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CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company
is strictly prohibited
November 15, 2019
Finance Norway
Cash – an inefficient and
outdated means of
payment
Contents
▪ Cash is outdated, inefficient and bad for your health
▪ What needs to be done to encourage, optimize and replace?
3McKinsey & CompanySOURCE: BIS, central banks; ECB; Euromonitor: RBR; McKinsey Payments Practice, McKinsey Global Payments Map
Cash is outdated: As countries discover alternatives, decrease in cash usage accelerates
Payments markets fall into five clusters based on their cash usage
▪ Cash is 70-80%, but trends in
digitisation suggest these
countries may join
mature markets in a few
years’ time
▪ Cash accounts for >80% of
transactions1. Growth in
volume and value linked
to growth in branch and ATM
networks
▪ Cash is 40-60% of total
transaction volumes; value of
cash in circulation is growing;
over-abundance of ATMs
lowers efficiency
▪ Cash transaction volumes are
resilient, despite growth in
electronic payments; highly
developed branch and ATM
networks suggest importance
of cash to local banks
▪ Technological innovation and
industry action have driven
cash usage below 40%; cash
is a commodity and banks
face challenge to reduce fixed
costs of banks and ATMs
Initial trans-
formation
markets
Emerging
markets
Mature
markets
Mature,
cash-
intensive
markets
Markets
at the
vanguard
“Cash h
eavy”
“Avera
ge c
ash u
sers
”
“Cash a
nd
Mobile
paym
ents
”
CAGR of cash usage (2006-18E)
Slowest reduction Average reduction Fastest reduction
Norway
Denmark
Sweden
UK
Netherlands
Estonia
Finland
Luxembourg
Korea
France
US
Australia
Belgium
Switzerland
Singapore
Hong Kong
Canada
Ireland
Brazil
Germany
Japan
Czech RepublicPortugalLatvia
SloveniaAustriaSpain Chile
Taiwan SlovakiaLithuania Poland
ArgentinaRussia Saudi Arabia
MalaysiaHungary
Turkey
Bulgaria
Romania
Peru
Indonesia
Italy
China
Thailand
India
2018E cash usage proportion
1 As a share of all transactions
-146
30
-2 -10
90
-13
75
-15
85
-12-6
10
-11
50
-90 -8-7
40
35
2
45
55
100-51 -4
95
-3
60
-13
65
70
45
80
15
20
25
Germany
Belgium
Denmark
China
Taiwan
Australia
Chile
Czech Republic
Indonesia
Austria
Hungary
Argentina
Brazil
Norway
Bulgaria
Canada
Colombia
Thailand
EstoniaFrance
Greece
Hong Kong
India
Ireland
Italy
Japan
Korea
Latvia
Finland
Luxembourg
Malaysia
Mexico
Morocco
Netherlands
PeruPhilippines
Poland
Portugal
Romania
Lithuania
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
Turkey
UKUnited States
Russia
4McKinsey & CompanySOURCE: McKinsey Global Payments Map
1 Number of retail transactions made in cash per person per year. Retail transactions include consumer-to-consumer and consumer-to-business transactions.
Cash is outdated: People across the globe complete fewer and fewer cash payments each year
Number of retail cash payment transactions per capita,1 2006-2018E Comments
▪ Clear “inflection points” in
other countries have resulted
from a regulatory
intervention, e.g.:
– Bank of Korea removing
coins from circulation
– Swedish banks launching
Swish in collaboration with
Riksbank
– Vipps launched by DNB in
Norway
▪ The UK has not
demonstrated a clear
inflection point, and cash is
declining at similar rates to
Nordic countries known for
cash-light economies
▪ Further acceleration is
unlikely without active
intervention
CAGR, % (13-18E)
-4%
-9.4%
-25.2%
-6.8%
-3.3%
-17.2%
Bank of Korea announces plan to move
to cashless society by 2020, including
removing all coins from circulation
300
09
450
350
150
250
50
0
100
1311
200
400
15
500
16141008 17 20182006 1207
550
Instant Payments system
(‘Straksclearing’) launches in
Denmark
Swish payments is launched
-16.7%
Vipps launched in Norway
5McKinsey & CompanySOURCE: McKinsey Global Payments Map, Press
1. ACH and RTGS 2. Includes Charge cards 3. Includes Prepaid cards
NOTE: Data for non-cash transactions represents all domestic transactions (consumer, business, and government), triangulated from a number of sources incl. Bank of International Settle-ment, Central Banks, and Retail
Banking Research reports; cash estimates are calculated as a remainder from non-cash payments and average number of transactions per capita
Cash is outdated: Cash use has declined from 27% of transactions
in Norway in 2013 to 10% in 2018, and is forecast to fall to 7% by 2023
Payment transactions in Norway by instrument, million transactions
▪ xx
27
10 7
48
5857
2023
24
59 12
2023F
0
18E2013
0 0
100% = 3,156 3,328 3,484
Cheques
Credit cards2
Transfers1 Cash
Debit cards3
“Use of physical money is incredibly
rare in the Scandinavian nation, with
fewer than 10% of transactions
including cash and this could
completely disappear within the next
decade. In many ways, we are
already becoming a cashless
society”
- Deputy Governor, Norges Bank
(2018)
6McKinsey & Company
v
v
SOURCE: McKinsey Global Payments Map
Norway
319Finland
Denmark
UK
150
Sweden
Netherlands
61
80
327
Luxembourg
Ireland
96
Slovenia
BelgiumPortugalSwitzerland
78
RussiaPoland
Spain
147
Austria
245
Czech RepublicGermanySlovakiaHungaryItalyRomaniaGreece
France
416
76
108
289251
186184
164
353
10398
81
2719
104
Usage of cards – transactions per capita, 2018EShare of cash transactions
67%
37%
10%
Cash is outdated: Significant differences in cashless maturity between European top
economies
-81%
Debit1
Credit2
-55%
1. Includes Prepaid cards 2. Includes Charge cards
7McKinsey & Company
Sorting and
handling
Cash in
transit (CIT)
2-4
(15%)
7-10
(50%)
1-2
(5%)
Unearned
interest
4-7
(30%)
Insurance
7-137-10Total
Cash handling and inventory management
constitutes 5-10% of a bank’s operational
cost base
The challenge is to meet customers’ need for
cash at the lowest possible cost
Challenges:
• Ownership
Costs are typically fragmented across the
organization with no clear owner
• Optimisation
30-50% of banks globally, do not use any
tool to manage inventory instead relying on
experience
• Execution
Inefficient work flow and coordination
between relevant stakeholders e.g.
branches, cash vaults
Major cash cost components1, USD bn Context
SOURCE: McKinsey Global Payments Map, McKinsey Payments Practice
1 Includes bank transfers and direct debits 2 Estimated based on available benchmarks of bank size of 1,000 branches and 1,000 ATMs
Cash is expensive: Cash handling and inventory management is an operational challenge and
estimated annual cost of 5-10% of operational costs
Equivalent to 5-10% bank
operational costs
▪ Cash overstocking or cash out due to gut-based,
decentralized decision making
▪ Lack of visibility of end-to-end cash levels and
misaligned KPIs in managing cash inventory
▪ High cash transportation cost due to lack of
optimization balancing costs
▪ Sub-optimally priced CIT vendor contracts without
assessing cash needs and economics
▪ High insurance costs due to static limits set at
individual ATM/branch level based on historical cash
demand
▪ FTE costs due to inefficient work flow, overstaffing
in branches, cash vaults
Typical challenges
Less relevant
in low interest
situation
Cash is bad for your health !
Contents
▪ Cash is outdated, inefficient and bad for your health
▪ What needs to be done to encourage, optimize and replace?
10McKinsey & CompanySOURCE: “European B2C e-commerce Report 2016” – e-commerce Foundation; company websites; press search; World Bank
Encourage: Well executed digital solutions are enthusiastically accepted by the public
1 2016 figures
2 Based on number stated by players/number of downloads
5.5
2.6
3.4
0.5
3.3
3.0
0.3
1.5
1.9
1.4
1.3
1.0
7.0
4.1
5.6
7.3
60.6
60.6
6.9
45.4
71.9
50.6
50.6
50.6
60.7
63.0
6.8
5.4
78.6
4.9
4.3
3.3
2.7
2.8
2.6
2.0
Leading SolutionFoundingyear
Number of solution users2
2017, millions Number of mobile users, 2017, millions
E-wallet penetration in mobile users, %
Successfully established
2013
2012
2015
2014
2012
2015
2015
2014
2014
ESTIMATES
2011
2013
2017
11McKinsey & Company
Optimize: Further steps will be required to create sustainable situation
Example: The Netherlands
Current situation is not sustainable …
▪ Accessible: coverage will stay at more than 99 percent, with equal or reduced queue lengths
▪ Available: customers from all participating banks will be able to withdraw and deposit at all ATMs
▪ Affordable: cost per transaction reduced to level of other European countries
▪ Secure: geo-optimization allows removal of ATMs at least secure locations
and migration to a single system creates a tighter security loop
▪ Number of cash withdrawals decreases at ~10% per year
▪ Additional investments required in safety
▪ Longer term, keeping cash widely available and accessible while
affordable not feasible anymore for individual banks
▪ Only two relevant players (G4S and SecurCash) remain in cash
distribution market
Accelerated
from ~5%
before
… though pooling temporarily solves the main issues
11
12McKinsey & Company
Optimize: By consolidating resources, banks can save up to 35 percent in ATM costs
Cost after per-bank
optimization1
Combining
bank activities
5-10%
Cost after
nation-wide
optimization
Geographical
optimization
5-10%
65-80%
10-15%Standardization
100%
-20-35%
▪ Remove ATMs with low traffic in
areas adequately covered by other
ATMs
Example measures
▪ Consolidate IT development, fraud
handling, etc.
▪ Increase standardization of
hardware, software, security
infrastructure, etc.
Cost reduction opportunity resulting from creation of a combined network
Indexed, cost before ATM pooling = 100
1. Not including the cost savings from pooling cash counting facilities
Pooling of
resources by ATMs
by banks allows to
maintain and
improve service to
customers, even if
volume reductions
make it unfeasible
for individual banks
to maintain a high-
quality, affordable
network
13McKinsey & Company
Replace: Why Central Bank issued Crypto Currencies could be a game changer
Central Bank Crypto Currency
(CBCC)
As a policy tool
▪ Additional tool for monetary
policy
▪ Disciplining effect on banks
…but what about additional
volatility
For consumers
▪ Direct access to
(safe) central bank
money
▪ Protection of privacy
…but what about
resulting
intransparency?
For Financial Services
industry
▪ Ultimate “stablecoin”
▪ A clear standard
▪ Partially existing
infrastructure
▪ Great opportunity to
replace aging
technology
…but what about unfair
competition?
Central Bank
SOURCE: McKinsey
14McKinsey & Company
Nevertheless, cash won't go away even in tech-savvy countries
as the example of Sweden shows
SOURCE: “Swedish Markets in Transition,” The Route Toward a Cashless Society - The Case of Sweden,”
1 http://www.theguardian.com/world/2014/nov/11/welcome-sweden-electronic-money-not-so-funny
2 http://www.computerweekly.com/news/450280077/Swedens-central-bank-puts-break-on-cash-free-society
Perceived risks when going "cashless"
1 Exclusion
▪ Fear of exclusion of residents who might not have
access to digital methods of payments, especially the
elderly, those in rural areas, homeless, and immigrants
2 Vulnerability
▪ An electronic system is vulnerable to attacks and
hacking, whereas cash is not prone to attacks and
retains its value inherently
3 Privacy
▪ Electronic transactions can be traced, losing the
anonymity and privacy that cash can offer – without
cash as an option, there is growing perception of an
infringement on privacy
4 Fraud
▪ Card payment fraud cases have been steadily
increasing, with 140,000 cases cited in 2014, double the
number from a decade prior1
▪ Though consumers reap benefits from electronic
payments, there is a perception that banks are pushing
the shift from cash to electronic payments to maximize
profits
5
Concentration
of benefits to
banks
Reaction by central bank
▪ Due to governmental and central
bank's support, Sweden was fast
moving towards a cash-lite society
▪ Banks and merchants started
refusing cash and dominance of
cashless payment forms increased
▪ Central bank decided to slowdown
this development as parts of the
population couldn't adapt fast
enough to cash-lite society
[Cashless advances] have been
beneficial, but as with every
change there are certain groups
who experience problems. We
see the supply of cash services
being too small, and that is what
we want to address with this
proposal2
– Björn Segendorf, adviser at
Riksbank’s financial stability
department (March 2016)
CASE EXAMPLE
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