Turnover via mobile payment increased twentyfold during this period. Growth rates for mobile payment services such as Alipay and Tenpay are astonishing.
The Swiss are less progressive when it comes to their payment behaviour: according to estimates, around three quarters of payments were made in cash in 2016, accounting for around half of turnover (2010: 62 per cent). Approximately 45 per cent of turnover was realised using bank cards (2010: 25 per cent), which equates to around a quarter of all transactions. Only 0.2 per cent of all transactions in 2016 were executed via smartphone. No data is available on the number of transactions for earlier years.
In contrast to developments in China, cash remains the most popular payment method in Switzerland, even though the use of cash has declined steadily here too in recent years, albeit less markedly than in China. It is true that the backdrop in China and Switzerland is very different. For instance, in China the majority of the population do not have access to banking services, and the money card and credit card system exhibits certain weaknesses. Nevertheless, the question arises as to whether a cashless society will (soon) become reality in Switzerland.
The function of cash
To answer this question, it is important to recognise the function of cash. Firstly, it serves as a generally accepted means of payment in a geographically restricted currency zone. Secondly – and in connection with this – it is used as a systemic unit of account thanks to easy divisibility. Thirdly, it fulfils the function of a store of value.
Innovative payment methods – including cash in a historical context – arise for the purpose of transferring value in a simple fashion. In each case, the payment methods that become established are those that significantly increase the efficiency of the economic transaction and reduce transaction costs. In addition, ease of use or handling and the added value of a payment method play a major role in whether it is adopted in the first instance and actually employed in the second.
Above all, cash serves as a store of value because it or the underlying currency – the franc – retains its value comparatively well in the long term. In other words, it offers stable purchasing power. Moreover, cash is extremely easy to store and transport. Notes with a high nominal value in particular enable large amounts to be conveniently stockpiled and moved around.
Future significance of cash
Consequently, it can be stated that the significance of cash as a payment method in Switzerland will decline further, but it will not vanish completely because of certain unique characteristics. Innovative payment methods will continue to replace cash due to higher efficiency, lower transaction costs and increased added value. In addition, changing consumer behaviour and increasing consumption within the virtual environment will inevitably lead to a proportional fall in the use of cash. However, the relevance of cash as a store of value remains high and will increase (further) in times of negative interest rates, corrupt and authoritarian governments, ailing banks and systems, as well as criminal machinations.
For the reasons cited above, a cashless society in Switzerland remains some distance away. That said, it could become reality directly were extremely restrictive legal conditions to be introduced. In other words, if cash were to be declared worthless or a total ban on general cash acceptance and use were to apply. In the longer term, the restriction of cash production, acceptance and issuing could also lead to a “cashless society”. Politically speaking however, such projects could not currently command a majority or be implemented.
Afterword: The Executive School of the University of St. Gallen in partnership with Zurich University of Applied Sciences has for the first time evaluated the payment habits of the Swiss population by means of a diary study. Detailed results will be published in spring 2018.
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About the author
Dr. Tobias Trütsch Managing Director Center for Financial Services Innovation
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