All market transactions have two sides. There is the side where the buyer and seller exchange a product or service. The other side consists of an exchange of money when the buyer pays the seller for the product or service. The exchange of goods for money can take place simultaneously or at different points in time.
All payments essentially entail a transfer of money between two parties: a payer and a payee. The way in which this transfer is made is determined by the instrument of payment used and the channel through which the parties choose to make the payment. For cash payments the payment is finalised at the actual time of payment, when the instrument of payment, that is to say, banknotes and coins, is exchanged. No intermediaries are required here. Giro transfers, money transfers, card payments, cheques and bank money orders are all examples of instruments that initiate the transfer of funds between two accounts held by one or more intermediaries, usually banks. They are all therefore said to be account-based instruments. Such instruments can often be used in different channels. The payment channel indicates the route chosen to send the information about the transaction. A bank card, for instance, can be used for payments over the counter in the shop, on the Internet or by telephone.
The major difference between cash payments and account-based payments is that the latter require intermediaries. Thus, an account-based payment is not finalised at the time of payment.
Cash is primarily used in transactions involving small amounts, where the seller and buyer meet directly. Cash payments still account for a large proportion of the number of transactions, although this proportion has decreased in recent years in favour of the use of cards and electronic payments. There are no general statistics for the use of cash. However, estimating the volume of banknotes and coins in circulation in relation to gross domestic product can provide an indication. According to this measure, the use of cash has declined in Sweden. The value of banknotes and coins as a percentage of GDP has been more than halved since 1950, from ten per cent to four per cent. This reflects the emergence of alternative payment instruments, particularly card payments.
Internationally, countries are often described as either giro-based or cheque-based. Sweden, like the other Nordic countries, has a largely giro-based payment system. In 2003 credit transfers and direct debits accounted for 95 per cent of the total value of transactions and for 42 per cent of the number of transactions. In value terms, credit transfers gained a stronger position during the 1990s. However, their percentage of the number of transactions has declined during this period. The explanation for this is the sixfold increase in the number of card transactions. Cards now account for 58 per cent of the total number of transactions. The use of cheques has gradually declined and is currently negligible. The diagram below shows how the use of cash-based payment instruments has grown in Sweden in recent years.
Source: The Riksbank. Note: The decline in the total number of giro transfers since 2002 is explained by the fact that the giro transfers arising between two postal giro accounts are no longer included in the statistics.
A more detailed description of the different payment instruments can be found in "The Swedish Financial Market", see the link below. A more in-depth analysis of the use of cash in the Swedish economy can be found in an article in Sveriges Riksbank Economic Review, 2001, number 4, see link below. An analysis of card payments in Sweden can be found in Sveriges Riksbank Economic Review, 2003, number 2, see the link below.
Swedish banks'costs and fees for different payment services are studied in the paper "Do prices reflect costs? A study of the price- and cost structure of retail payment services in the Swedish banking sector 2002", Sveriges Riksbank Working Paper Series, No. 172, see link below.