If successful, the era of fintech will mark the crumbling of old banking structures and holy cows that were no longer able to survive the irresistible pull of technology to drive change. One of the countries leading the pack is Sweden with its smart government policies, readily available funding, and talent pool.
In essence, fintech is about the marriage between finance and technology. It combines a service -- usually SaaS -- with the declared purpose of efficiency, coupled with the proposition of diminishing bureaucracy. Ideally, and often in practice, it brings consumers closer to controlling their finances and helps businesses manage their finances in a more effective way.
As of this writing, the EU is feverishly planning a deluge of regulatory initiatives for the coming years designed to make fintech work for the European common market. A new and unregulated industry needs a common set of standards to put the minds of millions of consumers at ease.
While the 26-nation EU is trying to prepare a roadmap for the future, the country of Sweden has for a long time now signaled the direction of finance, whether personal and business. From getting rid of cash to introducing new payment methods, Sweden is well-positioned to define fintech for the rest of us. The reasons behind Sweden’s fintech success are many, but come down to a conducive business environment facilitated by smart government policies.
The role of government
While supranational regulations and highly developed tech infrastructure are the overall reasons for Swedish fintech, the government has played an important role in the the country’s success.
"Historically a highly developed tech infrastructure enabled early adoption and government policies encouraged an entrepreneurial and innovative climate," said Johan Nord, Chief Commercial Officer at Trustly, a Stockholm-based fintech company that provides a solution for Online Banking ePayments (OBeP).
A highly developed tech infrastructure which allowed for early adoption of new tech coupled with government policies have encouraged an entrepreneurial and innovative climate. Today, most interactions between citizens and the government are digital. In fact, according to the Deloitte Global Mobile Consumer Survey 2016, 57% of Nordic citizens are using mobile banking, when the European average is only 44%.
But fintech can be a challenge for companies big and small to enter and therefore the government should play an active role, says fintech innovation consultant Frida Jonsdottir from Deloitte UK.
"There is very heavy regulation and little legroom for mistakes -- and for good reason. Failure within the financial sector can potentially have a devastating impact. However, there are definitely clear measures that the government can take to both support innovation in the sector, which ultimately will benefit the consumer, and to also make it a more clear space to operate in."
The Swedish government seems to be responsive to calls for smart regulations.
"Policy -- clear, proportionate and well considered regulation must be enacted. From my experience, good regulation does not inhibit growth, regulation secures that everybody are playing by the same rules. Here, as noted before, a balancing act between securing further growth of a sector must be balanced towards consumer and investor protection," said Per Bolund, Sweden’s Minister for Financial Markets, in November.
While Sweden is getting a lot things right it still lacks in regulatory flexibility similar to the UK. Jonsdottir believes Sweden should emulate the British regulatory framework.
"At the moment there is a lot of uncertainty for fintech operating in Sweden, and for traditional players as well, which is not a situation we want to have. When looking at countries like the UK, the government is very active in supporting FinTech innovation and growth in the region and is devoting considerable resources to support all sides of the sector."
"An example of this is the FCA sandbox which has been established, and plays a very important role in supporting new FinTech innovations to grow without being hindered the regulatory burden from day one."
From startups to multinationals
Year-on-year investments in fintech companies in the Nordics increased by 106% in 2015 to $13.8 billion, according to a KPMG report. Sweden took the lion’s share with 32 out of 51 fintech investments, according to data from The Nordic Web.
"Fintechs recorded more investments and attracted more capital than any other sector in the Nordics in 2015 and are very likely to do so again this year according," according to The Nordic Web,
The number of investments rose from 19 in 2014 to 49 by Q3 in 2016 while the year 2016 resulted in more investments than during years 2014 and 2015 combined.
Stockholm-based multinationals like iZettle -- mobile payment solution replacing traditional POS terminals -- and Klarna -- an online payment service for a simplified checkout -- together have raised over $400 million in funding.
The rise of homegrown startups is also attracting the interest of financial institutions. Of course there are views that see banks as the enemy of fintech, but many banks know their place.
"Some banks more than others have realised that it’s beneficial to embrace new technology. Rather than rejecting new fintech players, banks are becoming more aware of the commercial opportunities and that co-operating can accelerate digitization efforts," said Nord from Trustly.
In addition to banks offering to partner with emerging fintech startups, Swedish investors are banking on the local talent.
According to a recent Deloitte report, Sweden-based NFT Ventures has taken the lead with a growing portfolio in a number of Nordic Fintech startups. SEB Venture Capital is another Nordic VC that invests into financial technology, as well as Oslo-based Northzone, which has a significant presence in Sweden and has previously invested in iZettle and Qapital.
No place for Bernie Sanders
Sweden is often accused or admired - depending on your political inclination - of treating its society as a testbed for untested ideas and practices, but when it comes to fintech, Swedes seem to be on the right track.
Sweden has historically been a country of consensus, good governance with the right amount of courage (not always) to abandon failed policies of the past. But it’s also a country that’s falsely viewed as a socialist utopia.
During the US presidential primaries, Senator Bernie Sanders often referenced Sweden, Denmark and other Scandinavian countries as ideal societies that America should emulate.
In a biting rebuttal of Sanders’ overly enthusiastic adoration for the Scandinavian model, Johan Norberg, a Swedish author and thinker, wrote that Sweden has done well precisely because it abandoned the ideas of big government socialism.
"Sweden and Denmark had grown much faster than other European countries and had become richer than most other countries on the planet, in large part by limiting government and embracing markets."
Swedish researcher Daniel Schatz argued that Sweden’s pro-market policies are to thank for the country’s powerful economy today.
"Sweden began to reverse its economic model during the 1990s by implementing reforms that would have made his Republican contenders proud: State-owned companies were sold and financial markets were once again deregulated while public monopolies were replaced with competition."
Swedish laissez-faire economics have helped to generate an abundance of wealth which in turn has allowed the country to invest heavily in R&D and tech infrastructure.
Although fintech isn’t the only industry to have benefited from the 90s, the anti-monopoly and free trade practices have given entrepreneurs freedoms to compete with age-old financial institutions, which naturally contribute to the surge of fintech in Sweden.
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