Will the UK follow Scandinavia in becoming nearly cashless?

As the number of digital payment solutions available to consumers continues to increase, customers across the globe are increasingly choosing to forego cash. Indeed, data would suggest that the UK is following trends in Scandinavian countries, as it moves towards becoming a ‘cashless nation’.

Mapa has observed

  • In 2015, electronic payment methods accounted for a larger proportion of total payments than cash payments in the UK for the first time. This has sparked speculation that the UK is on the way to becoming a cashless nation.
  • However, the UK is still a long way behind the nations of Scandinavia, which are the global leaders for digital payments.
  • This significant increase in the uptake of digital payments across Europe reflects the fact that consumers increasingly see digital payments as more convenient and more secure than traditional payment methods.

The proportion of total payments accounted for by cash has decreased significantly over the past twelve months, as uptake of digital payment options has been facilitated by innovation and supportive regulation. According to Payments UK, cash accounted for less than half (48%) of all payments for the first time in 2015, though this is still some way behind the most advanced cashless nations.

Global communities with the highest adoption levels

The Scandinavian nations (Denmark, Norway and Sweden) are the closest to becoming cashless. According to the Norwegian Central Bank, more than 94% of the payments in Scandinavia are made digitally. This dominance of digital payments is, in part, attributable to the success of the mobile payment solutions MobilePay, in Denmark, and Swish, in Sweden.

MobilePay is a service provided by Danske Bank and is used by nearly 40% of the Danish according to the Danish Banking Association. Users can use the app to make in-store, online and in-app purchases, as well as send instant peer-to-peer money transfers. Swish, the Swedish equivalent, has similar features and is used by around 3 million people, roughly one third of the Swedish population.

Swish payment journey - send money to mobile contacts

Swish payment journey. The customer adds the recipient’s mobile number and the amount of SEK they wish to send. The transaction is then authorised by using BankID.

Adoption rates have been higher in these Scandinavian nations for a number of demographic and social reasons. Smartphone ownership is high due to the burgeoning middle class population. This large consumer group provides a superb opportunity for those targeting the digital consumer, as there is a sizeable number of people who are financially able to access digital and mobile products and services. These factors have ensured that the popularity of digital payment methods in both Denmark and Sweden is such that these nations are set to become the first cashless societies in the world. Indeed, the governments are already taking steps to facilitate this shift.

In 2015, the Danish Government proposed lifting an obligation placed on certain retailers to accept cash payments. The Swedish government, meanwhile, has started providing welfare payments on prepaid debit cards to ensure that elderly and less-well-off members of society are not left behind.

For consumers this shift means faster, more convenient and more secure payments. For businesses, it means reduced payment processing costs and increased transparency of the payment process, which can have benefits for the level of trust placed in payment providers by consumers.

Barriers to uptake

The example of Scandinavia is still, however, fairly unique, with most other nations having far lower levels of digital payment adoption. This is because a number of barriers to adoption exist. One significant barrier is infrastructure. New payment terminals capable of accepting contactless payments, for example, are costly and time-consuming for vendors to install. These costs can seem too high to retailers, unless the benefits of accepting the new technology – improved consumer experiences that lead to higher sales and indeed revenue – are made clear.

Another major barrier is customer concern regarding security. UK customers, for instance, have long been accustomed to chip-and-pin providing an additional layer of security when making a card purchase. Payments without this additional layer thus feel automatically less secure, which can make customers less willing to use them. Developments in biometrics, and ensuring customers understand how the technologies work, can help to lessen these concerns.

The good news is that, once the initial reticence of going cashless has been overcome, customers become far more open to trying new payment methods.  In the UK, adoption of contactless cards was slow but once customers saw the benefits, for example the speed of payments, the adoption rate picked up considerably. In the first half of 2015, £2.5 billion was spent on contactless cards and devices, compared to £2.32 billion for the whole of 2014, according to data from the UK Cards Association. Now that customers have become comfortable with the concept they are moving from contactless cards to wearable payment devices such as the Apple Pay functionality on the Apple Watch. This significantly lessens the likelihood of fraud and therefore helps customers to feel more confident in the technology.

Developments and disruption on the way

The development of new payment options is likely to accelerate over the next few years. Open API systems, for example, allow developers to build on existing banking technology to launch new payment apps on the internet or on mobile, relatively quickly and easily. With an increasing number of tech companies operating in the payments space and looking to make use of such IT-based collaboration, the speed of development is likely to increase considerably.

Increasing numbers of FinTechs and challengers outside of the financial services sector are competing with the incumbents to provide customers with convenient and secure payment options. For example, Starbucks has launched an in-app payment system that allows customers to pay using card or loyalty points. This is forcing the incumbents to find ways of fighting back. However, as the rate of adoption of digital payments accelerates, and cash payments decrease, there may come a point where the banking giants of old are forced to admit defeat. This is likely to happen sooner rather than later if cryptocurrencies, which very few conventional retail banks are currently investing in, become more popular amongst retail customers.

Mapa thinks…

  • We will undoubtedly continue to see a rise in the adoption of digital payment systems, in the UK and across the world – particularly where access to smartphones and wearables is highest
  • A cashless world is still a while away, but the new payment options are making it increasingly attractive and convenient for both retailers and consumers to forego cash
  • Cryptocurrencies, open APIs and innovation amongst challengers (including non-banks) are going to pose the biggest threat to incumbents hoping to capitalise on the rise in digital payments

Mapa Research is the market authority in online banking. We have been immersed in online banking since its inception and have tracked every innovation and evolution since then, providing our clients with unparalleled perspective and context. If you would like to know how your bank is doing against the disruptors or for more information on our Insight Series reports and Dashboards, please contact us today.

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