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Nordic banks are becoming less constrained and more alliance-focused in their approach to countering the growth of financial technology (fintech) firms in their traditional markets.
Visa Europe’s €1.8bn acquisition in June of Swedish open banking fintech Tink was a further reminder to Nordic banks of the magnitude of the challenge posed by increasingly well-resourced fintechs operating in their backyard.
A growing fintech presence, which is intensifying the battle for market share and customers, has produced a number of significant cross-border collaborations between the leading Nordic banks. The most striking alliance is led by the P27 Nordic Payments (P27) initiative, which obtained European Commission (EC) merger approval on 9 July to establish a pan-Nordic real-time payments infrastructure and platform.
The EC’s authorisation for P27 marks an important juncture in the creation of a single common payments infrastructure across the Nordic countries. Backed by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank, the P27 platform is set to become the world’s first digital platform that enables consumers and businesses to make domestic and cross-border payments in real-time, both in batches and in multiple currencies.
“The EC’s approval is a huge milestone for P27. We are building a platform that will transform the payments infrastructure in the Nordics,” said Lars Sjögren, CEO of P27.
Increasing cooperation among Nordic banks is driven by a need to swiftly respond to the rising presence and economic impact of fintechs and niche banks in their home markets. This concern is based on the real fear that inaction could lead to diminished power and status for traditional banks and the future possibility that they could become little more than subcontractors to fintech giants such as Google, Apple, Facebook and Amazon.
The EC’s merger approval means the P27 platform can move towards the next stage of its development – the on-boarding of clients in Denmark, Finland and Sweden. The growth plan includes the complete acquisition by P27 of Bankgirot’s proprietary clearing system in Sweden.
Through collaboration, Nordic banks will core business against disruptor fintechs such as Google, Apple, Facebook and Amazon, said Ulrik Nødgaard, administrative director of Finans Danmark, the Danish central organisation for banks and financial services providers.
“Fintechs, and especially the global tech giants, have the capacity and financial muscle to become game changers in how banking services are marketed and delivered. The banking industry must respond as tech giants target lucrative core areas of banking. Tech companies are developing new payment services, credit solutions, deposit accounts and may even expand to offer investment products,” Nødgaard added.
Deeper collaborations, combined with scaled-up investment in next generation technologies, provide the best line of defence for Nordic banks to avoid a mass exodus of customers to fintech disruptors, said Lena Gredenhag, Handelsbanken’s deputy head of Nordic payments.
“There is increasing recognition that payments are the glue that connects banks to their customers. This new thinking has emerged as payments feature higher on the strategic agenda in the wake of technological advances, changes in customer behaviour, the introduction of new regulations and the shift to open banking interfaces,” Gredenhag said.
P27 is devised to equip participating Nordic banks with the means to build a robust and resilient payments infrastructure that delivers a wider a range of new payment possibilities.
The transition to open banking infrastructure, bolstered by the European Union’s Payment Services Directive (PSD2), presents a ready gateway for fintechs to access and “hook” the customers of traditional high street banks, said Gredenhag.
“P27 not only presents a significant opportunity to help us to further improve our offering to customers in the Nordics, it will also enable us to streamline our processes and reduce complexity internally. P27 allows us to leverage new kinds of data while raising connectivity and integration between the economies of the Nordic countries,” she said.
The EU’s PSD2 directive mandates that banks provide access to registered third-party providers on behalf of and with the consent of their customers. The directive has raised the competition stakes for all banks across Europe, while creating a potential opportunity in the financial services sphere for those fintechs with the resources to compete with high street banks.
It is already serving as a prime motivator for Nordic fintechs to expand their cross-border operations in the banking sphere. The Copenhagen-based digital lender Lunar has revealed plans to establish a full-scale commercial bank operation in Norway in 2021-2022.
“The established banks need more competition. The winners here are consumers. Lunar will have its own focus, but at this moment in time we are particularly interested in offering financial solutions that are customised for the needs of younger people in Norway and across the Nordic countries,” said Eilin Schjetne, Lunar’s country manager in Norway.
Nordic banks are exhibiting a sharper appetite for both collaborations with fintechs, and strategic bolt-on acquisitions that gain them a stronger foothold in the digital banking domain. DNB Bank, Norway’s largest bank, is in the process of closing a NOK11.6bn (€950m) takeover of the Oslo-headquartered digital lender Sbanken, one of the country largest disruptor niche banks.
Visa Europe’s takeover of Tink has added a further dynamic for leading Nordic banks to lead a new wave of consolidation within the rapidly expanding ranks of fintechs and digital banks across the region. Tink, which was tracked as a potential acquisition target by Nordea and SEB Group, fits the profile of a special category fintech by Nordic standards.
Integrated with more than 3,400 banks and financial institutions across Europe, the fintech’s single application programming interface (API) enables customers to access aggregated financial data, build personal finance management tools and use smart financial services like risk insights and account verification.
“Tink became a leading open banking platform in Europe over the past decade. As part of Visa, we will be able to move faster and reach further than ever before,” said Daniel Kjellén, CEO of Tink.
Increasing competition from regional and global fintechs hasn’t been an entirely negative experience for Nordic banks. Saxo Bank’s success in becoming the world’s first licensed bank to secure Cloud Security Alliance STAR Level 2 Attestation and Trusted Cloud Provider accreditation underscores the value of competition from fintechs in driving Nordic banks to become more innovative and forceful players in the financial services domain regionally and internationally.
“The strength, power and security of our banking business model is built on digital first. We are well advanced along an ambitious path to deliver all our digital services from the cloud. Our model is based on a microservices infrastructure that provides us with the ability to launch new features much faster and more securely. The benefit is a shorter time to market, more robust infrastructure and much more agile, scalable and flexible platform,” said Søren Kyhl, Saxo’s COO.
Read more about PSD2 and open banking
- The government’s Competition and Markets Authority has requested feedback on proposals to increase competition in the UK banking sector.
- The Competitions and Markets Authority opens up the banking apps market following an investigation into how to create greater competition in banking.
- With the EU’s Payment Service Directive (PSD2) going into effect in January 2018, banks have no time to waste in preparing for the changes it will bring.
- Open banking is a relatively new concept, having come into effect in Europe only in the last couple of years. So what is the state of play?