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Ellen Bagley was thrilled when she made her first sale on a popular second-hand clothing app. But just minutes later, her joy turned to shock when the 20-year-old from Linköping, Sweden, discovered she had been robbed.

Everything seemed normal when Bagley received a direct message on the platform asking her to confirm her personal information to complete the deal. She clicked on the link that launched BankID – the ubiquitous digital authorization system used by almost all Swedish adults.

After receiving a few error messages, she thought something was wrong, but it was already too late. Over 10,000 Swedish Krona ($1,000) had been siphoned from her account and the thieves disappeared into the digital shadows.

“The scammers are so adept at making things look legitimate,” said Bagley, who was born after BankID was founded. “It's not easy” to spot scams.

Although financial crime makes fewer headlines than the rise in gang violence, it has become a growing risk for the country. Beyond its borders, Sweden is an important test case in the fight against cashless crime because it has gone further in eliminating paper money than almost any other country in Europe.

Online fraud and digital crime have increased sharply in Sweden. In 2023, criminals made 1.2 billion krone through scams like the one Bagley fell for, double the amount in 2021. Law enforcement estimates that the size of Sweden's criminal economy could be as much as 2.5% of the country's gross domestic product.

To curb digital crime, Swedish authorities have put pressure on banks to tighten security measures and make it harder for tech-savvy criminals to get in. But it's a delicate balancing act. Going too far could slow the economy. Going too little will undermine trust and harm legitimate companies in the process.

Using complex networks of shell companies and document forgeries to gain access to the Swedish welfare system, sophisticated fraudsters have turned Sweden into a “Silicon Valley for criminal entrepreneurship,” says Daniel Larson, a senior prosecutor for white-collar crime.

While the shock of armed violence has attracted public attention – the country's gun murder rate tripled between 2012 and 2022 – gang violence is rooted in economic crime that must be combated just as aggressively, he added.

“That was a strategic mistake,” Larson said. “This profit-driven crime is the fuel for organized crime and in some cases leads to these conflicts.”

Sweden's move to electronic cash began after a wave of armed robberies in the 1990s. According to a survey by the central bank, in 2022 only 8% of Swedes said they used cash on their last purchase. Together with neighboring Norway, Sweden has the lowest number of ATMs per capita in Europe, according to the IMF.

The proliferation of BankID plays a role in Sweden's vulnerability. The system works like an online signature. When used, it is considered complete and the transaction is executed immediately. It was developed by Sweden's banks to make electronic payments even faster and easier than handing over a stack of banknotes.

Since its launch in 2001, it has become part of everyday Swedish life. On average, the service – which requires a six-digit code, fingerprint or facial scan for authentication – is used by every adult Swede more than twice a day and is required for everything from filing tax returns to paying for bus tickets.

Originally intended as a product for banks to offer their customers, usage exploded in 2005 after the Swedish Tax Agency adopted the technology as an identification method for tax returns, giving it the government's official seal of approval. With the introduction of BankID on mobile phones in 2010, usage increased even further, and public perceptions began to associate cash with crime.

The country's central bank has acknowledged that some of these connotations may have gone too far. “We have to be clear that there are still honest people who use cash,” Riksbank Governor Erik Thedeen told Bloomberg.

BankID is controlled by a consortium of the country's private banks, including Swedbank AB, SEB AB and Svenska Handelsbanken AB. A number of changes have been made to improve security as the government explores the prospect of offering a state-issued digital ID.

“The entire banking sector is working hard to stop fraudsters, but the police, politicians and the telecommunications industry also have to do their part,” said Björn Johansson, head of fraud prevention at Swedbank. Representatives of SEB and Handelsbanken declined to comment.

For Bagley, the fact that BankID is so widely used is part of the problem. “At the end of the day, it's not a real security measure, it's just another step in using a website,” she said. “You don't really think about what the BankID app might tell you when you log in.”

It's not just about consumer fraud. Government agencies have introduced BankID to make it easier to set up legitimate businesses in Sweden, which has also given fraudsters a boost. Some have used shell companies with fake payrolls to launder money. Such schemes allow organised criminals to turn proceeds from fraud and drug trafficking into a means of obtaining bank loans and extorting payments from the welfare system.

“This means that you can make profits through crime and then ultimately receive a state pension based on that income,” said Larson, the Swedish prosecutor. “This is extremely offensive.”

According to Sweden's National Council for Crime Prevention, reported cases of welfare fraud have doubled in the last decade, from just under 9,000 in 2014 to over 23,000 in 2023. As part of its efforts to curb crime, the government this year set up a new agency dedicated exclusively to tracking erroneous welfare payments.

As the scale of the problems grow, banks are introducing measures that allow for additional layers of security, such as requiring approval from a trusted second party for large transfers. But for the most part, these measures are voluntary. Users must choose to set up two-step authorization or delay payments.

“It's a constant search for the right balance between accessibility and security,” said Peter Göransson, senior security adviser at the Swedish Bankers Association. “There will be situations where transfers are slower – and that already happens – but that's the world we live in and I think customers understand that.”

This development has led to calls for banks to bear a greater share of the burden when their customers fall victim to fraud. In the second half of 2023, payment service providers paid only about 10% of the costs, and the country's financial regulator has said that Sweden would do well to follow the example of the UK, where banks are required from October to compensate customers who are tricked into making fraudulent transfers.

Until a similar regulation is introduced in Sweden, the chances of getting money back are slim for users like Bagley. She reported the incident to Sweden's National Board for Consumer Disputes in February and tried to raise awareness of the issue on social media to overcome the feeling of embarrassment at being scammed..

“I've heard from so many others who have told me, 'I've been cheated too and I felt so alone and ashamed,'” she said.

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