Electronic payments have made impressive strides in Sweden,
driven in particular by the Bankgirocentralen and PlusGirot payment
services and more recently by the rise in popularity of payment
cards, especially debit cards. Despite this, breaking Sweden’s
fondness for cash remains an uphill battle.
The evolution of electronic payments in Sweden has for most of its
history been dominated by two primary drivers: the oldest,
PlusGirot, founded in 1925 as Postgirot by the Swedish postal
service, and Bankgirocentralen (BGC), a payments service
established by Swedish banks to facilitate credit transfers between
bank accounts. The BGC system primarily handles retail payments and
some large-value payments while Postgirot handles low-value retail
payments and large-value payments. BGC also undertakes certain
clearing services outside the bank giro system.
Highly successful, PlusGirot and BGC have largely displaced cheques
as a means of payment. In 2006, according to Sweden’s central bank,
Sveriges Riksbank (Riksbank), giro-based transfers accounted for a
combined SEK8.484 trillion ($1.325 trillion) in transactions, or 87
percent of the country’s SEK9.762 trillion total. Based on Riksbank
data, BGC held a 67.5 percent share of the value of giro
transactions in 2006.
Transactions via the BGC system can be initiated in numerous ways
including over the counter at a bank branch or via the internet.
Companies and public authorities can also deliver files with
payment information directly to BGC.
BGC is owned by eight banks, six of which are Swedish (Nordea Bank,
Skandinaviska Enskilda Banken, SkandiaBanken, Länsförsäkringar,
Svenska Handelsbanken, Swedbank), one Icelandic (Kaupthing Bank)
and another Danish (Danske Bank).
Nineteen of the 103 banks registered in Sweden are members of the
BGC system. Sweden’s banking sector is highly concentrated and the
six Swedish banks with stakes in BGC account for about 80 percent
of payment activities.
PlusGirot is owned by Nordea Bank, which acquired the payment
service in December 2002 following deregulation of Sweden’s postal
services. PlusGirot is now an internal system for transfers between
accounts in Nordea. Bankgirot’s payment services also enable giro
transactions to PlusGiro numbers in certain cases. It is also
possible via BGC’s payment services to make deposits in personal
accounts at Nordea.
Contrasting with the success of the two giro systems, Riksbank data
reveals, there were only 1 million cheque transactions in 2006,
down from 40 million in 1996. During those ten years, the value of
cheque transactions increased marginally from SEK43 billion to
SEK54 billion. The demise of the cheque in Sweden was also hastened
by the introduction in the early 1990s of high charges for their
use by the banking industry. Cheques are not accepted for POS
Internet banking has proved to be a particularly important platform
for giro payments. More than one-half of all giro transfers are now
internet-based, a level that Riksbank notes is “increasing
rapidly”. According to Riksbank, 80 percent of Swedish households
have access to the internet and the number of internet banking
customers at the end of 2006 stood at 7.21 million, almost double
that of only five years earlier. Riksbank points out that one
person can be a customer of several internet banks. Sweden’s
population stood at 9.142 million in June 2007, according to
The two giros have in recent years faced growing competition from
payment cards, debit cards in particular. According to Riksbank,
the share of giro transfers based on the number of transactions
declined from 50 percent in 2001 (636 million transactions) to 25
percent (487 million transactions) in 2006, while card payments
increased their share from 32 percent (403 million transactions) to
61 percent (1.19 billion). In value terms, cards increased their
share of the electronic payments market from 2.9 percent (SEK261
billion) in 2001 to 4.6 percent (SEK452 billion) in 2006.
Debit cards have been in the forefront of the rise in card use.
Debit card-based transactions rocketed from 88 million valued at
SEK57 billion in 1996 to 994 million valued at SEK358 billion in
2006. There are about 7 million debit cards in issue in Sweden.
There has also been increased uptake of credit cards, but not to
the same extent. Credit card-based transactions increased from 44
million valued at SEK44 billion in 1996 to 195 million valued at
SEK94 billion in 2006.
Growth in the use of cards has been paralleled by growth in the
number of retail points of sale, from 71,400 in 1996 to 182,600 in
2006, a CAGR of almost 10 percent.
Despite growth in card use and availability of increasing numbers
of points of sale, penetration by credit and debit cards in Sweden
is relatively low. For example, in 2005 there were 0.76 debit cards
and 0.4 credit cards in issue per inhabitant. In the UK, by
contrast, the comparable figures were 1.11 debit cards and 1.16
credit cards per inhabitant.
Use of cards in Sweden is also below levels in other Nordic
countries. According to Riksbank, the number of debit and credit
card transactions per inhabitant in 2005 was 117, compared with 123
in Denmark, 128 in Finland and 186 in Norway. In 2006, the number
of credit card transactions per inhabitant increased by 11.1
percent to 130 in Sweden and by 11.3 percent to 207 in
BGC is meeting head-on the challenge posed by a rising use of
cards. Notably, BGC has announced the formation of a strategic
partnership with UK payments processor VocaLink, aimed at meeting
the demands posed by the implementation of the Single Euro Payments
Area in January 2008 and making the Swedish payment market more
efficient and competitive in order to offer less expensive payment
services for banks and other companies.
“Collaboration with VocaLink will allow BGC to offer a strong,
highly competitive range of products,” said BGC’s CEO, Eva Gidlöf.
“We will also be able to efficiently meet the new European Union
requirements and future-proof the Swedish bankgiro system.”
The collaboration will cover the entire BGC system and its payment
products, including its direct debit service, Autogirot.
Development of electronic payments in Sweden is a prime goal of
Riksbank, which faces the challenge of reducing cash payments.
Although no firm statistics are available to determine the precise
figure, the bank said cash still accounts for “a very large share”
of total payment transactions in Sweden.
Riksbank stressed that it is clear that Swedes use more cash than
residents of other Nordic countries. Indicatively, according to
Riksbank the value of currency in circulation in 2006 stood at 3.7
percent of Sweden’s GDP. In Norway the level in 2006 was 2.1
percent of GDP and in Denmark 3 percent. Currency in circulation in
Finland in 2001 (the latest figure) was 1.8 percent.
In a study of the situation, Riksbank noted that the rapid rise in
the use of cards would suggest the use of cash in Sweden has
declined in recent years. In addition, the percentage of cash
payments in formal trade has fallen from just over 75 percent in
the early 1990s to just under 60 percent in the late 1990s, said
Withdrawals from ATMs have also fallen since the value of
transactions at ATMs peaked in 1998 at SEK287 billion. In 2006,
transactions worth 3 percent less (ie, SEK278 billion) were
undertaken at ATMs even though the number of ATMs increased by 13
percent over the eight-year period.
However, despite rising use of cards and falling ATM transactions,
“the trend of falling demand for cash has halted in recent years”,
said Riksbank. A reason, said the bank, could be that cash
withdrawals via retail points of sale have increased. Another part
of the explanation, added the bank, perhaps lies in the fact that
cash is often the most convenient instrument when making payments
between people who meet face to face. Whatever the reason, Riksbank
noted that up to 50 percent of the demand for cash in Sweden could
not be explained.
Extensive use of cash relative to card payments is a burden on
Sweden in terms of social costs to the overall economy, warns
Riksbank in a working paper based on POS payment instruments
released in September 2007. Social costs, for example, include
costs of producing and distributing coins and notes. For Riksbank
this totalled SEK268 million in 2003, or 0.25 percent of the value
of currency in circulation.
The paper’s authors found that cash is the most expensive payment
instrument. The authors estimated the total annual social cost of
cash to be SEK6.56 billion, equal to 6.1 percent of the value of
currency in circulation. Based on an estimated 1.4 billion cash
transactions annually, the social cost was estimated at SEK4.7 per
transaction. Cash is closely followed by credit card payments at
SEK4.5 per transaction. Debit card payments are the least costly,
at SEK3.1 per transaction.
For low-value payments, however, the authors noted that cash is
more cost-efficient than debit cards at an estimated transaction
value below SEK72. The transaction value threshold below which cash
is preferred to credit cards is SEK159.
The authors pointed to the high degree of cross-subsidisation in
the Swedish payments industry. Banks, they said, make a net profit
from card payments (SEK1.39 billion in 2002) almost exactly equal
to their losses on cash transactions.