is a self-service terminal that makes it possible to give financial offerings by payment card. The terminal is built into a wooden cabinet designed to blend in with the church interior. Churchgoers can use a touchscreen to designate the purpose of their offering, specify an amount and pay by card using their PIN code.6 Criminals prefer large banknotes In 2010, British bureaux de change were banned from sell- ing 500 euro notes in the United Kingdom. This was in response to a survey conducted by the Serious Organised Crime Agency which demonstrated that 90% of all 500 euro notes in the UK were in the hands of organised crime.2 The Rockwool Foundation esti- matesthatthetreasurywouldgain approximately DKK 8 billion if all moonlighting were eliminated in Denmark. In 2011, the Economic Councilestimatedthatmoonlight- ing in Denmark costs the state roughly DKK 29 billion in lost revenues.5 In brief … Image: ©iStock.com/LUCADP Image: ©iStock.com/LIGHTSTAR59 Image: kollektomat * Please find notes for this article at p. 74 25 Cashless society
  26. 26. Cutting through complexity – reaching the next level of payment evolution Payment solutions today rest on the pillars of globalised card infra- structure and transfers using automated clearing houses. Will the information age with its technology-driven avalanche of innovative consumer offerings change this, or will consumers stick to banks as providers of payment instruments? The layers built on top of the foundation increase disintermedia- tion and often provide less transparency to the true funding source for the consumer – driven by a desire to ease the payment process and/or provide value-adding services on top of a basic transaction – but the core infrastructure remains the same, simply because of efficiency and ubiquity. The question whether new payment solutions will replace some of the current core elements such as a bank account, cards or cash, or continue to add functionality on top, is to large extent political, and indeed there is an outspoken demand for lower costs for pay- ment acceptance, though it is still expected to be provided by the financial sector. By embracing the mobile revolution and introducing the mobile wallet to their customers, banks empower the consumers by giving them full control of their payment options right at their fingertips. With these developments, and the apparent increase in digitised commerce, the financial sector will definitely simplify payments in the future, and the number of situations, where cash is needed will be fewer and fewer. Words Jørn Degn Hansen & Kristian Thure Sørensen, Nets images ©iStock.com/GETHIN LANE 26 Digital values
  27. 27. The mechanics of consumer payments The need for exchanging valuables has always been an inherent part of human interaction. With the expansion of civilisations the concept of payment and the complexity and volume of payments have grown – similar to the spiral-shaped shell of the prehistoric ammonites – constantly evolving and adapting to the growth and building the complexity needed to fit for purpose. Payments have always been about receiving a service or an asset, and giving something back in exchange, but as civilisations evolved, simple bartering was insufficient and it became necessary to define value in a more abstract way, and to agree on a common reference in which we could trust, and to which any asset could be related. The invention of money was indeed brilliant – a structure enabling us to use the same method and instrument for payment, whatever item one wanted to purchase. Building layers It is important to realise that today’s payments rest on the simple exchange of valuables, but also to accept the fact that the structures we have built, since the first monetary systems were developed, constantly increase in complexity to fit for purpose. Trust remains a pivotal factor, and a necessary basis for all implementations of payments systems. Factors such as the need for security, accessibility and transaction speed have driven the development of payment infrastructures and introduced multiple peripheral solutions. Furthermore alongside with these developments complex regulation layers have been introduced to govern the ecosystem and ensure the trustworthiness. Banking has made it possible to combine safe keeping with high accessibility, and has centralised the transfer of funds to deal with security issues. Modern technical achievements have enabled the prevalence of global infrastructures such as VISA/ MasterCard, providing access to funds and facilitat- ing transactions directly at the point-of-purchase. In our present consumption-driven economy – based on growth and supply/demand in a global marketplace – the demand for speed, global acces- sibility and convenience have given new players outside the traditional financial infrastructures an ▶ 27 Cashless society
  28. 28. opportunity to establish new products and services, on the surface offering convenience and ease of use, but still adding layers to the evolution spiral and increasingthecomplexityandspanofthevaluechain. At the same time, every single payment layer constantly needs to be adapted to meet current requirements in order to maintain validity and usability–thus,thedesignofbanknotesisrenewedto avoid counterfeiting, identity schemes are introduced to ensure authenticity and encryption ensure that transactions cannot be compromised – taking the entire evolution spiral to a new level. Payment superstructures The rate at which new consumer payment services is introduced is exponential. Before the 20th century, gold-based currencies in cash were dominant, but from 1900 to 1950, the first develop- ments of card payments took place. In the second half of the 20th century, the adoption rate of card based infrastructures grew dramatically, and the creation of a world-wide network provided the foundation for connecting local card schemes, enabling world-wide use. Today, rapidly growing e-commerce and use of mobile devices (laptops, tablets, phablets and smartphones), combined with the global reach of major card schemes, has fostered a huge number of innovative new ways to facilitate payments – BUT the vast majority simply provide services built on top of the globalised card infrastructure and do not constitute new payment infrastructures OR acceptance solutions by themselves. In essence, these solutions only add to existing platforms, having already established infrastructure as a prerequisite for operating, but creating value for users e.g. by freeing up valuable time to focus on commerce rather than the less exciting payment part of the process. So, what does this diversity mean for consumer payments and commerce in general? The answer is: less transparency - awareness of the true funding source often gets obscured by the layers built on top, which in general is accepted due to increased convenience and purpose-built functionality. The aim is often to lower payment barriers enabling a smoother sales process, yet it increases the disintermediation between the core source of funds and the consumers’ perception in the payment process. As a result, a number of payment superstructures have emerged, offering a different business model, e.g. using prepaid as the means to facilitate “simpler” payment experiences, and creating a consumer perception of a parallel banking experience for payments. Services allowing people to enrol a pay- ment card, and create transactions using a proxy (e.g. barcodes or RFID) are abundant, seemingly creating a new payment method, yet in fact paying tribute to the efficiency and market coverage of the existing infrastructure. For merchants, smarter, convenient, simpler and value-add are attributes that attract - however, the most important criteria for a payment solution to be widely adopted by merchants is ubiquity. The combination of innovation, standardisation and certainty of user adoption across markets is a strong investment rationale. Adding value? With the growth of digital services (online and mobile), convenience seems to be one of the main drivers of success. This feature is also a prerequisite for user uptake in the first place. While consum- ers have been increasingly well served in terms of convenience, they have shown very little willingness to pay for convenience directly. There are, however, ways to motivate consumers to pay for convenience in a more indirect manner. Onewaycanbebyreducingthequalityoftheproduct while increasing the convenience. Examples of this can be seen when people switch to streaming music services, where the convenience is higher but the quality lower than music distributed on CDs. Within financial services, it could be argued that some products like e-money are of lower quality than other electronic means of payment (less consumer protection, less flexibility etc.), but offer a more convenient user experience in certain settings - e.g. at festivals, where participants have topped up a “digital purse” to pay for beer and other expenses within a limited area for a limited time. Another way of paying for convenience is for the consumer to pay in the new “alternative currency” of information. The ability to exchange personal 28 Digital values
  29. 29. information for services has seen explosive growth over the past years, with Google being the leader of this kind of business model. Theamountofinformationthattheusergenerates and is able to share (knowingly or unknowingly) is growing due to increased digitisation of services. This is leading to more options offering higher quality and greater convenience and hence an increase in the total value of the service, all fuelled by the added value of the information generated. But while this leverages the total value of the growing ecosystem, it is important to remember that the original assets – the money in the account – remain the same. That said – the consumer might find he or she derives additional benefits besides convenience through the digital channels when use and/or information are rewarded with special offers and discounts. The question is – how much value is it possible to generate on top of the basic commercial transaction of exchanging money for goods? Will it always be a win–win situation where consumers benefit from a high level of convenience, relevant offers and attractive discounts while at the same time giving sufficient benefit to the merchants or other commercial entities for them to sponsor the new layers and increased complexity in the ecosystem? The financial sector should strive to ensure that the development of the future payment solutions combines the desire for convenience with value for merchants while maintaining transparency of the underlying assets. A quantum leap may redefine the basis for evolution With the introduction of Internet commerce, the world has witnessed an explosive development of “digital payments” in the online universe – in part as existing payment instruments and schemes have been adapted to suit emerging needs, and in part as overlay services have bridged the gap to the real world and provided automated payments, invoicing and other solutions. With the introduction of online payments in physical stores, where stored card information is used via e.g. barcodes or facial recognition, we experience the trend of payments going full circle, merging into one single payment methodology regardless of context. It can be anticipated that regulatory adaptions will follow to align regulation with reality and reduce the differences between traditional “physical” payment instruments and their online manifestations, further fuelling the innovation engine. The question is whether new payment solutions will replace some of the current core elements such as a bank account, cards or cash, or add functionality on top. The increasingly outspoken market demand for lower costs of payment acceptance, and the intensified political debate regarding consumer costs, indicates that we are reach- ing a point of saturation beyond which complexity and costs will exceed the benefits of increased efficiency. As the main provider of pay- ment instruments connected to an account, banks are in a unique position to protect their role as the primary source for consumer payments, enabling their customers to pay directly from an account. The build-up to such a quantum leap is seen across markets, where banks provide the consumer with direct and easy access to perform ▶ 1900 1950 2000 Number of payments options Percentage beyond local reach The Internet-age surge in available payment solutions has generated a large quantity of services lacking the ubiquity of previous payment instruments, creating a never-before-seen diversity of payment options available – varying from one market to the other. (Not to scale, for illlustrative purpose only) 29 Cashless society
  30. 30. With the expansion of civilisations the concept of payment and the complexity and volume of payments have grown – similar to the spiral-shaped shell of the prehistoric ammonites – constantly evolving and adapting to the growth and building the complexity needed to fit for purpose.
  31. 31. person-to-person payments from mobile devices, with no need for a prepaid account, a card acceptance device or a home banking solution. For these services to cover the needs in a com- mercial setting, cross-border connectivity and standardised acceptance have to be in place. A new representation of the payment core can emerge, creating new opportunities for innovators to build convenient superstructures, - and most likely also significant challenges for others. A keyword to consider is standards. Banks are in a strong position to build on existing standards for processing transactions, whatever infrastructure is used. The necessary operational international forums are in place to agree on new acceptance standards, as is the legal competence needed to ensure long-term compliance with legislation. Empowering the consumer; clearing the way to future payments No contender is on the brink of world domi- nance – but some have created regimes within which a stronghold is certainly present, although at the cost of putting up walls to ensure control. The walled gardens of the mobile platforms are proof of how total control restricts ability to interact with outside stakeholders, and issuers as well as solution providers are forced to put a sign in the window stating “available on any platform”. Thus consumers have to make a choice, and they cannot be certain that they will have the complete set of options once they have made their choice – far from ideal, and an open invitation to create a more efficient setting for consumer payments. Organising payment services into a wallet is one step towards the desired end-state and in addition, developing the wallet to operate across platforms as well as to span physical and on-line commerce will provide the commerce transparency that many overlay services strive for. To release the wallet’s potential for full-scale consumer benefit enabling users to do more than card payments, standards for interactions will have to be described - e.g. redemption of points at any point of consumer contact, validating digital identity or standardised access to issue coupons to any wallet. Furthermore, adding the ability to control other items, and not only funds in the wallet, creates the true foundation for digitising the mechanics of payments, enabling a consumer to transfer non- monetary valuables in a transaction. The latest technical achievements allow for the development of a mobile instance of the wallet that will provide the platform for issuers to issue cards directly to a mobile device, empowering their customers to conduct commerce in any market accepting contactless payments, and, in future versions, to operate across physical and online commerce domains as well as managing valuables. A way of understanding the full potential of the wallet is to see it as not only a container of instru- ments and valuables but also a window to all the different layers, allowing an issuer to provide access not only to a bank account or payment card and other bank-issued services but to any other service relevant to the consumer e.g. loyalty cards, points, coupons, digital identity and other public services. Cashing out – effects on cash in circulation Having these payment capabilities right at your fingertips together with the apparent increase in digitised commerce will definitely simplify payments in the future, and the number of situations, where cash is needed will be fewer and fewer. The banks’ innovative person-to-person solutions are a clear example of how modern solutions provide an equal alternative to exchanging cash, and the more standardised and internationally available they get the more these solutions will make cash obsolete. For Merchants, the advantages of electronic payments over cash will become increasingly evident, as the potential of more intelligent value-adds get released in the coming years. The extent to which digitised payment solu- tions will replace cash depend upon more than just technology and smart payment instruments, but as far as consumers are concerned, security, convenience and globalised acceptance will be strong drivers towards a cashless society. • 31 Cashless society
  32. 32. Replacing the leather wallet With smartphones being an integrated part of everyday life, it is only natural that commerce has taken a firm hold in the use of these devices. As smartphones gradually replace other devices like watches, calculators, newspapers, game consoles, etc., it is an obvious vision that the smartphone should also in time be able to replace the leather wallet. As payments are perhaps the most defining functionality of a wallet, this is where we have already seen most services launched on mobile devices. Most of these have been built as superstructures upon existing payment systems, where the service on the phone simply is an interface to another payment instrument. The next generation of mobile payments will reside on the phone or be tightly coupled to the phone. This development taps into the potential of integrating the smartphones into the existing payment infrastructure. The Nets suite of mobile services WORDS Jørn Degn Hansen & Kristian Thure Sørensen, Nets Nets is in the process of bringing to market a suite of mobile services that will allow banks and merchants to interact with consumers in new ways without having to replace current processes and systems. This will ensure the widest possible reach as well as the flexibility requested by issuers and consumers alike. The mobile wallet will support a wide array of content from loyalty and membership services to other types of financial services. 32 Digital values
  33. 33. The real new feature of the mobile wallet compared to the physical wallet is not, as the name suggests, that it is mobile, but that it is connected. Towards increased simplicity It is important to note that the real new feature of the mobile wallet compared to the physical wallet is not, as the name suggests, that it is mobile, but that it is connected. This allows for online access to a series of other services and thus makes the smartphone a part of the financial services infra- structure. While the solutions are indeed complex from a technological point of view, this integration is actually a foundation for increased simplicity since it allows for easier access to and management of a consumer’s valuables. Nets’ mobile wallet platform At the centre of Nets’ mobile solutions suite is the Mobile Wallet Platform. This platform allows any issuer to design and brand a mobile wallet that fits his/her needs. At the same time, the flex- ibility of the platform allows any service provider to launch services across different issuers’ wallets (at the discretion of the individual wallet issuer), thus giving the end-user the same experience as with the leather wallet, where cards from a wide range of providers happily coexist. A variety of services One of the initial services delivered to the wallet will be card-based payments through mobile-issued payment cards from the existing schemes that tap into the existing acceptance infrastructure. Furthermore, the mobile wallet will support a wide array of content from loyalty and membership services to other types of financial services. This solution brings the benefit of scale and interoperability as well as providing the option for true differentiation. • 33 Cashless society
  34. 34. The cashless society is the way ahead Words Torben E. Hoffmann Rosenstock, Chief Consultant at the Danish Chamber of Commerce image The Daily Telegraph Torben E. Hoffmann Rosenstock 34 Digital values 34
  35. 35. Although many shops and customers like cash payments, the Danish Chamber of Commerce re­commends that shops should be allowed to decide for themselves whether they wish to accept cash or only cards, going forward. Many shops like accepting cash payments, and in fact probably only a minority of shops would consider it relevant to do away with cash as a means of payment. Too often, the cashless society is presented as an either–or situation, but it is important to strike a balance in this debate. There is thus no reason to believe any change in the law would result in cash-paying Denmark waking up to find most of the retail trade no longer accepting cash. People in the retail trade want to make money, and for the vast majority, the combination of cash andcardpaymentswillnodoubtbethepreferredway for many years to come. But that does not preclude paving the way for innovative new business models that could help to brand Denmark as a pioneering nation. However, this is contingent on our legislators having the appetite to blaze new trails. The Danish Chamber of Commerce welcomes the notion of challenging conventional means of payment with innovative new payment solutions based on consumer trends and existing technological facilities capable of supporting such a development. Thetrendhereisclear:DanesmainlypaybyDankort. Scarcely anyone will mourn the phasing out of cheques these days. If we had had the same discus- sion 20 years ago, the picture would presumably have been very different. We must look ahead and ensure there is always an incentive for developing new and better solutions. Cashless means better security too Today, in Denmark, only banks, unmanned filling stations and vending machines are exempt from the requirement to accept cash payments. For security reasons, therefore, more and more banks are choosing to reduce the number of branches which accept cash. Reducing the number of shop robberies would benefit society. With this in mind, there is a sur- prising lack of political will to consider legislation permitting those shops which may deem carrying cash too great a security risk to opt out of cash altogether, as they can in Sweden. Figures from CrimeStat, the retail trade’s crime mapping portal, shows that in the vast majority of cases, the robbers flee empty-handed or only gain limited funds in a robbery. Even if shops follow police advice to keep cash holdings to a minimum, some shops are uncomfortable with having cash in their tills knowing that robbers may be satisfied with even a limited amount of funds. Apartfromthesecurityaspect,itcanbeexpensive, time consuming and might involve a lot of admin- istrative hassle for shops to cash up and deposit the cash in the bank’s night safe. However, shops are not the only vulnerable targets when it comes to carrying cash; the same applies to ordinary people. Unlike those who prefer to have ready cash in their pockets, credit card holders benefit from an anti-fraud guarantee in case of theft. • 35 Cashless society
  36. 36. Dansk Supermarked ready for contactless payments The Danish retail chain Dansk Supermarked is preparing for a future without cash. The first steps are the introduction of new terminals that will ultimately enable consumers to pay using contactless cards and mobile phones. D enmark’s largest retailer, Dansk Supermarked, has taken a major step towards the supermarket of tomorrow. As of 2014, all payment terminals in all 550 stores of the Danish chain will be contactless. This involves 4,500 terminals altogether. “Wearealreadybusyimplementingthenewterminals throughout Denmark, and everything is progressing according to plan. Stores that have already been fitted with the new terminals report great customer satisfaction, as customers find payments made using the new devices are faster, even though they still have to insert the chip into the terminal as yet,” according to Alan Jensen, IT director of Dansk Supermarked. Words Nina Faurby, RelationsPeople Images Morten fauerby Support for less cash Further down the line, contactless terminals will also enable the customer to complete a transaction just by placing a contactless payment card or a mobile phone on the terminal. Although no contactless pay- ment cards or payment tags for mobile phones have been issued in Denmark as yet, Dansk Supermarked already has high expectations for a future involving less cash. According to Alan Jensen, contactless terminals will benefit customers, employees and merchants alike: “We are extremely interested in creating cashless supermarkets, and this is one step in that direction, becauseweexpectmorepaymentsinvolvingsmallsums to switch to contactless cards and mobile phones. ▶ 36 Digital values
  37. 37. About Dansk Supermarked Denmark’s largest retailer, Dansk Supermarked, operates the Føtex, Bilka, Netto and Salling chains, which have more than 1,300 stores across Denmark, Germany, Poland and Sweden. It has 550 stores in Denmark altogether. Dansk Supermarked employs a staff of approximately 32,000 in Denmark and a further 10,000 in Sweden, Germany and Poland. Dansk Supermarked is owned by A.P. Moller-Maersk and the F. Salling Group and has a turnover of approximately DKK 56 billion per year. Alan Jensen 3737
  38. 38. As the proportion of digital payments increases, we’ll be able to save on the costs of handling cash. And at the same time, our employees will enjoy greater security, because cashless shops are quite simply less attractive to criminals. The new terminals will also enhance the customer experience in the shop because this makes payments quicker and easier,” Alan Jensen explains. He adds that the new contactless terminals are a great supplement to the initiatives that Dansk Supermarked has already put in place to reduce the costs of handling cash in the stores: “Counting the cash and transporting it to and from the bank is a major expense, generally speaking. So we’re already doing a lot to cut these costs, actually. For example, we’ve been using an internal cash management system for a number of years now which makes it possible for us to re-use the cash in-store instead of having to deliver it to the bank every day. With this in mind, contactless terminals are a natural next step for us.” Ready for the future – ahead of time! Contactlessterminalsalsocomplywiththestricter security requirements imposed by the international card companies MasterCard and Visa. Accordingly, given that Dansk Supermarked needed to replace most of its terminals anyway, it was only natural to take it a step further and adopt the new cashless technology: “It’s important for us to be ready for the future, so considering that we had to replace our terminals anyway, it made sense to go for contactless terminals straight away. That means we’re ready for the future before the future arrives!” Alan Jensen explains. Although Dansk Supermarked is replacing its terminals, Alan Jensen confirms that it will still be possible to pay for goods using conventional plastic cards without contactless technology: “We try to consider all our customers. I still believe we are a long way from a completely cashless supermarket, partly because there are still some legal barriers remaining, but this is a step in the right direction,” Alan Jensen comments. Dansk Supermarked expects to be able to save tens of millions of kroner each year by minimising the amount of cash in the shops. • 38 Digital values
  39. 39. Travelling light One million British pounds in £20 notes weighs 50 kg, while the same amount in 500 euro notes weighs only 2.2 kg.4 From 2008 to 2013, there has been a 30% reduction in the use of cash as the means of payment for everyday groceries in Finland.2 The Danish Chamber of Com­ merce conducted a survey in 2011 which showed that 85% of Danes over the age of 17 are “willing to pay by card between 10 pm and 6 am to improve security in shops”.1* Dirty money Newanalyseshaveshown thatDanishbanknotesare contaminated with an average of 40,000 bac- teria, including staphy­ lococciandfaecalbacteria (E. coli).3 In Denmark, there are approximately 65 billion (2012) Danish kroner in circulation in the form of notes and coins; approxi- mately DKK 32 billion of these are issued as 1,000-kronernotes.Inother words there are approxi- matelyeight1,000-kroner notes per adult Dane.5 On average, the populations of countries such as Zambia, Zimbabwe, Rwanda, Tanzania, Malawi and Lesotho made less than one non- cash payment per person in 2009.7 In brief … EUR 84 billion in costs AccordingtothereportTheFuture ofCashandPaymentpublishedin 2010byRetailBankingResearch, cash accounted for 78% of all 388 billion payments received by European merchants in 2008, corresponding to 301 billion pay- ments. The report concluded that total costs of distribution, control,handling,processingand recirculation, etc., of cash was EUR84billion,equivalentto0.6% of Europe’s GDP or EUR 130 per European.6 Image: ©iStock.com/MALERAPASO Image: ©iStock.com/ANDYD * Please find notes for this article at p. 74 39 Cashless society
  40. 40. Exporting the cashless society Cash and moonlighting Michael Juul Rugaard: How important is cash in terms of moonlighting and crime in our society? Kai A. Olsen: It’s very important. The advantage of cash is, of course, that it is anonymous. And for a large proportion of today’s fraud and crime, the anonymity provided by cash is vital. Although several links in the chain can be electronic, there is usually one link that requires cash. For instance, with falsified invoices, it is possible to cheat electronically too, but at some point or other, the money is changed into cash, because without this step, the authorities would be able to follow the money all the way through to the recipients. But cash breaks the electronic chain, and thus interrupts traceability, so the point is that if you take cash out of the equation – or even just high-denomination notes – that would make some criminal activity very difficult. At the same time almost all black-market labour would disappear. Of course, bartering can be untraceable, but then we’re back to the old-fashioned natural economy with the requirement for transactions to take place more or less simultaneously, the difficulty of ascertaining value, etc. In practice, this will only be an exception in a modern society. The Nordic countries are in a unique position to create the world’s first cashless region. It would save them billions of kroner, e.g. by reducing moonlighting, and could even be the start of a highly lucrative export adventure. Norwegian Professor Kai A. Olsen of Molde University College and the Department of Informatics, Uni- versity of Bergen, told us this in an interview with Digital Values. MJR: Looking initially just at working in the black market, is cash really necessary? If you want a new roof on your house, and the carpenter is willing to do it on the black market, can’t you just transfer the money from your account to his account? KAO: Yes, of course, but the transaction would be digital, and therefore traceable, so there is a risk that the authorities could discover the transac- tion. That could cost him dearly. Under Norwegian legislation, and I expect in most countries, anyone moonlighting is a criminal. As soon as they accept black-market payments digitally, they know they have crossed a line that can mean years in prison. Furthermore, you, as a customer, are also partially responsible for ensuring that the carpenter also pays his tax. In practice, the possibility of hiding an account-to-account transfer is far lower than when using cash. Once cash is taken out of the equation, you’re forced to take a stance. And I believe the majority will choose the honest stance and not risk being branded a criminal. There’s another point as well. Those who cheat on their taxes today can excuse themselves by saying other people are doing this too. In a society where most people pay their taxes, peer pressure can force all to pay their taxes. ▶ Words Michael Juul Rugaard, Nets Images Anders Hviid 40 Digital values
  41. 41. If you take cash out of the equation – or even just high-denomination notes – that would make some criminal activity very difficult. Kai A. Olsen
  42. 42. MJR: But there must be a triviality threshold for tax free payments? KAO: That’s an important point. Under certain amounts, and when it’s not a matter of a more systematic business, you should be able to pay electronically without the risk of being criminalised. It’s already the case that you can, within limits, make tax-free payments in Norway, and the same applies in Denmark, for small jobs like babysitting and cleaning in private homes. So, society is already operating with a triviality threshold. It is possible, however, that we will have to raise that threshold a little if we decide to remove cash altogether, just to avoid criminalising too many ordinary people and forcing the authorities to devote resources to utterly insignificant, petty things. However, as before, having the data does not necessary imply that the authorities will use these data. What we need to take an interest in is systematic moonlighting, and I submit that this would basically disappear if we did away with cash, or if we even did away with the highest denomination notes, which in Norway are 500 and 1,000 kroner notes. MJR: But wouldn’t that operation be more or less free to do? KAO: Yes, indeed. It’s not like putting a man on the moon; you don’t have to invest billions of kroner in advance without knowing whether the operation would succeed, or whether you’d ever get a return on your investment. You could take one step at a time, and you could always revert if you wanted to. You could opt to remove the 1,000 kroner note first and then wait two years and see how it turns out, before taking the next step and removing the 500 kroner note. MJR: But if Norway, Denmark and Sweden were to decide to do away with their kroner, wouldn’t we just see the black market continuing with euros and dollars instead? KAO: No, I don’t think so. For example, if I buy euros in Norway, at the bottom of my receipt is a note stating that information on my currency purchase is being forwarded to Norway’s central bank (Norges Bank). That is, I’m not anonymous when I buy foreign currency. And if I buy 100.000 euros or dollars to pay of my carpenter, I’d have difficulty explaining that. MJR: But couldn’t I just say I’ve gone on a long holiday? KAO: Yes, but it’s not difficult to check whether that story holds water, and it would just make things more convoluted. And what about the carpenter who would have to accept 100,000 in euros? How would he spend that money unless he was going on a long trip abroad himself? He would be forced to change the money back and put it into his account in order to be able to spend the money in Norway. As I said, I think that very few are willing to take the risk. While everybody can understand that payments in cash are close to risk-free, most will not sleep well at night knowing that all transactions In Norway alone we spend NOK 4 billion on handling cash. To me, this is absolutely unnecessary. 42 Digital values
  43. 43. are traceable. So, moonlighting is appealing today because it’s easy, but if the risk increases, people will probably default to the side of honesty. Large savings potential MJR: But if it’s really so easy that all you’d need to do is to take the 1,000 kroner note and possibly the 500 kroner note out of circulation, what’s stopping us? KAO: As far as Norway is concerned, my explanation is that some bankers and perhaps especially bankers atNorgesBankareveryconservative.Further,Norges Bank, which of course issues bank notes today, may be afraid of relinquishing a key responsibility. But there is a strong pressure to remove the large domination notes. The Finance Sector Union in Norway is in the forefront. It wants to improve the security for its members. Without cash there will be fewer robberies. The Norwegian Hospitality Association (NHO Reiseliv) and others that have to competewithblackmarketbars,pubsandrestaurants are also applying pressure. Many businesses, both in Norway and Denmark, have decided not to accept cash – even though this is in violation with the law. MJR: Assuming it is possible to eliminate the black market by removing high-denomination notes – how much money would that save in Norway? KAO: First of all, the state income tax would increase substantially. Secondly, a reduction in moonlighting would serve an important moral function, especially in countries like the Nordic countries with high taxes, where people obviously regard it as demoralising if their fellow citizens avoid contributing to the community. A modern society cannot function if the black market gets out of hand. You can see that in countries such as Greece and Italy, where the black market and tax avoidance have strongly contributed to destroying the economy. Sothere’sthepotentialtosavebillionsinacountry like Norway? KAO: Yes, definitely – we are talking about large amounts. In Norway alone we spend NOK 4 bil- lion on handling cash. To me, this is absolutely unnecessary. We spend billions on building roads and bridges to make our infrastructure as effective as possible, but an effective payment infrastructure is actually just as important. And the advantage of moving from cash payments to digital payments is that we already have what we need, i.e. we don’t need to invest billions in building new “bridges” first. The Nordic Region already has an extremely efficient payment infrastructure, and this gives the Nordic countries a unique opportunity to take the next step along the path to full digitisation. MJR: Earlier this year, the Norwegian Hospitality Association published the report Et kontantfritt reiseliv (Cashless hospitality), and you were the main contributing writer. The Norwegian Hospitality Association is Norway’s largest organisation for the hospitality sector, and the report studies the question of whether the sector is ready to take cash out of the equation. What results did you arrive at in this study? KAO: When the Norwegian Hospitality Association chose to spend money on a study as extensive as this, it was because they represent the organised, profes- sional section of the hospitality sector in Norway. They are encountering unreasonable competition from the businesses that operate in the black market, playing by different rules, for example by paying staff with tax free cash and avoiding taxes and VAT. In a country like Norway, where we pay a high rate of income tax and 25% VAT, the unprofessional section gains a massive competitive advantage of perhaps 30–40%bycheating.Togettogripswiththeproblem, the Norwegian Hospitality Association wanted to study whether the solution might lie in completely eliminating anonymous means of payment – in other words, notes and coins – and instead using only traceable digital payment methods, such as payment cards and mobile payments. That was the remit, and the report documented that operating in the black market is a major problem in the hospitality sector, that eliminating cash ▶ 43 Cashless society
  44. 44. would be a feasible solution, and that for many reasons, the professional section of the sector would welcome replacing cash with digital payments. Our study shows that both employers and staff in the professional section of the sector prefer payments by payment card, for example. One of the reasons for this is that hotel staff, for instance, would feel safer in their jobs. Last year, there were three hotel robberies in Oslo. These have a negative effect on staff all over Norway. We can all envisage the situation of a lone receptionist staffing a hotel desk at night, knowing that there is a lot of cash in the register. What is particularly noteworthy from the study is that, when we ask the staff questions about tips, they say “Yes, we get more tip when the guest pays with cash.” However, when we ask what form of payment they prefer, a large percentage answer “Digital”. That is, digital payments provide better control of the payments, so they do not come unpleasantly under suspicion if there are a lot of cash payments during the evening and they are unable to reconcile the till at cashing-up time. Cash and criminal activities MJR: If we switch our focus from moonlighting, in the sense of legitimate work but where people just don’t pay tax or VAT, and instead take a look at actual criminal activity, such as dealing drugs, trafficking, etc., what is the role of cash there? KAO: High-denomination notes are particularly important for facilitating smooth financial transac- tions in large swathes of the criminal underworld. If you have a large amount of money that you need to transport discreetly, then you’d obviously choose high-value notes that don’t take up too much room and don’t weigh very much. MJR: How would a criminal operate his business at street level in a country where his customers no longer have cash? KAO:Hecouldofcourseaccepteurosanddollars–as long as those exist! But as we talked about before, it would not be particularly straightforward or risk-free for customers to obtain foreign currency, especially in large quantities. It would not be impossible to operate as a criminal, but buying and selling drugs, prostitution, acting as a fence, etc., would be much more awkward without cash. Of course, not all crime would disappear just by eliminating cash. However, many criminal activities would become so much more difficult that this would have an impact. Today many criminals are coming to the wealthy Nordic countries from countries in Eastern Europe, for example. If we became a cashless zone, I believe we would find we were actually exporting criminals, simply because of the difficulty in operating without cash. 44 Digital values
  45. 45. Aninterestingpointiswhattheauthoritiesshould do. If they arrest someone selling hash, should they avoid using payment information from his customers? Should they follow up on this and arrest the customers, or would buying hash have to be permissible? In other words, today, cash allows for grey areas between what is legal and what is illegal. If we take cash out of the equation, we might have to define the dividing lines more clearly. MJR:There’salotoftalkaboutbitcoins,anddon’t you see a risk that, if cash is eliminated, bitcoins will grow dramatically in scope and become the anonymous means of payment for the black market and criminal activity in the future? KAO: Bitcoins and other similar virtual curren- cies are interesting, but I regard these mainly as experiments, and for this reason, I do believe they will be accepted for the time being. If they do start to gain traction, I think that it would be in the interests of the authorities to put a stop to them. That could be done under existing legislation, as only the national banks are entitled to issue money. If bitcoins became widely used, the authorities could not possibly allow sections of the population to use virtual currencies to avoid paying their taxes to the community, with society missing out on a lot of tax revenue. In addition, bitcoins would presumably be the preferred means of payment for terrorists and criminals. As we saw with The Silk Road trading portal, which the FBI closed down recently, the authorities cannot accept currencies like these to operate. So I don’t see bitcoins as a credible threat, and there’s no reason to believe that efforts to make society cashless would be in vain just because of a phenomenon like bitcoins. But I don’t think we will ever reach that point. An important task for national banks is to ensure a stable currency. For Bitcoins there is no such institution, and we see the effects now – it is a highly unstable currency. It is therefore unsuitable for payments. MJR: What about criminal activity at the other end of the spectrum, such as when people send money to tax havens in the Cayman Islands, etc.? KAO: Obviously, a great deal of financial crime does not involve cash at all, but society has been focusing on this area internationally in recent years, and a lot has already been done to make it difficult for criminals to find secure tax havens for their money. Here, we see the same movement we talked about earlier: in future, the chances of being detected will be so great that most people will no longer want to run the risk. MJR: Are today’s payment systems good enough? KAO: Well, the survey we performed for the Norwegian Travel Association showed that many peoplewerenotcomfortablewithkeyinginPINcodes in crowded pubs and bars. But this doesn’t have to be the case. Mobile payments are part of the solution. Another part is to give the customer more control. For example, to “load” an amount onto the card that subsequently can be used PIN-free to specify ▶ Kai A. Olsen 45 Cashless society

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