Many countries have joined the rush to go cashless by promoting wider adoption of digital payments and legalizing cryptocurrencies. Still, it’s European countries like Sweden that continue to be the models for cashless societies.

The Riksbank, Sweden’s central bank, predicts that cash transactions will just be a mere 0.5 percent of all transactions by 2020. Most of Sweden’s banks don’t carry cash anymore. Even street vendors and churches accept cards for payment.

Contributing to this is Sweden’s payments sector that provides services for retail. Sweden’s fintech scene is considered a major global player, having produced unicorns such as point-of-sale (POS) service iZettle and e-commerce payments processor Klarna. Just recently, private equity firm Permira bought a 10 percent stake in Klarna. Also on the rise is payments platform Trustly, which reached € 3.5 billion in processed payments last year. Its banks even have the Swish app for peer-to-peer payments.

These services ensure that cashless retail and day-to-day commerce is possible. Here are some reasons why these companies are achieving success in retail payments.

Strong digital adoption

One of the reasons why Swedish people are comfortable with digital payments is their positive attitude towards digital transactions in general. The government made significant investments in providing electronic government services so that the move made digital transactions part of their way of life. Retail transactions are treated as routine, especially since the market is already quite at ease performing critical government transactions online.

According to the UN, more than 80 percent of Swedish citizens use e-government services. Sweden ranks among the top 10 countries in e-government development. In addition, 94 percent of its population is connected to the internet. This high rate of connectivity allows practically everyone to use digital services.

Cooperation not competition

Among the challenges of fintech in other countries is the competitive stance of traditional institutions such as banks against fintech startups. They can stymie growth by limiting access and integration to their systems. This isn’t the case for Sweden’s banks and fintechs. Both have found ways to collaborate.

For example, Trustly, which enables merchants to accept payments directly from customers’ bank accounts, continues to make banks relevant by putting the bank account at the core of its service.

In an interview, Trustly CEO Oscar Berglund shares, “We aren’t really going head to head against big banks. We see the bank account as the hub of people’s financial lives, and it’s what most other payment methods depend on. Trustly’s service is built around the relevance of the bank account and as such around the relevance of banks.”

Supporting preferred methods                         

Support for bank transfers payments are essential for markets like Sweden. People receive their salaries direct to their accounts so it is convenient. By servicing this need area, Trustly was able to not only serve the domestic market but markets with similar preferences as well. Other neighboring European countries share the same preferences which allowed Trustly to expand to these territories.

Businesses also had to cope with the rising demand for card payments. Previously, businesses had to avail of banks’ costly merchant services to be able to process card payments. iZettle lowered the barriers for brick and mortar merchants to support cards through its POS solutions. The service includes card reader hardware that supports even the new frictionless cards.

Focus on user experience

The collaboration with banks also allows Sweden’s fintech companies to focus on what matters – providing superior customer experience. Banks continue to provide the “backend” to handle issues like clearing. Since fintech companies need not worry about this, they can focus on the “front end” through interfaces that make payments easy for both merchant and consumers.

Speedy and secure interfaces allow customers to check out quickly and with confidence. Fintech services also aim to streamline and automate administrative concerns for merchants such as reconciliation, reports, and crediting. This allows businesses to focus more on serving their customers.

Favorable environment

Ultimately, Sweden provides a favorable environment for innovation in digital services. Its own government is also leading the world in trying out emerging technologies. Sweden is currently testing out the use of blockchain to handle land registry.

The country’s investors are also supportive of its own fintech scene. The Stockholm Fintech Hub – a physical space that houses co-working spaces and conference center – opened earlier this year. Its continued inclusion to the European Union also helps. The new Revised Payment Services Directive (PSD2) is set to take effect next year which enables consumers to allow third-party services to directly access their accounts. Payments are expected to be made quicker and easier.

As companies continue to enjoy a strong domestic and regional market and a favorable environment, Sweden’s fintech companies could expect to continue dominating the retail payments industry.

Pini Raviv

Pini is a software engineer and front-end team leader for an Israel-based startup. When he’s not coding, this Bitcoin aficionado spends his time researching altcoins, mining Ethrereum and blogging about blockchain.