Cash has a long history as a public monopoly – and it is not over yet

Money, payment methods, the banking system and the infrastructure enabling the use of hard cash have undergone multiple transformations in Finland over the past two centuries.

Coins and banknotes are an age-old invention. The oldest coins discovered in Finland are Roman coins dating back a couple of thousand years. In Europe, the first banknotes were issued in Sweden in 1661. Finland got on the bandwagon in 1811 when the Bank of Finland started offering cash money: Russian roubles and Swedish riksdalers. The Finnish markka was introduced in 1860 and used until 2002, when the Bank of Finland joined the Eurosystem and the markka was replaced by the euro.

Until the 1970s, Finns could withdraw cash from bank offices only. After that, cash became also available at ATMs. Cash withdrawals from ATMs outnumbered withdrawals from bank offices in the recession years of the 1990s. Around the same time, shared ATMs were introduced – until then, each banking group’s ATMs had only been available to its customers.

Finland’s record year in cash withdrawals was in 2001, but the number of ATMs had started to decline already in 1995. In recent years, Finnish bank customers’ cash withdrawals from bank offices, ATMs and shops have decreased at a much faster rate than the delivery network.

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At the moment, mobile payments are gaining traction rapidly.
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Over the years, people have paid for their purchases not only with banknotes and coins but also with non-cash payment instruments issued by banks. Cheques were adopted in Finland in the 1920s and remained popular for more than 60 years. Finnish bank cards were launched in the 1970s and replaced by debit cards meeting single euro payments area (SEPA) standards in the early 2000s.

Cash was the most common payment method for daily shopping until 1999, when its popularity started to decline. In 2004, card payments were already more common than cash payments. At the moment, mobile payments are gaining traction rapidly. Bank customers now have access to a wide array of different payment methods that allow them to usethe funds in their account either by making payments or withdrawing cash. 

The majority of cash is withdrawn from ATMs, which serve the customers of Finnish banks and other payment service providers as well as foreigners visiting Finland. Cash is also available at bank offices, but only to that bank’s customers. In some cases, banks can also deliver cash to their customers in other ways.

Some stores allow cash withdrawals at checkout. Since cashback and cash-in-shop are complementary services, the merchant is entitled to determine their terms and conditions. Not all stores offer them, and even those that do can determine the customer groups that can withdraw cash.

Businesses have access to cash services that are offered by cash-in-transit and cash management companies either independently or in collaboration with banks.

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The quantity of banknotes issued in Finland started growing as Finland adopted the euro, but the growth has slowed down in recent years.
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Finnish legislation has few provisions that mention cash, and even then only as an alternative means of payment. When the Finnish Act on Transport Services was amended in 2017, legislators assessed the provision about taxi customers having the right to pay for their fare in cash but did not remove it. Even so, Finland has limited the use of cash to combat the grey economy.

The EU has also restricted cash payments to curb money laundering and other illicit activities. It has, for example, discontinued the issuance of 500‑euro banknotes.

EU legislators are working on a single currency package containing both a legislative proposal on the legal tender of euro cash and a legislative proposal establishing the framework for a possible digital euro. The euro cash proposal aims to ensure that individuals and businesses can continue to access and pay with euro banknotes and coins across the euro area. The proposal aims to set out for the first time in EU legislation what the legal tender of euro cash means, to ensure both the widespread acceptance of cash payments and the sufficient and effective access to cash, and to guarantee that everyone in the euro area is free to choose their preferred payment method.

For central banks, cash is a source of income. Cash holders, such as individual citizens or companies, are not paid any interest on their banknotes and coins, only on money they have in their bank account. Central banks generate revenue from the banknotes they issue by investing the funds received from the issuance of interest-free banknotes into interest-bearing financial assets. The quantity of banknotes issued in Finland started growing as Finland adopted the euro, but the growth has slowed down in recent years.

The Bank of Finland’s operational role in the cash infrastructure has diminished over the years. Over the course of the last three decades, for example, the Bank of Finland has dismantled a dozen regional offices, which has increased the role of cash management and cash-in-transit companies, private cash centres and deposit banks.

At the moment, the Bank of Finland only has one office, which is in Vantaa. The distance between the Vantaa office and Finland’s northernmost ATM in Utsjoki in Lapland is as long as the distance from Berlin to Le Mans through Brussels and Paris. The Vantaa cash centre is located in the metropolitan area where the population density is 188.4 people per square kilometre. In Lapland, the northernmost region of Finland, the population density is just 1.9 people per square kilometre, which means that you are more likely to come across a reindeer than a person. Because Finland is such a sparsely populated country with long distances, cash must also be transported across long distances.

Logistically speaking, Finland is for all intents and purposes an island that can only be reached by sea or air. Finland is also a country with a vast variety of geographic conditions. In the north, polar night dominates half the year and midnight sun the other. The temperature difference between the coldest and warmest places in Finland can reach up to 40 degrees. This places high requirements for technology and logistics. Another challenge is that the Finnish population is ageing and migrating increasingly into growth centres. As a result, services are either being moved or discontinued, which is also changing payments.

Not everyone withdraws or uses cash. Many people want to use digital services, which further reduces the need for physical services. In fact, Finns have been eager to adopt new innovations, especially if they reduce travelling, save time, improve communication or otherwise make life easier.

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Not everyone can or will use digital services.
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In Finland, cash has disappeared or is disappearing also from public services, traffic and parking. If a service is digital, cash payment is not an option. Companies also have the freedom of contract, granting them the right to choose which payment methods they accept.

Not everyone can or even wants to use digital services, but the same applies to physical banking services. The customers who most direly need to use cash are those who are out of reach of many services, including digital and local banking services.

The whole world is not becoming digital. Even Finland’s expansive telecom infrastructure has dead zones, and connections can be lost anywhere because of power cuts or telecommunications outages.

The costs of cash are distributed across all parties handling cash, but the only party to generate income from cash is the central bank. The declining use of cash is pushing up the costs, making it more and more difficult to organise cash services using a market-based approach.

Cash is unlikely to ever fully disappear, but its volume will grow smaller – and its next manifestation may be the digital euro. Cash is a legal tender issued by central banks that everyone can access and use. As such, it will retain its special status in payments.