Why Sweden is almost cashless — and what we can learn from it

Happy young tourists in Sweden discussing how the country is almost cashless and how other countries could learn from Sweden.Image: Happy young tourists in Sweden discussing how the country is almost cashless and how other countries could learn from Sweden.

In a Nutshell

In Sweden, most transactions are now digital, and half of the country's banks have stopped carrying cash. The U.S. can certainly learn from Sweden, but it's not a perfect system.
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My Couchsurfing host Ludvig had agreed to take me to Ale’s Stenar, a kind of Swedish Stonehenge on the coast. He met me at the train station in Malmö, a city in southern Sweden.

I was jet-lagged, nauseous and struggling to carry my luggage. “Is there an ATM nearby? I need to take out some cash so I can pitch in for gas,” I said, as I dragged my suitcase to his apartment.

“No need. Sweden’s practically cashless. You can get by without the stuff.”

What does “cashless” really mean?

A cashless society doesn’t have a single definition but can be described as a society in which paper currency ceases to be used, or its use is greatly reduced.

According to The Atlantic, in a cashless society, “the cash has been converted into numbers, into signals, into electronic currents. In short: Information replaces cash.”

So does this mean that cash transactions are wholly replaced by credit card and digital transactions?

Not necessarily. As Kenneth Rogoff, author of The Curse of Cash, explains, the goal of what we consider a “cashless” society may be one that just uses a lot less cash in the future, but could still use smaller bills or coins.

The pros of going cashless

As a traveler, I was glad to have one less thing to worry about. Back at home, I hardly used cash, feeling safer and lighter with just cards in my pocket.

Sweden, too, has been moving away from cash in recent years.

Some Swedes, including Abba co-founder Björn Ulvaeus, think life would be more convenient and safer in general if transactions went digital. In fact, Ulvaeus started campaigning for a cashless Sweden after his son’s apartment was burgled multiple times.

Since digital money has a trail, you can easily track transactions. With digital records of each sale and purchase, thieves may have a harder time selling stolen goods — or at least getting away with it.

Digital transactions can be more convenient if you don’t have cash on hand or if you don’t have perfect change. More than half of Swedes already use Swish, an app developed by six Swedish banks. It’s comparable to Venmo: You can use it to send money to friends, donate to charity or even make everyday purchases.

According to a recent survey by Riksbank, the central bank of Sweden, only 16 percent of respondents used cash on their last purchase.

Following suit, over half of major bank branches refuse to handle cash anymore. Their reasoning? The less cash in the system, the more they’ll save on security costs.

As a result, there’s only 80 billion Swedish kronor in circulation now. In 2010, there were about 106 billion kronor in circulation.

The cons of going cashless

Not everyone in Sweden is in favor of going completely cashless, though.

One drawback is that if bank branches no longer carry bills, an ATM might be the only option to get cash, and sometimes even those are hard to come by. For example, in Skoghall, a town outside of Stockholm, locals demanded an ATM be installed in a grocery store since all the others had been shut down.

And some small-business owners can’t afford to give a cut of their profits to credit and debit processing fees of card transactions, which can range from 1.30-1.50% of each swipe.

Earlier this year, Riksbank demanded that the country slow down and reconsider going completely cashless, stating that the banks had abandoned cash too quickly and were therefore unable to meet their clients’ basic needs; Much of the public, especially those in less-populated areas, still needed access to cash for their day-to-day lives.

Another criticism of going cashless is that it can be harder to stick to a budget and easier to overspend. “My spending is not very planned,” my friend Ludvig admitted. “I just improvise and make sure [I stay in the positive]. I spend a little more money on food and clothes and leisure than I have to, but not much.”

Ludwig isn’t alone: According to a 2011 Purdue University study, people tend to spend more money and make money decisions faster even when credit card stimuli is present.

Furthermore, according to Consumer Credit, 58 percent of people who use credit cards for large purchases do so because they don’t have enough money to make the purchase otherwise.

But credit card bills have to be paid off, and without the money to do so, consumers may accrue interest and potentially fall into debt that becomes even harder to pay off.

And while Ulvaeus makes the case that going cashless could mean less crime, this may not factor in how creative criminals can be. One man in Sweden claimed he was forced to transfer money via smartphone into a mugger’s account. Although the transaction linked authorities back to the culprit, no charges could be made because the culprit said the money transferred was meant to cover the cost of drinks the two had shared.

As you can see, digital and card transactions aren’t always completely safe. It’s estimated that credit card fraud will cost merchants, issuers and card-holders in the United States $10 billion between 2016 and 2020, according to a study by iovatoin/Aite Group. Crime tends to follow money–even when that money isn’t tangible.

Could the U.S. be next?

In the United States, we already seem to be shifting our purchases away from cash.

A 2012 Federal Reserve study asked participants to record their financial transactions for three days, and found that fewer than half of transactions involved cash. According to a 2012 Mastercard survey, 73 percent of Americans claimed they make fewer cash purchases now than they did 10 years ago.

And while only 2 percent of Sweden’s economy is represented by physical money, the United States isn’t far behind at 7.7 percent.

American banks are taking notice of the trend. In October 2016, big banks including JPMorgan Chase and Bank of America announced Zelle, a new app that transfers money directly between accounts, rather than holding money like comparable apps, such as Venmo.

Even apps that indefinitely hold your funds until you choose to transfer to a bank account are in high demand. In 2016 so far, Venmo transfers accounted for $4.9 billion, about one-third of which were completed on a mobile device.

One reason to leave cash behind is that it costs money to keep cash around. The United States government alone spends $200 billion a year. And that’s money spent to keep physical money circulating safely as well as money spent by citizens on ATM fees, theft and the cost of traveling to banks and ATMs to receive cash.

Using apps such as PayPal, Square and Venmo, on the other hand, is usually free unless you are using a credit card through the app or selling goods or services, in which case there is usually about a 3.9% fee.

Bottom line

I was able to survive without cash during my three-day visit to Sweden. I bought train tickets, a salad and museum tickets, among other things.

But it wasn’t without its complications.

First of all, my bank charged $5 for each ATM withdrawal and a 3.0% fee for each foreign purchase I made with my debit card. I didn’t really keep track of the exchange rate, either — I just knew everything was much more expensive compared to the U.S.

About halfway to see Ale’s Stenar, Ludvig pulled over to fill up his gas tank. I went inside to pay my share, and both my debit and credit cards were denied. “Only Swedish cards,” the attendant said.

Ludvig took out his wallet and told me not to worry about it.

About the author: Jennifer Williams is a QA Specialist in Member Support at Credit Karma. She has her MFA in fiction, and puts her skills to use helping members and training new hires. When she’s off the clock, she can be found editing… Read more.