Evolution of Retail Payments in Finland in the 1990s

During the 1990s the availability of location-specific retail payment services in Finland declined substantially, but at the same time there was a surge of development of self-service methods. These new methods, which make use eg of mobile phones and the Internet, dramatically increased the availability of payment services that are not tied to location. More traditional forms of payment still exist; for example, the use of cash remains significant. In Europe there are marked differences between countries with respect to the use of different payment methods. Generally, the use of cashless payment instruments has increased during the last ten years, but it seems that payment patterns are still not converging to similar structures. The development of the Finnish retail payment system has long roots, and several factors – eg the salary bank arrangement of the 1960s and the severe banking crisis of the early 1990s – have influenced the development of the current Finnish payment system. In the retail payments area, new technologies are developing rapidly. The success of new forms of payment (based eg on mobile phones) in gaining general acceptance may depend on changes in the nature of consumption. If customer demand increasingly shifts toward virtual goods and services, the demand for new types of payment methods such as electronic money may increase substantially.

Introduction: The category of payment systems most familiar to ordinary citizens is that of retail payment systems, as virtually all members of society make and receive pay-ments regularly. This paper charts the changes that occurred in Finland in the 1990s in the use and availability of retail payment methods. The purpose is to discuss briefly the characteristics of different payment methods and their accessi-bility to consumers and to evaluate the use of each method. The method is de- scriptive. Overall, in respect of the use of different retail payment methods, the 1990s constituted a decade of major change in Finland. A prevailing trend has been the electronification of retail payment methods. Traditional methods, based on per- sonal over-the-counter service and paper-based information transmission, have been replaced by new methods based on the principles of self-service and elec-tronic forms of transferring data. Interbank payments have been predominantly electronic in Finland since the 1980s. In certain payment methods, notably credit transfers, the scope of means for initiating payments has also widened considera- bly. In a nutshell the development can be described as a gradual replacement of location-specific services by seamless, increasingly mobile services.

Author: Jussi Snellman

Source: Research Discussion Papers, Bank of Finland

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