Danish startup Pleo just raised $ 150 million for a valuation of $ 1.7 billion. The Copenhagen-based employee expense management solution has become Denmark’s eighth unicorn. However, it is not only the Danes who are leading the way. This incredible trend is visible across the Nordic region, with a wide range of innovative startups disrupting and improving financial sectors.
As other startups like Klarna, Vipps and Axo Finans are making waves across Europe, many experts are pondering what all this means for the Nordic startup scene.
For many, there is a growing sense that Nordic fintech is poised to become a global leader. As large UK fintech companies negotiate the challenges of Brexit, there is a golden opportunity for European startups. And Nordic fintech seems ready and capable of filling any gaps with its bold new financial solutions.
Why are the Nordic countries producing so many successful Fintech startups?
Several active factors are helping the Nordic countries form some of the brightest fintech startups in the world.
First, their citizens. The people of Norway, Sweden, Finland, Iceland and Denmark are among the most tech-savvy and educated citizens in the world. They are the global leaders in digital adoption and readiness and, in particular, digital banking services. This point is reinforced by the fact that the Nordic countries take most of the first places in the Digital Economy and Society Index (DESI) 2020 study.
Another factor is the government. Nordic governments have a global reputation for making forward-thinking and progressive decisions. They have supported open banking and fintech companies and invested in infrastructure that has made the region very attractive to startups.
In many ways, the Nordic fintech boom is part of a long-term vision that is coming to fruition. Free higher education, a good standard of living and high-speed networks combine to make the region a great place to develop a digital business.
Indeed, another characteristic that affects digital adoption, especially open and online banking, is trust. The respective Nordic governments have engineered stability and social trust, which is a massive driver for the adoption of digital banking services.
Finally, smart social protection programs, subsidies and tax breaks have helped foster an entrepreneurial spirit that is now flourishing.
The future of Nordic fintech
A recent study by Mastercard said that two regions are best positioned to benefit from open banking: the UK and the Nordic countries.
the Open Banking Readiness Index: Report on the Future of Open Banking in Europe cited progressive regulators and customers comfortable with new banking products. Another factor they highlighted was the large amount of banking APIs.
The other advantages of the report focus on Nordic Payments Initiative P27 and the region’s broader models of collaboration. Indeed, most of the larger Nordic countries already have open banking initiatives.
Who invests in Scandinavian Fintech companies?
While much of the investment in the Nordic startup boom comes from venture capital and private equity firms, companies like Mastercard and Visa have also invested. Mastercard bought 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?
Several different sectors are helped and assisted by Nordic fintech. One of the main areas is payment processing. Companies like Klarna and Trustly have grown exponentially in recent years. Their presence in the US market has been an important factor in this growth, with consumers massively adopting these platforms.
However, Trustly’s scheduled IPO for 2021, which targeted funding of nearly $ 900 million, has been put on hold. Regulators revolve around the business. The Financial Supervisory Authority questions whether Trustly performs the required due diligence checks on consumers. With Klarna also accused of making young consumers addicted to debt, it remains to be seen whether the growth of payments services 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 greatly facilitates the process for consumers by facilitating their requests and sending them to several banking partners. This process will provide consumers with faster decisions, more transparency and cheaper interest rates.
However, open banking is perhaps the area that has generated the most interest in recent years. Peer-to-peer payments and bank transfers, made mainly through smartphones, are on the rise every year.
Insurance is another exciting area that fintech could revolutionize. Automated underwriting and a streamlined application and decision process could be definite improvements. In addition, the high costs create a barrier to entry for many adults. By making the process more efficient – and therefore reducing overhead costs – personalized policies could lead to more inclusion.
Of course, as more and more of our payments are made online, fintech connectivity and security are becoming more and more critical. Northmill, a Swedish tech bank, uses innovation to deliver secure payments. By becoming a member of RIX, the Swedish Central Bank’s payment system, Northmill can add several new features to its banking service. As more and more competing banks follow suit, the range of products available will become more attractive to the average consumer.
Become a leading hub for FinTech startups
The Nordic countries have gained a solid 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 is coming.
2020 saw fintech financing in Scandinavia reach unprecedented heights, thanks to deals for companies like Klarna, Tink and Logpoint. Other notable deals this year included the sale of Tink to Visa for $ 1.8 billion and the sale of Iviti to Broadridge Financial Solutions for $ 2.1 billion.
The government’s smart investments in education and digital infrastructure, as well as a policy to promote entrepreneurship through grants, have paid off. Additionally, high levels of public trust among tech-savvy citizens have enabled the adoption of more innovative digital products.
The Nordic fintech scene has been booming for several years and shows few signs of slowing down.
This article does not necessarily reflect the views of the editors or management of EconoTimes.