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Nordic banks plan major digital transformation of operations

Banks in the Nordic region are set to accelerate their spending on technology as digital services take-up accelerates

Banks in the Nordic region will invest heavily in technology to reduce operational costs as previous investments in digital services start to deliver. This includes artificial intelligence (AI) technology automating services that previously required manual work.

Consolidation in Nordic banking was a hot topic in the 1990s. Back then, strategic cross-border mergers transformed the financial markets landscape in the region.

Leading bank groups in each country sought to grow from being big players in relatively small domestic ponds into pan-Nordic banks with much greater size and reach.

The impetus on the part of Nordic banks to pursue growth through cross-border mergers and acquisitions ignited alongside the gradual liberalisation of banking laws. The resultant increase in open-market competition materialised both at a national level and in the European Union.

The advance of banking liberalisation reduced previous restrictions on marketing, product development and continual technological innovation.

More fundamentally, liberalisation meant Nordic banks had to battle a much higher degree of competition from abroad. Against this backdrop, consolidation gained more favour. Bank chiefs viewed consolidation as a critical component to the enlargement of customer bases, and ultimately improved prospects for survival in the changing banking landscape of increased deregulation.   

The Nordic bank sector consolidation process culminated in 2001, when Nordbanken (Sweden), Unibank (Denmark), Kreditkassen (Norway) and Merita (Finland) – all major players in their home markets – merged to create Nordea. Rationalisation of this gravity had only previously been the domain of domestic consolidation.

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For banks like Nordea, Danske Bank, SEB, Handelsbanken and DNB, the innovative Nordic region has become an ideal platform to enhance their digital reach regionally, both in Europe and globally.

Nordic banks are expected to invest billions of Euros to digitise and further automate their retail and corporate banking platforms by 2025. The investment incorporates a whole range of associated costs.

Linked spending includes digital and artificial intelligence (AI) technology acquisition, integration, personnel training and the development of new next generation digitised financial products and AI-supported customer services. Additional costs will emerge as banks streamline restructure.

Digitisation and group-wide streamlining within Nordic banks has already resulted in the centralisation of core functions and the large-scale closure of high street branches across the Nordic region.  

The digital transformation of Nordea will re-shape its group organisation by 2022. The bank will, over the next four years, lay-off 4,000 staff and 2,000 consultants. The focus for Nordea’s recent technology-led investments have seen the roll-out of its Net-bank solution Nordea Digital Corporate and Nordea Connect, a new payment service provider solution launched in Sweden.

“More services containing robotics and AI, in combination with new ways of organising work, leads to a need for fewer employees. We will see a transformation of Nordea. Since investments are starting to deliver, it’s time to enter the next phase to structurally lower  costs and increase efficiency,” said Casper von Koskull, Nordea’s CEO.

Investments in robotics technology will be another key area of focus for Nordic banks. Increasingly, routine manual tasks performed by humans, such as monthly reports compiled from a variety of sources, are being re-tasked and performed by software robots.

Future investment

A large percentage of the future projected investment by Nordic banks on digital/AI will be used to develop services, capacity and expertise in the areas of mobile payment apps and AI-based automated customer service platforms.

Nordic bank chiefs regard the unprecedented scale of future capital investments in new digital and AI technologies as unavoidable.    

“New technology and new actors, as well as changing regulations and customer behaviours, are redrawing the map regarding who can offer bank services as well as what services banks can offer and how,” said Marcus Wallenberg, SEB’s chairman.

Traditional full-service Nordic banks, like their European counterparts, know only too well that they under-estimate the pace and challenge posed by the rapidly-changing financial services landscape at their peril.

The traditional banks will increasingly encounter competition from disruptor fintech companies, like Google and Apple, as well as many less well known challengers. These newly arrived financial services actors continue to develop user-friendly solutions for specific financial services.

Traditional Nordic banks have already learned valuable lessons from the PayPal platform’s capacity to leverage technology in order to disrupt traditional financial services.

Well-schooled Nordic banks are forming strategic partnerships with the financial services market’s new actors. The sweep of new and future collaborations will likely result in banks jointly creating services and developing offerings.

Collaborating with other companies

SEB partnered with Samsung in the recent launch of Samsung Pay in Sweden. The bank was also a cooperation partner in the launch of the Fitbit payment service in Sweden, Norway, Denmark and Finland.

Nordea also partnered Samsung in the roll-out of the Samsung Pay mobile payment solution in Sweden. It collaborated with Apple in the launch of Apple Pay. In March, Nordea launched a contactless payment solution through Fitbit and Garmin wearable devices. The new service forms part of the improved Nordea Wallet offering in the secure mobile payments domain.

Collaboration between Nordic banks and the new actors is also set to into blockchain technology and AI as banks verify and process transactions in real time.

Nordic banks will scale-up digitisation in the banking engine to automate internal processes and reduce administrative work.

Banks are also hiring in specialist IT/digital talent and investing more to strengthen the data analysis and AI sides of their operations. More sophisticated strategies to access data are becoming an increasingly important resource as banks strive to better understand customers’ needs, bolster customer loyalty and refine product and service offerings.

SEB established a technical platform – or data lake – in 2017, to enable the more efficient harvesting of all data at SEB’s disposal. This includes structured and unstructured data, internal as well as external data, and everything from real-time data to static data. The bank also launched a new digital support system called Aida to improve the analysis of customer behaviour, finance needs and lifestyle expectations. 

“Disruptive technology forces are shaping the future of financial services. SEB will need to design and build future banking experiences that meet rapidly heightened customer expectations,” said Sara Öhrvall, who was hired by SEB in April 2018 to head-up the bank’s Digital, Customer Experience and Communications department.

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