EMPTYING THE TILLS
Some Europeans are more attached to notes and coins than others Finance and economics Europe’s disappearing cash
Some Europeans are more attached to notes and coins than others
ONLY tourists pay in cash, says the young barista in Espresso House, a Swedish coffee chain, on Vasagatan in Stockholm. “They don’t understand we don’t use that anymore,” she rolls her eyes, gesturing to the card machine. The contactless “taps” that locals use are much faster, and she frequently runs out of change when foreigners bring large-denomination notes, fresh from the ATM.
Swedes rarely handle cash; the volume of card payments has increased tenfold since 2000 and only one in five payments—5-7% if measured by value—are made in cash today. In much of northern Europe the situation is similar, with “no cash” signs increasingly popping up in shop windows. But travel south or east and a different picture arises; in Italy 83% of payments are still in cash. Whereas Norwegians made 456 electronic transactions per person last year, Italians made only 67 and Romanians 17, according to the Boston Consulting Group. Most surprising is Germany’s reluctance to dispense with “real money”. Over three-quarters of German payments are still made in cash and “cash only” signs are not that uncommon.
As countries become richer, they tend to move away from cash on grounds of security, convenience and cost. Consumers may think that cash is free but for banks and retailers it is not; it needs to be counted, bundled, transported, cleaned, replaced, checked for forgery, stored and guarded. Around 0.5-1% of GDP a year is spent on managing cash. Moreover, in a new book, “The Curse of Cash”, the economist Kenneth Rogoff argues that cash in the rich world aids tax evasion and other illegal activities, and that monetary policy would be more effective in a cashless world. Yet some Europeans are far more reluctant to abandon paper and copper than others.
In the Benelux and Scandinavian countries, banks were early promoters of electronic payments and made it easier (and cheaper) for customers to use cards. In thinly populated Sweden and Norway, maintaining a large branch and ATM network is costly; Swedbank, Sweden’s largest retail bank, has only eight branches that handle cash. Banks also helped to develop mobile-payment technologies, such as MobilePay in Denmark, an app now used on nine out of ten Danish smartphones.
Yet in Germany and much of the south and east, banks have been less proactive. German banks have been much slower to promote electronic and card payments. In Italy relatively few people have bank cards and those who do use them infrequently (25 transactions per debit card per year, compared with 114 in France). This is partly because Italian merchants dislike cards, as banks have tended to charge high fees. To iron out differences between countries, in December 2015 the European Commission capped interchange fees at 0.2% per debit-card transaction and 0.3% for credit cards.
Scandinavian authorities have helped facilitate card use. In Sweden the installation in cash registers of “blackboxes” that directly send sales data to the tax agency to fight VAT evasion, has helped make cash less attractive. In Denmark paying benefits onto debit cards aided the transition.
Dimitri Roes, the owner of ‘t Vlaams Broodhuys, a Dutch chain of bakeries, says the decision to become cashless was motivated by security and hygiene. “Bakeries are soft targets for robberies. For a few hundred euros you get a knife in you.” Customers also didn’t like staff touching their croissants after handling coins. Some clients angrily threw their coins across the counter when bakers stopped accepting them, but over 90% didn’t care.
Culture plays a role, too. Digitally sophisticated Scandinavians may be comfortable buying groceries on their smartphones but a deep-rooted aversion to being tracked—a scar left by the Stasi—lies behind German distrust. A recent survey by PWC revealed that two in five Germans don’t use mobile payments because of concerns about data security (and nearly nine in ten worry about it). When the German finance ministry recently proposed capping cash payments at 5,000 euros, as in some other countries, Bild, a daily newspaper, organised a reader protest.
Italians were equally enraged when a cap on cash payments over 1,000 euros was introduced in 2011. Matteo Renzi, the prime minister, last year loosened it to 3,000 euros. Mr Rogoff thinks weak governance in countries such as Italy and Greece is largely to blame for high rates of tax evasion and other crime, and consequent hefty holdings of cash. Practices such as paying part of salaries in cash-stuffed envelopes are deeply rooted.
Despite such slower progress, Andreas Pratz of AT Kearney, a consultancy, thinks that once a country reaches 100 point-of-sale card transactions per person per year, people realise they can survive without cash. As the share of transactions made in cash falls, their overall costs increase. Panteia, a research firm, estimates that in the Netherlands the average cost per cash payment grew from 0.22 euros to 0.25 euros between 2009 and 2014 and the cost per pin payment dropped from 0.21 euros to 0.19 euros.
Of course there are downsides to moving away from cash. Installing card machines can be costly. The poor, many of whom lack bank accounts, would need to be included. Concerns about losing anonymity are legitimate. And cash has always been the obvious contingency in case systems break down.
But the advantages of cashless commerce grow ever more apparent. Back in Stockholm, at the Radisson Waterfront hotel, two American seniors bicker over who will fetch “local money” so they can get a taxi. If only they knew that cabbies here prefer cards and only 7% of Taxi Stockholm’s payments are made in cash.