The role of cash has been influenced by the pandemic, but also by the role of banking institutions and regulators. Due to changes in social consumption and the move towards card payments, Dutch banks have devised strategies in closing ATMs and physical offices across the country. This has also been triggered by a significant increase in ATM-bombings in the Netherlands, whereby ATMs are common targets of crime. This trend is illustrated in Figure 5, showing a decline in the number of ATMs since 2014, with a very sharp drop as of 2017. In 2020, only 5,297 ATMs remain, which is a 40% decrease from 8,811 in 2014 (MOB, 2011).
In part, the decline in ATMs is due to a unique collaboration between the large Dutch banks ABN AMRO, ING, and Rabobank. In 2017 the three main banks decided to work together to maintain the level of service for customers still wanting to use cash. Together they worked on creating a more efficient and bank-independent network of ATMs, known as Geldmaat in the Netherlands. As of 2019, bank ATMs were replaced by Geldmaat ATMs. These machines are spread more evenly across the Netherlands, making withdrawing and depositing money accessible to all (Geldmaat, 2021). When installing ATMs, Geldmaat looks at the five-kilometer standard and demand, meaning everyone should be able to access an ATM within a five-kilometer radius. If certain locations have a strong demand for cash transactions, an additional ATM can be installed to meet the demand. On the 1st of November 2021, 3813 ATMs remain in the Netherlands, with a coverage ratio of 99,62% (Ministry of Finance, 2021).
The Covid-19 pandemic has only fast-tracked this decline, further reducing the share of cash in transactions. This is illustrated by the results of the European Central Bank (ECB) Impact Survey conducted during the beginning of the pandemic. Respondents cited contamination risk of handling banknotes and government recommendations as leading reasons for reducing cash payments, as well as retailers discouraging the use of cash for safety reasons (European Central Bank, 2020).
Cash, however, does still bring along specific advantages. Regulatory and financial institutions are still implementing regulations and plan to maintain the use of cash (European Central Bank, n.d.), to meet people still favoring cash transactions. The elderly and low-income populations are especially affected by the decline in cash. The Eurozone still emphasizes a strong cash strategy as cash is essential for financial inclusion. Cash allows people to make payments at no cost, allows access to funds for those who are unbanked, and permits those with lower digital skills to keep track of their money due to the physical aspect of cash (European Central Bank, n.d.). The DNB follows this advice and has therefore urged system providers in the Netherlands to ensure the wide availability of physical money. Not to mention, it's a fallback option if internet connections, energy supplies, or other systems fail (Cashmatters, 2021).
The DNB emphasizes that cash must remain accessible, available, and affordable. To quote Olaf Sleijpen, Director of the DNB, “In ten years, we will live in a less-cash society, not a cash-less one ” (DNB, 2021). According to Sleijpen, cash still fulfills three key roles in society. These are:
- Cash serves as a backup for electronic payments,
- Cash as a necessary option for vulnerable people,
- Cash is a public means of payment.
These three points determine the size and cost of the cash infrastructure in the Netherlands, and will likely stay that way for the foreseeable future (DNB, 2021). Additionally, the Dutch parliament and key regulators have made agreements on the accessibility and acceptance of cash with the Dutch National Forum on the Payment System (NFPS). This platform focuses on organizations representing providers and users of payment systems to ensure secure, reliable and accessible payments for everyone (Ministerie van Financien, 2021a).
Alternatives to cash as a payment method
Historically, cash competed against card payments. However, plenty of alternatives are now being created, tested, and introduced into the payment markets. Contactless payments as discussed above are one example, but there are a few more alternatives in the market further accelerating the weakening role of cash in the Dutch market.
Mobile payments
Mobile payments are gaining popularity in the Netherlands and are perceived as a safe and efficient method of payment. Hereby we refer to a financial transaction conducted through a mobile device. In the Netherlands, this can increasingly be done through Apple Pay and Google Pay as well as mobile banking apps. The Dutch also benefit from the iDEAL app, the predominant player in the Netherlands when it comes to payments, responsible for more than 900 million online transactions per year in 2020, 30% more than the year before (iDEAL, 2020). Other players include Payconiq and PayPal, although recently Payconiq announced it will stop operating in the Netherlands for undisclosed reasons.
The Netherlands ranks as one of the highest countries in Europe for online banking use, at 89%. Only its Nordic peers rank higher, as they have also observed a strong transition from cash to digital payments. The European average lies at 60% (Statista, 2021).
Cryptocurrency
Aside from Bitcoin which was introduced in 2009, several other cryptocurrencies have been introduced in the market, contributing to making the payments system more efficient. Cryptocurrency, a digital or virtual currency protected by encryption, makes counterfeiting virtually impossible. Their value is based on the speculative assumption of their scarcity. Crypto distinguishes itself from regular currencies as the currency is not issued by a central authority, making them less vulnerable to government manipulation and regulation.However, it is expected that they will be subject to regulations soon (van der Steenstraten, 2021).
Regulated exchange platforms such as Coinbase and Kraken, which are active within the European Union, have made payments and investments with cryptocurrency more accessible to end consumers. On these platforms, you can buy and hold various cryptos. Additionally, one can obtain a Visa debit card which is funded through the Coinbase crypto wallet, allowing users to easily spend their crypto money worldwide.
The disruption caused by cryptocurrency led to the creation of a new stream within finance, referred to as Decentralized Finance (Defi). Defi providers users with common functionalities traditionally provided by banks. Beside using a Visa debit card to pay with crypto, crypto currencies are also becoming more widely accepted. Besides paying with crypto through Visa debit cards, more and more businesses are open to accepting crypto directly as a means of payment. Figure 8 shows the number of businesses per country accepting cryptocurrencies as payment per 100,000 inhabitants, whereby the Netherlands lies very close to the European average.
The digital euro
Another alternative, which currently is widely discussed in the news, is the development of the digital euro. The ECB has initiated a project into further research of a digital euro. This has been done to keep up with evolving needs whereby we are moving to a more digital payment environment and to provide a more regulated solution to the popular cryptocurrencies. CBDCs help retain the role of public money and are not aimed at eliminating the role of cash. Central banks see plenty of opportunities in implementing CBDCs. The Economistlists, among others, faster and more reliable payments, lowering illicit money activities such as counterfeiting and money laundering, and helping unbanked citizens gain access to the financial system (Economist, 2021). The project is still in its first phases and likely will follow developments of other global central banks who are further in the implementation phase, such as the Bahamian Sand Dollar and or the digital Yuan. The arrival of CBDCs provides citizens with a new payment method in the digital era, further reducing the need for cash.
The future of cash in the Netherlands
The Netherlands has witnessed a transition in the payment landscape, moving towards a digital payment system. This has been accelerated by innovations in the payment market, regulatory changes, as well as the Covid-19 pandemic. At this point, most transactions in the Netherlands are completed via digital payment methods, such as card or mobile. The ease of payment and integration with wearables and smartphones has encouraged consumers to move away from cash. This adoption of the use of wearables as a payment method and high online banking penetration rates well above the European average has seen the Netherlands remain a leader in the transition to a cashless society.
Although financial and regulatory institutions are not planning on banning cash from our society, a steep decline in its use has been observed across markets. Financial inclusion among lower incomes, elderly and unbanked citizens remains a key topic slowing the complete transition to digital. Besides, cash will also continue to play a backup role for this electronic payments shift.
Benefitting the digital transition is the fact that mobile payments and the iDEAL payment system are strongly integrated into Dutch society. All are focused on easing the move to cashless and contactless payments. This does, however, make it harder for new innovative FinTech’s to breakthrough in the market, as consumers are happy with the current payment market. The impact of other innovations such as cryptocurrencies and the digital Euro are still to be observed in years to come.
Sia Partners recognizes the traction cryptocurrencies are creating and is closely monitoring the implementation of new solutions promoting its day-to-day use. At Sia Partners we believe that cash will continue to play an important role in society. However, as new technologies improve and multiply, other means of payment will become more attractive, accessible, and simple to use.
References
- CashMatters, 2021. The Netherlands’ Central Bank and Consumers’ Association have both called on the government to take action on ensuring cash remains fully accessible and usable for the Dutch public. https://www.cashmatters.org/blog/improving-cash-access-in-the-netherlands
- DNB, 2018. How debit card payments overtook cash in the Netherlands. https://www.dnb.nl/media/kx1akmnb/201802_nr_1_-2018-_from_cash_to_cards_how_debit_card_payments_overtook_cash_in_the_netherlands.pdf
- DNB, 2020. Contactless payments on the rise during the COVID-19 pandemic. https://www.dnb.nl/en/actueel/dnb/dnbulletin-2020/contactless-payments-on-the-rise-during-the-covid-19-pandemic/)
- DNB, 2021. The Future of Cash in the Netherlands. https://www.dnb.nl/actueel/algemeen-nieuws/speeches-2021/speech-olaf-sl…
- Dutch Payment Association, 2021. Facts and Figures on the Dutch Payment System in 2020. https://www.betaalvereniging.nl/en/latest-news/facts-figures/
- European Central Bank, 2020. Study on the payment attitudes of consumers in the euro area (SPACE). Study on the payment attitudes of consumers in the euro area (europa.eu)
- European Central Bank. (n.d.). We ensure the availability of euro cash. The Eurosystem cash strategy. https://www.ecb.europa.eu/euro/cash_strategy/html/index.en.html
- Economist, 2021. When central banks issue digital money. https://www.economist.com/special-report/2021/05/06/when-central-banks-issue-digital-money
- Geldmaat, 2021. Ons verhaal. https://www.geldmaat.nl/over-ons/wat-we-doen/
- GlobalData, 2021. Card Payments in the Netherlands to grow by 7.7% in 2021, says GlobalData. https://www.globaldata.com/card-payments-netherlands-grow-7-7-2021-says-globaldata/
- iDEAL, 2020. Online payment method iDEAL is renewed and gets new CEO. https://www.ideal.nl/en/actueel/nieuws/ideal-renewed-new-ceo/
- Maatschappelijk Overleg Betalingsverkeer (MOB), 2021. Bereikbaarheidsmonitor 2021. De bereikbaarheid en toegankelijkheid van betaaldiensten voor consumenten
- Ministry of Finance, 2021. Beantwoording Kamervragen over het bericht 'Soms lang reizen om geld te pinnen'. Answering parliamentary questions about the message 'Sometimes long journeys to withdraw money'.
- Ministry of Finance, 2021a. Introduction File Ministry of Finance.
- Statista, 2021. Online banking penetration in leading European countries. https://www.statista.com/statistics/222286/online-banking-penetration-in-leading-european-countries/
- Statista, 2021a. Share of Near Field Communication (NFC) transactions compared to total debit card transactions in the Netherlands from 3rd quarter 2014 to 1st quarter 2021. https://www.statista.com/statistics/589049/netherlands-share-of-nfc-payments-compared-to-total-debit-card-payments/
- Statista, 2021b. Use of wearable technology for POS payments in Europe by country. https://www.statista.com/statistics/1080078/use-of-wearable-technology-for-pos-payments-in-europe-by-country/
- Van der Steenstraten, 2021. Converting to a Cashless Society. https://www.linkedin.com/pulse/converting-cashless-society-anneloes-van-der-steenstraten/
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