Finns have grasped innovative electronic payment technology with
enthusiasm, enabling Finland to today boast the highest per capita
use of electronic payments in the European Union. Mobile payments
now appear set to provide further momentum in the drive towards
creating a cashless society.
If countries ever attain the status of cash-free societies, the
chances that Finland will be among the first must be high. In
Finland the fundamental requirements for this to occur are very
much in place: a small (5.24 million), highly educated, tech-savvy
population, per capita income among the highest in Western Europe
and a banking system that has long actively promoted electronic
payments.
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The governor of Finland’s central bank, the Bank of Finland
(BoF), Erkki Liikanen provided valuable insight into development of
electronic payments in the country when he addressed the European
Parliamentary Financial Services Forum in Brussels on 1 April this
year. Of particular note he pointed to the role he believes
climatic factors play in the adoption of non-cash payment
options.“A colder climate seems to promote the use of cards and
other cashless instruments, as internationally, low cash usage is
found in Nordic countries, ranging from about 28 percent in Norway,
32 percent in Finland to about 37 percent in Sweden,” said
Liikanen.
“Surveys in Belgium and Holland report cash purchases ranging
between 40 percent to 50 percent of value, while southern countries
show levels between 60 percent and 80 percent or even higher,” he
continued.
Adding credence to his climate-based hypothesis, Liikanen noted
that anecdotal and survey evidence indicates that Iceland is the
most cashless society measured in terms of purchase value in shops.
“Only about 9 percent of the turnover is paid by cash. In Iceland
debit and credit cards are the main payment instruments at points
of sale,” he said.
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By GlobalDataAccording to United Nations body the World Meteorological
Organisation, mean daily maximum temperatures in Iceland’s capital
Reykjavik range from a low of 1.9 degrees centigrade in January to
a high of 13.3 degrees centigrade in July. This compares with mean
daily maximum temperatures in Amsterdam, Holland, that range from a
low of a low of 7.2 degrees centigrade in January to a high of 22.3
degrees centigrade in July. Moving further south, mean daily
maximum temperatures in Madrid, Spain range from a low of 5.4
degrees centigrade in January to a high of 31.2 degrees centigrade
in August.
Among the EU-15 (the 15 countries making up the European Union
until 2004) Finland stands out as being the most enthusiastic
adopter of electronic payments. According to data from the BoF and
the European Central Bank (ECB), Finland ranks first among the
EU-15 in terms of the number of electronic payments per inhabitant
– 290 in 2006 versus an average of 193 in the top ten
countries.
Credit transfers, or giro, are the dominant means of making
payments in Finland and in 2006 accounted for 97.8 percent of total
transfers of €4.474 trillion ($2.8 trillion). Though paper forms
for initiating credit transfers still exist, Finnish banks have
made a concerted effort to make their use unattractive by, the BoF
noted in a study, “applying a pricing policy that comes close to
full-cost pricing”.
This pricing strategy has yielded its intended goal. In 2006,
according to the BoF, electronic submission methods accounted for
96 percent of credit transfer orders compared with 92 percent in
2005. In the EU, only the Netherlands boasts a similar level of
electronic credit transfer orders.
Also of note is a slump in the use of cheques. Though never a
big factor in Finland, the number of cheques used fell from 1.2
million in 2000 to 600,000 in 2006 and the value of cheque payments
from €126 billion to a mere €28 billion.
The other key goal of the BoF is the reduction, if not
elimination, in the use of cash by consumers in their daily
transactions. “Card payments are the most important instrument to
replace the use of cash,” observed Liikanen in his speech.
“We can see a correlation between ATM withdrawals and card
payments,” he continued. “When the number of card payments per
inhabitant increases to over 70 annual card transactions per
person, the number the number of ATM transactions starts to
decrease. Several [EU] countries below this card usage level still
show increasing ATM usage, when customers move from branch teller
withdrawals to ATM withdrawals.”
Liikanen’s observations are supported by developments in
Finland. Between 2000 and 2006 data from the ECB reflects the
number of card payments in Finland rising from 318 million to 809
million, a CAGR of 16.8 percent. During the period the value of
card transactions increased from €16.2 billion to €28.1 billion, a
CAGR of 9.6 percent. Strong growth in the use of cards has resulted
in Finland rising to top position in the EU-15 in terms of card
usage – 154 card transactions per inhabitant in 2006 compared with
an average of 100 in the top ten EU-15 countries.
Indicating a parallel, strong move away from the use of cash
between 2000 and 2006, ECB data reflects that the number of cash
withdrawals from Finnish ATMs fell from 244 million to 197 million
while the total value of withdrawals fell from €168 billion to €166
billion.
In the wake of declining use the number of ATMs in use was
reduced from 4,552 in 2000 to 3,279 in 2006, lowering the number of
ATMs per million inhabitants from 879 to 623. Although the BoF
attributes this fall in part to consolidation of Finland’s ATM
networks into one network called Otto, the average number of ATMs
per million inhabitants is now below the EU average of 810 per
million inhabitants. Contrasting with the decline in the number of
ATMs the number the number of electronic funds transfer POS devices
increased from 67,000 in 2000 to 105,000 in 2006.
Growth in card use in Finland is being driven by debit cards.
Between 2000 and 2006 the number of debit cards rose from 3 million
to 4.95 million while the value of debit card transactions
increased from €10.3 billion to €22.5 billion, a CAGR of 13.9
percent. The Visa Electron is the most widely used debit card.
Growth in the use of credit cards was comparatively sluggish
despite the number in issue rising from 1.83 million in 2000 to
3.63 million in 2006. Total credit card transactions increased from
€3.7 billion to €5.6 billion, a CAGR of 7.1 percent. “Credit cards,
credit/loyalty cards issued by merchants and credit accounts are of
marginal importance in payments for daily purchases,” noted a
recent BoF study.
However, the increase in the value of both debit and credit card
transactions was significant in real terms, with the value of debit
and credit card transactions increasing by a total of 118.4 percent
and 51.4 percent, respectively, between 2000 and 2006. During this
period BoF data reveals that pricesincreased by a total of 8.5
percent and the GDP by 18 percent.
Adopter of new technology
In a late-2007 study by Harry Leinonen, adviser to the FoB’s board
on financial markets and statistics, the success being achieved by
Finland in its drive to become a cashless society is clear. “Finns
consume an average of €310 per week per capita, which means cash
payments account for approximately 20 percent and card payments
[primarily debit cards] approximately 37 percent of total
consumption,” wrote Leinonen. The remaining 43 percent is divided
mainly between credit transfers and direct debits, the proportion
of credit transfers being by far the most significant, he
added.
A major factor in Finland’s adoption of electronic payments has
been its status as an early adopter of new technology, including
telephone banking in 1982 and internet banking in 1996. It is the
latter that has become the firm favourite among consumers and
businesses.
This was highlighted by a study conducted by the EU’s
statistical service, Eurostat, of European internet usage in the 27
EU countries by individuals aged 17 to 74 in 2007. The study
revealed that Finland ranked highest, with 84 percent of people in
this age group making use of internet banking. This was up from 81
percent in 2006. Finland was followed by Estonia (83 percent),
Netherlands (77 percent), Sweden (71 percent) and Denmark (70
percent).
According to the BoF the most popular online service provided by
banks is bill payment with 66 percent of internet banking users
ranking it as the most used service. The use of online bill
payments services has been greatly encouraged by Finvoice, a common
format electronic bill presentation service developed by Finland’s
banking industry. Finland’s three biggest banks, Merita, Leonia and
Pohjola Bank (formerly OKO Bank), dominate the internet banking
market.
Adoption of online retail commerce in Finland has also been
strong with 48 percent of Finns in the 17 to 74 age group shopping
online in 2007, according to Eurostat. This was, however, behind
Denmark (55 percent), Netherlands (55 percent), Sweden (53 percent)
and Germany (52 percent).
Enter mobile payments
Despite the progress made towards becoming a cashless society, the
BoF believes much more can be achieved. Given that Finland is home
to the world’s largest manufacturer of mobile communications
devices, Nokia, it is perhaps not surprising that significant
attention is being devoted by the BoF to the future role of mobile
payments.
The use of mobile devices in Finland as a payments platform is
not new, with the country’s first mobile banking service introduced
in 1992. Banking via mobile internet-enabling wireless application
protocol followed in 1999 and between 2002 and 2004 around a dozen
mobile payment solutions aimed at consumers were piloted and
launched in Finland. According to the FoB by 2006 most had been
discontinued, though some were still offered, though not
actively.
However, with global interest in the use of mobile phones for
banking and commerce and contactless payments on a steeply
ascending trajectory, Finland’s next foray into mobile payments
appears to have a significant chance of achieving success. A
positive sign is the use of mobile devices for bill payments.
According to Finland’s statistics bureau Statistics Finland, 8
percent of all Finns aged between 18 and 74 used mobile devices for
bill payments in 2007. The highest usage, 12 percent, was by the
age group 18 to 29.
Expressing his optimism that mobile payments will become a
significant feature of the Finnish payments market, Liikanen said
in his speech: “I am convinced that recent developments in ICT in
general and in mobile technology in particular have provided a
solid platform for building a new generation of payment
technology.”
Underscoring Liikanen’s view, Leinonen wrote: “How did we manage
before the internet and the mobile phone? In some 10 years we will
probably wonder how we could have ever managed without the
electronic invoice and mobile payments.”
