Sweden’s central bank, the Riksbank, has launched the third phase of its e-krona digital currency project, amid a fresh wave of activity by Nordic fintech disruptors.
With digital payment methods continuing to squeeze out cash in Sweden, fintechs operating in this space are emerging as well-resourced and viable non-bank rivals, better equipped to compete for the customers of traditional high-street banks.
The Riksbank’s phase three module, which is being run in collaboration with strategy and technology consultant Accenture, will pilot-test payment, deposit and transfer capabilities for the digital e-krona. Within this exploratory framework, advanced trials will involve simulated users able to hold e-krona in a digital wallet and conduct standard transactions such as payments, deposits and money withdrawals using a mobile app.
A clear objective for the bank will be to establish whether issuing the e-krona to the general public in electronic form is a realistic and achievable prospect. Although the Riksbank supports continued use of cash in the Swedish economy, it recognises the unstoppable force of digitised payments.
Its long-term strategy is to position the e-krona as a financial tool that could allow the general public future access to its money if Sweden goes cashless.
Accenture has been hired to build a technology platform for the e-krona. Depending on the eventual outcome of the pilot-project, this platform may not end up being used should the project move forward. Although the current phase of the e-krona pilot is set to expire in February 2021, the Riksbank may decide to continue the project up to the end of 2026.
A primary agent of influence for the e-krona project remains the rapid uptake by consumers of digital payment technology in Sweden. The motivating factors behind the e-krona project reflect changing consumer attitudes towards cash and the government’s ambition to transition Sweden to become a cash-free society, partially by March 2023 and entirely by 2030.
The Swedish Retail and Wholesale Council has forecast that 50% of its high-street store members do not plan to accept cash as a method of payment after 2025.
Sweden’s push towards a cashless society is largely business and consumer-driven, aided by the enthusiastic acceptance and adoption of contactless transactions at point-of-sale terminals and the broader use of mobile wallets such as instant payments app Swish.
As with central banks worldwide, the arrival of the digital payments age has caused the Riksbank to question its future role as Sweden’s national agency tasked with the production and distribution of money and credit. At this juncture, the bank views the e-krona as a de facto central bank digital currency (CBDC) that would complement, rather than replace, cash.
A comparable amount of soul-searching and projection is going on at all Western central banks. The main concerns relate to the possible privatisation of money, leading to decentralised currencies, and questions over how digital currencies can be regulated for standards and required to adhere to a clear legal framework.
To this end, the Riksbank has partnered with the Bank for International Settlements and seven other central banks to identify the fundamental principles under which CBDCs should operate and central banks can continue to meet their public policy objectives. The consortium also includes the European Central Bank, the Bank of Canada, the Bank of Japan, the Bank of England, the US Federal Reserve and the Swiss National Bank.
This CBDC collaboration will help the Riksbank define its own mission relating to the development of the e-krona, said Cecilia Skingsley, the bank’s first deputy governor.
“A central bank digital currency can be viewed as a natural development of the central banks’ existing responsibility, given the rapid digitisation of society,” she said. “The central banks in this cooperation share a common view of the core principles that need to guide us regarding CBDCs.”
The digital payments landscape, at a regional level, will also be impacted by the Nordic P27 Project backed by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB, and Swedbank. This pan-Nordic initiative aims to establish the first integrated region for digitised domestic and cross-border payments in multiple currencies by aligning its standards with those of the Single Euro Payments Area.
The P27 offers a new platform that will enable real-time, cross-border payments across the Nordics – a region that accounts for a significant share of Finland’s international trade, said Antti Karhu, tribe lead for payment services at the Helsinki-headquartered OP Financial Group.
“We see real-time payments as the new normal,” said Karhu. “P27 will help make payments in other Nordic currencies faster and smoother. The Nordic economies are well integrated in most areas, but we are somewhat behind when it comes to payments. As a eurozone country, payments between Finland and countries like Germany are very easy and can be settled in real time, whereas payments to Sweden can be quite cumbersome cross-border payments.”
The decline of cash as a means of everyday payment in Sweden is one of the more persuasive arguments put forward by the government for transitioning to digitised payment systems. In 2019, cash represented just 1% of Sweden’s GDP, and the number of cash withdrawals from ATMs in Sweden has been dropping by 10% a year since 2014. By contrast, the use of mobile wallets, payment apps and contactless card transactions continues to increase year on year.
The accelerating shift to digital payment methods has seen a significant jump in the use of the Swish mobile app. The app, which has seven million private and business users in Sweden, is being used for about 50 million transactions a month.
“Swish is easy to use,” said Peter Dahlgren, CEO of niche bank Nordnet. “It has high levels of acceptance and trust, which are important features in the digital payments world.”
Under a technology deal in September, savings and investments customers of Nordnet are now able to transfer money to their accounts in real time using the Swish app.