FinTech Growth: Testing the Nordic Waters

For the first time this year, FinTech attracted the most investment in the Nordic region...

For the first time this year, FinTech attracted the most investment in the Nordic region, overtaking other traditionally strong investment sectors such as software as a service and gaming. Despite the long tradition of partnership and collaboration in the financial industry, the region’s robust regulatory system and infrastructure can present FinTechs with hurdles when trying to establish themselves. The recent news of an industrial sandbox being launched for FinTechs in the area of identity, signals attempts being made at bridging the gap, and although there may be some way to go until a regulatory sandbox similar to the UK’s is formed, there is a positive outlook.

Regional trends: digital natives & mobile

The Nordic region has a strong digital infrastructure, a tech savvy population and is fast becoming one of the most cashless societies in the world, having already been quick to embrace electronic payments and digital banking. The uptake of new technologies by digital natives in the region is fast, grounded in the fact that some of the telecom giants were born in the Nordic region and technology has often converged into people’s lives. Smartphones are now almost ubiquitous, with 9 out of 10 internet users owning smartphones. FinTechs in the Nordic region are certainly capitalising on mobile penetration, with the mobile payment app Auka gaining traction in Norway and the personal finance app Tink founded in Sweden and with plans to expand across Europe.

Despite strides by FinTechs, the incumbents could also be considered to be vanguards, especially when compared to other regions globally. A recent success story is the mobile payment system Swish, co-developed by six large banks and now a solution that is used by close to 40% of the Swedish population. In fact, Swedish churches have introduced Swish as a payment option for their parishioners, allowing them to contribute to the Sunday collection using their mobiles and a phone number! Furthermore, the mobile payment solution MobilePay was launched in Denmark by Danske Bank in 2013, and now almost a third of the population (including those who are not a customer of the bank) use this as a cash alternative.

Regulatory Hurdles

FinTechs, although innovative and disruptive in nature, still face the issues of regulatory compliance, including how to immediately comply with KYC/AML regulations. The recent announcement by Signicat on the release of its ‘FinTech Starter Pack’ will allow FinTechs full access to a cross-border electronic identity testing and production environment. The package offered by the identity assurance provider Signicat will enable FinTech start-ups to use the ‘safe’ environment as a test bed in the area of identity (with a maximum of 500 transactions per month).

The starter pack includes access to cross-border electronic identity service infrastructures in Denmark, Norway, Sweden and Finland. More markets are set to follow, but the key message is the same across the board: the industrial sandbox is set to help start-ups to rapidly on-board customers, build customer trust and to help FinTechs ensure immediate regulatory compliance in the areas of electronic identity and signatures.

The Nordic region is synonymous with a robust regulatory system and infrastructure that can be tricky for FinTechs to manoeuvre in and can present a difficult climate in which FinTechs can establish themselves. This new identity sandbox will, according to the CEO of Signicat, allow the start-ups to “take advantage of systems that have already undergone regulatory approval and are currently being used across the globe”.

From test bed to hotbed?

The industrial sandbox set up by Signicat could catalyse a wider call by the region’s players, in particular by Denmark, to set up a regulatory sandbox similar to that initially set up the UK’s Financial Conduct Authority in May 2016. Creating such a sandbox will enable FinTechs to try out their ideas in a ‘safe’ pre-production environment that is free from regulatory scrutiny.

There are projects of this type in different stages across various countries (including Australia, Singapore and also Norway) and we have also highlighted how it may not be the most feasible route for all.  Nevertheless, the digitalisation of the Nordic region and fast uptake of technology could help to strengthen the case for a sandbox to be set up, with calls being made for the Danish regulatory authority to consider the case.  FinTechs could test out their ideas quite freely among the digitally native population that have shared their nation with some of the telecom giants.

It is yet to be seen if more projects, including wider industrial sandboxes and a regulatory sandbox, will be translated across the Nordic region. The consensus is becoming increasingly clear however, that by creating a test bed for FinTech innovations, there could be an even bigger hotbed of FinTech activity in the Nordic region, drawing the world’s eyes back to this region.