Outside-in disruption and digitalization in Nordic financial services

Ahead of the Misys Nordics Outlook event in Stockholm on September 14 2016, Esge Birkkjær Räder, Regional Director - Nordics & Baltics, Misys, looks at how and why the Nordics is outpacing Europe with regards digitalization, and how banks are ‘disrupting’ rather than being disrupted.

There’s a lot of talk of disruption (or interruption) in the financial services sector and not just in the Nordic region. Read some of the media reports and they would have us believe that financial institutions are being buffered by a constant onslaught of newcomers who are changing the rules and pushing the boundaries.

The reality, and this is true particularly in the Nordic region, is that many banks are in the vanguard themselves, pioneering approaches that have led to major changes in the market. Admittedly, the drive for change is most often consumer-led, but banks have not been slow to grab the initiative.

Nordic culture and financial markets are much more open to new financial services, models and entrants than the rest of Europe

A recent report from KPMG shows that the region saw year-on-year investments in fintechs increase by 106% to $13.8bn in 2015. Leading the way, in this order, are Sweden, Finland, Norway, Denmark and Iceland. The top tier banks of the region are expected to invest in the range of €2bn as part of their 2020 strategies for technology and digitalization.

When it comes to how the institutions work with disruptive partners, a number of the bigger players have been working for many years now with service providers that are themselves breakout companies from the mobile telecoms industry.

Disruption in payments: A race for first-mover advantage

A very good example of this is with what happened with Swipp, a popular payment solution launched by a consortium of seven Danish banks who, in 2013, acquired the Paii solution developed by four of the largest telecom providers in Denmark.

Danske Bank was part of the original consortium, but fearing that the product might be late for the market, it went out on its own and created MobilePay. Danske was prepared to acquire a small creative team), commit significant funds and develop an app which was ready three months before Swipp came to the market. It shows how speed and agility are essential in this marketplace to capture market share and be known as first-movers.

While MobilePay is the major player in the Danish payment market (more than three million Danes have downloaded the app since its launch), the decision by Danske to strike out alone and literally flush the market with their product, was a prime example as to how the dynamics work here in the Nordics.

And even though ApplePay and Samsung Pay, through the regulation of PSD2, certainly will make in-roads into MobilePay’s current domination, the fact is Danske was there first and is now moving their product into the mortgage and corporate sectors with MobileLife. They have succeeded in establishing a strong profile and are looking to leverage their team into new areas.

Fostering a disruptive, transformative culture

Significant ‘disruption’ and pioneering digitalization in Nordic financial services is coming from the banks themselves, rather than fintech startups. Banks here buck the trend of ‘being disrupted’ and are taking an approach to disrupt from within, with internal labs teams, disruption squads and heads of change management leading this initiative.

Taking an outside-in approach to digitalization is essential for banks to truly bring about change. This means banks must drive change from the consumer’s point of view (the consumer being a corporate, treasurer, millennial, pensioner – and anyone who consumes the bank’s services). 

Nordea is currently responding to the greater exposure of MobileLife and have informed that they believe that in order to leverage disruption and welcome new transformation it is key for this to happen organically. They recently hired an ex-SAP and ex-Philips Lighting Chief HR Officer in order to secure the cultural change and further they decided to keep their ‘labs’ team in-house as opposes to Danske, where MobileLife is an organization on its own, physically remote from their HQ.

As for my general sense of why Nordic culture has been so willing to engage Fintech developments, I think it comes down to a willingness to accept the outsourcing of services. To accept that third parties have something to bring to the party.

This has come about partly because of a very mature mobile telecoms industry, with innovating and pioneering companies such as Nokia and Ericsson. This is why a recent report recognised Sweden as the most innovative country out of all European countries when it comes to Fintech. It’s Europe’s third largest fintech hub after the UK and Germany.

This may be a time of disruption, but it is also a time of great opportunity and innovation, something which the Nordic financial institutions are continuing to capture with great skill.  We will discuss this topic in a speed panel, at the Misys Nordics Outlook: Banking Interrupted, at Fotografiska, Stockholm on September 14th 2016. If you would like to attend, space is very limited, so please register your interest here.