J.P. Morgan Country Insights

THE CHANGING DYNAMIC OF PAYMENTS IN EUROPE

Sweden

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Introduction

Inflation in Sweden in 2017 averaged 1.79%,1 relatively close to the Riksbank target of 2%.2 The Riksbank meanwhile has retained a very accommodative monetary stance, which has contributed to the very strong level of growth in 2017 (2.7% y-o-y).3,4 Monetary policy is set to become less compliant this year, with the interest rate set to gradually come out from negative territory. One concern has been the fall in house prices recently. In Q4 2017, house prices fell by 7% according to Svensk Maklarstatistik.5 Housing investment is contributing strongly to domestic growth, and this driver could disappear if the fall of house prices impacts investment decisions.6 Despite this, consumer spending is ticking upwards, which should support ecommerce sales.7

This information is based on projected figures and is subject to change at any time.

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Source: World Bank, CIA (2016), Global Data, Internet Live Stats 2016

Sweden: At a glance

Population 9.9m

Average age 41.2 years

GDP €0.4trn

B2C eCommerce market value €10.44bn

Internet penetration 93%

Smartphone penetration 70%

Card penetration per capita 2.31(debit & credit)

Sweden: Consumer spending

Trading Economics, Statistics Sweden

SEK

Mill

ions

505,000

500,000

495,000

490,000

485,000

480,000

475,000

470,000Jan

2015July 2015

Jan 2016

July 2016

Jan 2017

July 2017

Jan 2018

A mature ecommerce market that is going from strength to strengthSweden's B2C ecommerce market was worth €10.44bn in 2016.8 This figure is forecast to rise at a compound annual growth rate (CAGR) of 10% over the next three years, with total sales reaching €15.29bn in 2020.9 eCommerce is becoming an increasingly integrated part of everyday life in the Nordics, and this is particularly evident in Sweden, where two-thirds of consumers shop online every month.10

The European average annual online shopping basket is €1,543.68, although Swedes spend more, with an average €1,688 annual spend.11 The maturity of the market bodes well for foreign entrants. In fact, one in three ecommerce shoppers in the country uses foreign stores.12

One area that has very high penetration of ecommerce in Sweden is public transport. This is because coins and banknotes have been prohibited on buses for a number of years,13 in an effort to prevent robberies. In fact, Sweden is one of the most cashless societies in the world, with only around 2% of total payments using coins or notes.14

This Scandinavian nation is also technologically advanced. Over 90% of the population have had internet access for several years in Sweden15 and more than 80% of people use it on a daily basis,16 while smartphone penetration is the highest of all European countries reviewed by J.P. Morgan.17* eCommerce merchants would do well to ensure their products are optimised for mobile. In Sweden, smartphones are increasingly being used as the main gateway to the internet and as an aid to the purchasing process. Some 40% of Swedes say they research products while in physical stores.18

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eCommerce: % of total sales by segment

eCommerce penetration (%)Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via eMarketer & E-commerce Europe, 2016

38%Public Transit (metro/rail/bus)

100%Digital Goods

Card penetration per capita

Metric indicator Total

Credit card per capita (ecommerce enabled)

Debit card per capita (ecommerce enabled)

Total cards per capita (ecommerce enabled)

1.311.00

2.31Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Global Data & Lafferty, 2016

DEBIT

CREDIT

TOTAL

Bank transfers were used for 16% of payments last year.21 One popular system from Nordea is optimised for the online channel and provides next day reconciliation.22 Meanwhile e-wallets (9%) and other methods (5%) made up the rest of the payment split.23

Use of cards in Sweden has been rising quickly in the past few years. Debit cards jumped from 1.16 cards per capita in 2014 to 1.31 in 2016, while credit cards grew during the same period from 0.99 to 1 card per capita.24 In total, card payments accounted for €4.7bn of transactions in 2016.25

A country with a major domestic APM playerThe alternative payment method (APM) sector is partly being driven by the success of home-grown alternative payment option, Klarna. The Swedish company, which is primarily an invoice solution, accounts for around 20% of the payments market in the country.26

58%Online travel agents (OTAs)/ Tour Operators

55%Accommodation/ Hotels

18%Fashion/ Apparel

12%Consumer Electronics

4%Department Stores

3%Grocery/ Supermarkets

4%Mass Merchandise

98%Airlines

Cards take the lion's share of paymentsOverall, Sweden is a nation of card users. In 2016, 45% of payments were made using a card; just 7% were made by cash.19 Like Germany and other parts of Europe, open invoices – where payment is made once products have been received – is also a well-established concept and the second most popular way to pay after cards, accounting for 18% of payments.20

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The rest of the alternative payment market in Sweden is fragmented and small-scale. Players in the space include PayPal, taking 6-8% of the market, bank transfer method Nordea e-betalning (5-7%) and e-wallet Swish (2-4%).27

An increasingly fast payment landscapeAdditionally, Sweden was amongst the 34 countries which officially implemented the Single Euro Payments Area (SEPA) instant payments system in November 2017. However, Sweden has been quite advanced in this area. Instant payments in Swedish Krona have been available for a number of years.28

Payment method split by value (%) Payment method split by value (%)

Bank Transfer

Card Other E Wallet Cash Open Invoice

18%

Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016

16%

45%

5%9% 7%

Penetration of alternative payment methods (%)

6-8%PayPal

5-7%Nordea

Source: J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company

20%Klarna

Card-friendly nation could be a target for criminalsCard-not-present (CNP) fraud has been on an upward trend in Sweden, and increased by over 50% in 2016.29 The high penetration of card usage appears to be making the country a target of criminals and online retailers will have to be increasingly vigilant.

Sweden is a small country by population, accounting for just 1.9% of the population of the EU30 – but as shoppers and embracers of technology, the nation punches above its weight. Home to innovative, flourishing payment providers, Sweden is a nation, which alongside its Nordic neighbours, is expected to enjoy double-digit ecommerce growth in the next three years31 – representing an enticing opportunity for retailers.

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* J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe study includes the following countries: UK, the Netherlands, Germany, France, Italy, Spain, Norway, Denmark, Sweden, Switzerland, Finland

Information contained in this document has been prepared by third parties or obtained from sources whichare believed to be reliable; but neither Chase Paymentech Europe Limited nor any of its affiliates warrantthe completeness or accuracy of the information contained herein. Chase Paymentech Europe Limited andany of its affiliates shall have no liability to the user or to third parties, for the quality, accuracy, timeliness,or for any special, indirect, incidental or consequential damages which may be experienced because ofthe use of or reliance on the data or statements made available herein. Third party trademarks, brandnames, products and services are only referential and Chase Paymentech Europe Limited and its affiliates

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Copyright© 2018

References[1] Inflation. EU, ‘Inflation Sweden 2017.’ Accessed March 2018. [2] Western Europe Economic Research, J.P. Morgan Chase Bank, Dec 2017 – Jan 2018. [3] European Commission, ‘Economic forecast for Sweden.’ Accessed March 2018. [4] Western Europe Economic Research, J.P. Morgan Chase Bank, Dec 2017 – Jan 2018. [5] Xinhua,‘Housing prices continue to fall in Sweden,’ via Svensk Maklarstatistik. Accessed March 2018.[6] Western Europe Economic Research, J.P. Morgan Chase Bank, Dec 2017 – Jan 2018. [7] Trading Economics, ‘Sweden consumer spending.’ Accessed March 2018. [8] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [9] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [10] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via PostNord, 2017. ‘E-commerce in the Nordics 2017.’ Accessed December 2017. [11] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via E-commerce Foundation, Global B2C E-commerce Report 2016, 2016. [12] ecommerce.eu.‘The most visited online stores in Sweden.’ Accessed March 2018. [13] Guardian, June 2016. ‘Sweden leads the race to become cashless society.’ Accessed December 2017. [14] Guardian, June 2016. ‘Sweden leads the race to become cashless society.’ Accessed December 2017. [15] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Internet Live Stats (2016). [16] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via iiS, The Swedes and the Internet 2016, 11 November, 2016. [17] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Global Data, 2016. [18] PostNord, 2017. ‘E-commerce in the Nordics 2017.’ Accessed December 2017. [19] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [20] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [21] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [22] Nordea, ‘Information on Cut-off times.’ Accessed March 2018. [23] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [24] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Global Data & Lafferty, 2016. [25] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData, 2016. [26] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company. [27] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company. [28] European Payments Council, ‘The view of Swedish instant payment players on the SCT Inst scheme.’ Accessed March 2018. [29] FICA, 2016. ‘Evolution of card fraud in Europe.’ Accessed December 2017. [30] Europa.eu (2016). [31] J.P. Morgan Country Insights: The Changing Dynamic of Payments in Europe: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via GlobalData & E-commerce Foundation, 2016.

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