When one door closes, another opens. Although Brexit may be a tired theme by now, the UK’s withdrawal from the European Union (EU) continues to have effects – positive and negative – across a wide range of industries.
One of those industries is fintech. A significant number of fintech businesses started life in the UK before expanding into EU countries. Many of them are still going strong, some almost household names, and not just in their native Britain.
However, Brexit has thrown up additional challenges to UK-based fintech firms either already operating or wanting to operate in the EU. The challenges aren’t insurmountable, and the legislation governing all aspects of them is ongoing at the time of writing; data protection issues being the most recent to have been largely resolved. But challenges they remain.
This uncertain legislative headwind for UK-based firms has given a welcome boost to fintech companies still headquartered within the EU, since they can operate across all member states with fewer hurdles to jump than their UK competitors. To an extent, a major competitor to EU-based firms’ success has been handicapped – whether temporarily or permanently remains to be seen.
For example, Lithuania has found itself a particular focal point for fintech growth, taking up some of the slack from UK-based companies. However, the Nordic countries are also growing strongly in their own right, and are worth watching closely, not just for themselves but as potential models for how other countries within Europe may develop over time.
One reason for the Nordics’ fintech growth is that residents and citizens of Norway, Sweden, Finland, Iceland and Denmark tend to be digitally savvy on the whole, with some of the highest percentages of new technology adoption and mobile banking usage in the world.
To an extent this has come about through trust in government, which is something that Nordic populations have tended to have to a greater extent than elsewhere in Europe. This is largely because their governments have been trustworthy, putting the needs of their citizens first.
Supportive social programs and generous welfare schemes characterise this region of the world. Mobile banking and similar financial technology is supported and regulated by governments; citizens trust their governments; citizens therefore trust mobile banking and similar financial technology. It’s not quite that simple nor that universal, of course, but it’s more true than in most other European countries.
Those same governments have also been welcoming – financially and in terms of resources and logistical support – to fintech companies wanting to locate or relocate themselves into the Nordic region. Grants, tax-breaks, well-educated potential employees, high-speed networks, a good standard of living: all of these contribute to an appealing ecosystem for fintech and open banking firms looking for a place to settle and grow.
Success stories are too numerous to count: a search for “Nordic fintech boom” returns no shortage of examples from across the region.
According to Manoj Chandra Jha, senior lead analyst cloud services Nordics & UK at Information Services Group: “The fintech ecosystem in the Nordic regions continues to be one of the most fruitful at producing unicorns. Also, the increased investments […] and new initiatives announced by governments in the Nordics is set to simplify the continued success of the fintech region in the coming quarters.”
One of the reasons for the significant capital investment in startups in this region is due to their focus on building niche, disruptive products on payment and lending services.
Growth in the region has not gone unnoticed elsewhere in the world. Cash-rich investors are circling and in some cases pouncing. For example, Mastercard recently acquired Nets payment gateway, an acquisition that gives it more influence and leverage in the region as a payment partner for governments, financial institutions, consumers and businesses.
“This is a classic example of a EuroJournal-listed company keeping an eye on niche fintech and open banking startups,” said Jha.
Furthermore, Visa recently acquired Swedish open banking fintech Tink for €1.8bn.
It’s not just open banking that’s growing in the region. Open finance is the next stage for fintech, providing smart access to savings services, pensions systems, investments and loans. The regulatory framework for open finance is novel even in the EU, and the necessary API framework is also still in its infancy, but already the financial services ecosystem is beginning to adapt in response.
This is an area that truly deserves the term “disruptive influence” and not just in the Nordics. Traditional financial services are the epitome of staid and unchanging (occasional global credit crunch events notwithstanding) and therefore they are ripe for change – or at least the fintech firms believe so.
Open finance is only just beginning to disrupt the established order. Once it really gets going, it’s likely that the Nordics will benefit from an arguably unique symbiotic relationship: tech-savvy, trusting consumers using rapidly-deployed, highly agile, open finance fintech services.
But that’s for the future. Today, it’s open banking that’s the backbone of the Nordic fintech boom. Jha noted that peer-to-peer banking transfer and payments services are growing fast, with mobile being much favoured over more antiquated solutions, as would be expected given the tech-aware demographic.
There is no single specific reason to highlight the Nordics as a region of interest when it comes to fintech and open banking growth. Instead it’s a combination of factors that look set to give the region a strong, sustained boost over the coming years.
“Banking and finance organisations are testing with automation, deep predictive analytics, new delivery platforms, digital-only banking, blockchain and more,” said Jha. “These changes are helping institutions provide higher quality services at lower price points.” This is having a transformational effect on the Nordic financial ecosystem. For now at least, this is a region to watch.