In the 17^th century, Sweden became the first nation to introduce paper currency in Europe. It didn’t take long before the rest of Europe followed, and now, paper money is the most widely used mode of transaction across Europe and globally. However, the Scandinavian countries have been pushing for a cashless economy over the last decade a situation that has seen most of the region’s retail business done via digital transactions.

To be precise, only 5% of retail transactions are done using cash. A report by Credit-Suisse says that 95% of transactions are done digitally, and for the few that are completed using cash, they are most likely illegal. "If you have to pay in cash, something is wrong,” the report says. This transformation has been taking place over the last 5 years during which, the Eurozone has struggled to recover from the global financial crises. Most banks in the EU are yet to rebalance their balance sheets after they were bailed out following the 2009 financial crises.

However, in the Scandinavian region, many are already back to normal operations with the big four banks in the region experiencing an above average tier-1 capital. Nonetheless, the overall economy of the region remains susceptible to shocks given the current conditions of the Eurozone.  Norway, for instance, has maintained its base interest rate at just 0.50% and recently indicated that it could lower the rate to the negative territory if the overall EU economy continues to show signs of weakness.

Nonetheless, consumer banking loans still attract high rates with only a few banks being able to offer competitive lending rates to consumers. For instance, consumer loans in Norway attract rates ranging from 7.5% to as high as 9% for sums ranging from 5,000 KR-500,000 KR. This indicates that digital transactions do not have any significant positive impact on the economy. As such, the push for a cashless society is by no means going to be easy especially considering all aspects of an economy. It is even going to be harder for a larger economy like the Eurozone.

To illustrate, the Scandinavian region is estimated to have about 15 million people. Now, if you divide this number amongst the four member countries, Norway, Sweden, Finland, and Denmark, the numbers become even smaller, which makes it a little bit easier to manage, as well as, implement crucial fiscal policies such as the one of pushing for a cashless society.

This is why somehow the Scandinavian region has managed to convert 95% of the consumer banking into digital transactions. Basically, what that means is that every retail shop in the region has prioritized on installing credit/debit card readers while those that operate mobile shops carry handheld readers.

As the Credit Suisse report quotes, it is not uncommon to come across placard’s reading “We do not accept cash” in nearly every shop in the region. It is even reported that in Norway, 7-year old kids are allowed to pay with debit cards. In general, children’s pocket money is transferred to their accounts from which they can access using debit cards.

Now, based on the fact that in countries like Norway the economy is still considered to be in a dire state, it is pretty clear that the push for a cashless society does not necessarily help in boosting economic growth. At least, there is no evidence that despite the increased stability in the banking sector in the Scandinavian region that the economy has responded in equal measure.

This means that given the current status of the EU, and following Britain’s recent Brexit vote, the EU is too fragile to introduce certain policies such as the one that looks to implement a cashless society across the board. If anything, it is highly likely that the push for a cashless economy in the EU will be done at an individual country level, after which it could spread out across the member countries.

Conclusion

In summary, the push for a cashless economy does not appear to have had any positive effects on consumer banking in the Scandinavian region.

The case for Norway serves as a perfect example. Given the overall low base interest rates the banks have not yet passed this benefit to consumers simply because despite their capital stability, the current economic conditions still imply that business risk is high, hence the high lending rates.

As for the rest of the EU, it would even be harder trying to implement a blanket push for a cashless economy across the Eurozone given the different economic conditions and fiscal policies for each member country.