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Nordic Fintech Scene Blowing Up
Danish startup Pleo has just raised $150m at a valuation of $1.7bn. The Copenhagen-based employee spending solution has become Denmark's eighth Unicorn. However, it's not just the Danes who are leading the way. This incredible trend is visible throughout the Nordic region, with a wide array of innovative startups disrupting and improving the financial sectors.
With other startups like Klarna, Vipps and Axo Finans making waves throughout Europe, many experts are reflecting on what this all means for the Nordic startup scene.
For many, there is a growing feeling that Nordic fintech is on the cusp of becoming a world leader. As large UK fintech businesses negotiate the challenges brought about by Brexit, there is a golden opportunity for EU startups. And Nordic fintech seems ready and able to fill any gaps with their bold and new financial solutions.
Why Are Nordic Countries Producing So Many Successful Fintech Startups?
Several active factors help Nordic countries form some of the brightest fintech startups in the world.
Firstly, their citizens. The people of Norway, Sweden, Finland, Iceland, and Denmark are some of the world's most tech-savvy and educated citizens. They lead the world in digital adoption and readiness and, in particular, digital banking. This point is furthered by the Nordic countries taking most of the top spots in the Digital Economy and Society Index (DESI) 2020 study.
Another factor is the government. Nordic governments have a global reputation for forward-thinking and progressive decision making. They have supported open banking and fintech companies and have invested in the infrastructure that has made the region very attractive to startups.
In many ways, the Nordic fintech boom is part of a long-term vision coming to fruition. Free higher education, a good standard of living, and high-speed networks combine to make the region an excellent place to grow a digital business.
Indeed, another feature that affects digital adoption, particularly open and online banking, is trust. The respective Nordic governments engineered stability and social confidence, which is a massive driver of digital banking adoption.
Finally, intelligent social welfare programmes, grants, and tax breaks have helped encourage a spirit of entrepreneurship that is now flourishing.
The Future of Nordic Fintech
A recent Mastercard study declared that two regions are best positioned to take advantage of open banking: The UK and the Nordic countries.
The Open Banking Readiness Index: The Future of Open Banking in Europe report cited progressive regulators and a customer base comfortable with new banking products. Another factor they highlighted was a high amount of banking APIs.
Other pluses in the report centred around the P27 Nordic Payments initiative and the region's broader collaborative models. Indeed, most of the more prominent Nordic countries already have open banking initiatives.
Who Is Investing in Scandinavian Fintech Businesses?
While much of the investment in the Nordic startup boom has come from venture capital firms and private capital, businesses like Mastercard and Visa have invested too. Mastercard purchased Nets (a Danish payment gateway) for $3.2 billion in 2019. More recently, Visa acquired Tink, a Swedish open banking fintech, in June 2021 for $1.8 billion.
Which Industries Will Benefit From Nordic Fintech?
There are several different sectors that are being aided and assisted by Nordic fintech. One of the major areas is payment processing. Companies like Klarna and Trustly have experienced exponential growth over recent years. Their presence in the US market has been a significant factor for this growth, with consumers adopting these platforms en masse.
However, Trustly's planned IPO for 2021, which targeted almost $900m in funding, has been put on hold. Regulators are circling the company. The Financial Supervisory Authority has some questions about whether Trustly is performing requisite due diligence checks on consumers. With Klarna also facing accusations that they are getting younger consumers hooked on debt, it remains to be seen if payment services growth will slow down.
However, there are other areas where fintech can positively affect the lives of consumers. Personal loans are often complex and suffer from a lack of transparency. Norwegian startup Axo Finans is making the process far easier for consumers by facilitating their applications and sending them to several banking partners. This process will grant consumers faster decisions, more transparency, and cheaper interest rates.
However, open banking is perhaps the area that has seen the most interest in recent years. Peer to peer payments and banking transfers, done mainly by smartphones, are growing every year.
Another exciting area that fintech could revolutionise is insurance. Automated underwriting and a streamlined application and decisions process could be definite improvements. Additionally, high costs create a barrier to entry for many adults. By making the process more efficient — and therefore reducing overheads — personalised policies could lead to more inclusion.
Of course, as more of our payments are done online, the connectivity and security of fintech become more critical. Northmill, a Swedish tech bank, uses innovation to provide secure payments. By becoming part of RIX, the Swedish Central Bank's payment system, Northmill can add several new features to its banking service. As more challenger banks follow suit, the range of products available will become more attractive to the average consumer.
Becoming a Leading Hub for Fintech Startups
The Nordics have gained a strong reputation as a hub for fintech startups. Huge players like Klarna and iZettle have led the way in recent years, but a new wave of Unicorns are coming.
2020 saw fintech funding in Scandinavia reach all-time highs, powered by deals for companies like Klarna, Tink, and Logpoint. This year, other notable deals were Tink being sold to Visa for $1.8 billion and the sale of Itiviti to Broadridge Financial Solutions for $2.1 billion.
Smart government investments in education and digital infrastructure, alongside a policy of promoting entrepreneurship through grants, has paid off. Additionally, high public trust levels among tech-savvy citizens have allowed innovative digital products to be adopted in more significant numbers.
The Nordic fintech scene has been booming for several years, and it's showing little sign of slowing down.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes