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Nordic banks invest and innovate to keep digital rivals at bay

Large traditional banks are accelerating their digital transformations as the regional fintech sector makes its presence felt

Despite weaker earnings linked to the Covid-19 pandemic, Nordic banks are accelerating plans to digitise operations and implement next-generation technology programmes that bolster customer service offerings and competitiveness.

The projected capital spending by Nordic banks, mainly directed at specific investments in digital, artificial intelligence (AI) and robotics, is expected to exceed €1bn by 2024, according to a Nordic Council's Economic Board prediction.

The growing presence of digital banks and financial technology (fintech) firms across Nordic markets is forcing the big four Nordic banks in particular to become innovative rather than passive onlookers and are ramping-up their technology-capacities.

For Nordic banks, there is a focus on reinforcing their capabilities within the areas of cloud, analytics, interactive, robotics, biometrics and mobile technologies.

The rise of digital disruptors across the Nordic banking services sphere, led by Avanza, Ikano, Norwegian Bank and Nordnet, are forcing traditional financial groups to develop clear digital transformational roadmaps.

Traditional banks are also feeling the pressure from digital disruptors in the mobile payments arena. Companies such as Klarna, iZettle, Trustly and the Helsinki-based Holvi continue to transform the mobile payments space through digital platforms, in the same way as Nordic actors Ferratum and Lendo continue to alter the financial landscape in the personal credit lending space. 

Against this backdrop, Nordic banks SEB, Nordea, Danske Bank and Swedbank are increasingly turning to partnerships and fintech acquisitions to deliver the technology solutions they need to compete.

Danske Bank’s deepening digital payments partnership with open banking platform Nordic API Gateway reflects an appetite to innovate through strategic collaborations with fintechs. 

The Nordic API Gateway partnership permits users of Danske Bank’s mobile app to transfer money in a frictionless manner between all of their accounts irrespective of their primary bank.

For Danske, a key objective of this investment is to grow its customer base and income generation by becoming a hub for money transfers. Danske is primed to roll out the new digital payments offering to its three million personal banking customers in the Nordic countries during the fourth quarter of 2020. 

“Traditional banks must become more innovative. Danske Bank’s integrating of both account aggregation and payment initiation in their mobile banking app clearly shows how banks have moved the focus from compliance to opportunity when it comes to the EU Payment Services Directive 2,” said Jonas Vogt Rasmussen, the head of partnerships at Nordic API Gateway.      

Danske joins Norwegian lender DNB as the only other Nordic bank to combine account aggregation and payment initiation as a frontline offering to customers. DNB’s solution is also enabled by Nordic API Gateway, which expects many more Nordic banks to embrace the banking interface innovation.

Significantly, the competitive threat posed by digital banks has produced a flow of “common cause” joint-investment alliances among Nordic banks facing more competition from financial sector disruptors. 

Invidem, a tech firm founded by DNB, Danske Bank, Handelsbanken, Nordea, SEB and Swedbank in 2019, is expanding its know-your-customer (KYC) service in partnership with Encompass and iMeta Technologies.

Under the tri-partnership, Encompass will provide Invidem with ultra-automated KYC data gathering while iMeta will supply the core Client Lifecycle Management system for management of KYC information.

Invidem was established by the six partner banks to deliver customer security and identification solutions that make the management of KYC data more efficient and effective. The service enables the corporate clients of the collaborating banks, including companies with multiple banking relationships, to manage their data in a single location.

The joint investment by leading Nordic banks in Invidem aims to enhance transparency, elevate security mechanisms and reduce potential risks relating to financial crimes and money-laundering, said Marit Bø Bornstein, Invidem’s CEO.

“The banking partnership behind Invidem makes it possible for our clients to make even more sophisticated risk assessments. Invidem has a unique business model. We gather and validate data from multiple sources, including customers. This conforms with the Nordic standard for compliant KYC information,” added Bornstein.

Outside the Nordic collaborations, individual banks such as SEB, OP Pankki and Sparbankerna have scaled up investments to digitalise both core and niche areas of their retail and corporate finance operations.

Stockholm-headquartered SEB has launched a new virtual account management solution (VAMS) delivered by software partner TietoEVRY. VAMS allows SEB to offer corporate customers an improved range of virtual cash management services.

The projects investment capital from SEB reflects the growing urgency among Nordic banks to innovate value-added next-generation financial solutions for their multinational corporate clients, against the backdrop of heightened competition in this space from digital banks and fintechs.  

The VAMS offering empowers companies to obtain a superior visibility of their liquidity positions using a highly-automated reconciliation process, said Tommy Adriansson, the head of SEB’s product area liquidity.

“Virtual accounts complements our existing offering. It will contribute hugely as we move beyond traditional cash management products. It also strengthens our offering in terms of flexibility and self-service,” Adriansson said.

Following the Nordic pattern, OP Pankki’s investment in its newly launched Multi-Bank Service (MBS) also caters to customers with multiple banking relationships. The MBS is developed to provide a smoother personal finances management tool for the bank’s private clients, allowing customers to access and view account information from an array of different Nordic banks in one channel, either online or from the OP Mobile Banking App.  

“More than ever before, we need to be more customer-focused and invest to continuously improve the digital customer experience of our services. We must also work harder to anticipate the changing needs of our customers,” said Masa Peura, OP Pankki’s senior vice-president in charge of payments, accounts and personal finance management.

Nordic banks are also sharpening their focus on automated technology-domain investments, and in particular robotics. The Swedish savings bank group Sparbankerna has allied with fund analysis firm Indecap to launch the mobile robotic advisory service Iris.

This robotic tool will be used to analyse and determine risk appetite, savings potentials as well as income and credit components in the bank’s client relationships. Iris will have a specific focus, evaluating customers investing in actively managed equity and fixed income funds.

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