Pa Perspectives on Nordic Financial Services

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES

Autumn Edition 2017 CONTENTS

The personal banking market 3 Interview with Jesper Nielsen, Head of Personal Banking at Danske bank Platform thinking 8 Why platform business models represent a double-edged sword for big banks What is a Neobank – really? 11 The term 'neobanking' gains increasing attention in the media – but what is a neobank? Is BankID positioned for the 14future? Interview with Jan Bjerved, CEO of the Norwegian identity scheme BankID The dance around the GAFA 16God Quarterly performance development 18 Latest trends in the Nordics Value map for financial institutions 21 Nordic Q2 2017 financial highlights 22 Factsheet 24

Chief editors and Nordic financial services experts

Knut Erlend Vik Thomas Bjørnstad [email protected] [email protected] +47 913 61 525 +47 917 91 052

Nordic financial services experts

Göran Engvall Magnus Krusberg [email protected] [email protected] +46 721 936 109 +46 721 936 110

Martin Tillisch Olaf Kjaer [email protected] [email protected] +45 409 94 642 +45 222 02 362

2 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES The personal BANKING MARKET We sat down with Jesper Nielsen, Head of Personal Banking at Danske Bank to hear his views on how the personal banking market is developing and what he forsees will be happening over the next few years.

AUTHOR: REIAR NESS

PA: To start with the personal banking market: losses are at an all time low. As interest rates rise, Banking has historically been a traditional industry, loss rates may change, and have to be watched. but many believe that fundamental changes will happen in the years to come. How do you see I think the markets we’re in may be benign for some the market and the customers, their needs and years. Growth rates seem to be converging, with behaviours? How do you see that changing? Sweden a little down, Norway and Denmark getting there and the Finnish market appears to be starting Jesper Nielsen: I don’t know if there’s going to be to grow. more change than before, but there will be lots of change. We recently found a statement made by One thing that we particularly watch out for is the the CEO of the bank in 1971. I think the headline risk of bubbles, especially in Norway and Sweden. was: ‘We live in a time of big changes’. Change has There’s a lot of political attention on this as well, been a topic for many years. also in Denmark. The trick for us now is to make sure we watch the areas where bubbles may be We usually look at the market through five lenses – latent, and make sure the tail risk in our portfolio the five forces of change. If you look at these forces, is limited. When things are changing, that’s always the market and the economy set certain boundaries. where you get the big losses. Otherwise it’s a We live in a low interest rate environment so it’s pretty stable environment with low interest rates hard to increase profitability, and it’s difficult to and a benign credit market. And we’ll probably see increase your top line because you’re constrained in interest rates starting to trend upwards in a year or how much margin you can get. On the other hand, two. We hope this will happen fairly slowly. There that also leaves a very benign credit environment so are many imbalances in the economy now, and as

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 3 “Everybody is trying to win the battle for the digital customer. Who will be successful remains to be seen.”

JESPER NIELSEN HEAD OF PERSONAL BANKING DANSKE BANK

the price of money rises, it will need time to settle. what the bank can do to meet them where they So for the next couple of years, we don’t see any want to meet, know their requirements, know what alarm bells going off anywhere. they’ve done and know their transactions.

PA: How is the personal banking customer PA: Some think that organisations like Amazon, changing, with respect to banking needs, actions Google or Apple may become significant players in and behaviour? the financial services industry. Do you think so?

Jesper Nielsen: When we look at the five forces Jesper Nielsen: They, at least have the potential of change, one of these is that customers are to do so, and if banks don’t watch out, they’ll becoming much more digital. They are becoming enter their markets. If you look at the competitive much less dependent on an advisor, and they are picture, all banks are ramping up in this space. They becoming much less dependent on a bank branch. understand that the banks cannot just lay down in the face of new competitors. So there are a lot of Physical transactions, giro payments and so on have digital initiatives and not least a will to partner up dropped 30 per cent per year for the last four or with new digital players. five years. In Sweden, 65 per cent of our advisory contact is non-physical. You may want to meet face PA: Such as your MobilePay? to face for a mortgage, but the advice on the small stuff is by phone, e-meetings, chats and so on. And Jesper Nielsen: MobilePay is one example. We for travel currency, you use your credit cards or have just launched our robo advisor, which is an pick up cash at the airport. Customers are changing online investment tool, and in Denmark we’ve rapidly and their expectations are changing as to introduced a digital mortgage experience. We are

4 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES also constantly improving our mobile bank, adding Jesper Nielsen: Yes, you compete with somebody both basic banking functionality, wow-features and who has a different logic, and that means that you catering to customers’ increased desire to interact have to be much more adaptable – you have to with us via mobile devices. Public sector initiatives change faster. It’s like when you go to the gym. It’s on digitalisation have been good for us, paving annoying when you need to get there, but you have the way for broad digitalisation of society. I think to, and you feel better afterwards because you’re the Nordics may be a bit ahead on digitalisation. progressing. Blockchain is also a very exciting technology. PA: What about the power and impact of PA: Do you think the major banks in Scandinavia regulation? There seems to be more and more today will all remain strong in the customer regulation, and it’s getting more and more difficult interface, or will there be changes in the role they for the players to comply. What’s your view of the play? future, will the regulatory forces become even more important than today? Jesper Nielsen: I think everybody’s trying to win the battle for the digital customer. Whether they’ll Jesper Nielsen: Yes. There’s no way around it. be successful remains to be seen. But, if I look I think it’s also a matter of honour for us as a sector at the Nordic banking landscape, competition is to have very high standards around these things, very strong. For instance, DNB has made fantastic and I think we should see it as an opportunity. progress with Vipps, and just launched a new savings app. If you look at the push for transparency, that’s great. What’s important for us is that there’s a The question of whether everyone will succeed level playing field here. But I think it will improve will only be answered in a few years’ time. as things mature, and initiatives like regulatory sandboxing are excellent ideas for how to move on. PA: What do you think of the challenger banks, the small ones being set up by other organisations? Do we need more transparency for our consumers? Definitely. I think moves in this area will continue. Jesper Nielsen: Like Bank Norwegian? We’d obviously like a pace of regulation that makes it possible to meet the requirements. Instead of PA: Yes, Bank Norwegian is an example. It’s now everybody scrambling to get to the finish line, you more valuable than the airline, and it’s grown should have a chance to do it properly. very fast over a very short time. Do you believe organisations like this are likely to be significant Is there anything in Mifid2 we don't understand? players in the financial services market? Anything in new consumer regulation that we think is wildly unfair? No. Do we need transparency? Yes. Jesper Nielsen: I think Bank Norwegian is a Is that good for competition? Yes significant player already, at least in part of the banking market. They’re ‘in there’ and they’ve done PA: So even though it creates a challenge for the very well. I obviously don’t like anybody to take players, it’s something that we need for the good business from Danske Bank, but I think overall that of the system? competition is good – bringing new angles, new ways of doing parts of the banking industry. That Jesper Nielsen: Yes, we need to think differently sharpens the banks up as well, and I think you can about regulation and it needs to be in our business see much more customer-oriented, agile banks now model. It forces us to think differently. GDPR is a than we did just five years ago. And part of that is good example. We need transparency in terms of because competition isn’t just from someone in the what data we have. It forces us to create a logic in same sector, with the same challenges, and is part how we treat customers so they get transparency of the same infrastructure. There are new players from us. Why shouldn't you know what the bank trying to get a share of the market, and for different knows about you? reasons and with a different logic. Obviously, there are difficulties in some PA: It’s like what you said with Apple: the objective regulations. GDPR brings more of those, such as of having that financial services business, isn’t the the right to be forgotten. But there are certain same as for a bank. It may be a way to achieve total things that a bank has an obligation to remember. ownership of the customer interface, or it could be Some things are tricky, but all in all, I think we get a way of getting funding at a lower cost. it. We need a much more transparent system – we need to play a bigger and more transparent part

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 5 in society. I think we’re all for that. and Norway, our growth has been two-digit on the personal banking side over the last few years, PA: You’re probably familiar with the statement and we’ve managed to keep the cost base roughly made by the CEO of DNB, Rune Bjerke, where stable. That's pretty hard to compete with if he said that banks are becoming IT companies. you look at the complexity and the price of an It sounds like you’re not entirely in agreement acquisition. with that. PA: MobilePay has been a fantastic success. You’ve Jesper Nielsen: No, not at all. There’s much more developed from being one of the innovators in to it. I think part of the bank should be run like launching new payment solutions for Danske Bank, an IT company, but I think if we behave like an IT to becoming a player who provides a service to a company, then we’re doomed. We’d become a large number of other banks as well. How do you commodity provider – like many IT companies, see this in the future? What’s your thinking on by the way. That’s exactly the position I do not MobilePay and related payment solutions? want to be in. A commodity provider is all about efficiency and low prices and nothing about the Jesper Nielsen: First of all, innovation hasn’t customer interface or relationship. stopped. We’re still launching a new product per month, and this isn’t going to stop. And MobilePay It’s fair to say that a bigger and bigger part is a fully-owned Danske Bank company. Let me put of our relationship is dictated by our ability to the Danish perspective: it’s hard to grow much more create digital solutions that give a great customer in Denmark. Our question was should we develop experience. IT definitely plays a bigger and bigger more services on MobilePay on the consumer role. Being good at IT means things keep on side, or should we broaden the ecosystem around working but if we lose out on the interface with MobilePay and get more distribution on the our customers, that’s going to be a different merchant side? That's why we chose to open up problem for us than for an IT company. MobilePay for distribution partners such as other banks. PA: Will you be able to accomplish that through organic growth or do you see that you might Our logic was it was probably better for us. It’s need to make acquisitions to grow enough? probably more disruptive to actually move in that direction. If you look at building an account Jesper Nielsen: We’re open to some sort of bolt- to account infrastructure, we think that's a big on, if it makes sense. But if you look at Sweden proposition. I think that's probably also our

6 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES “Actually, one of the first business solutions for mobile pay was made with a small coffee operator.”

biggest advantage, both as a bank and for the the sector will go. Our focus isn’t to be completely financial sector, in terms of competing with Big different from other banks, but being a better bank, Tech and Fintech. and executing faster. We saw that with mobile pay. The one who gets it right first, wins the market. That also means you get an infrastructure you can commercialise in an open banking environment. For me, this is all about execution and how we That's why we did it. MobilePay needs to develop create an organisation that creates great customer and needs to be top notch on innovation. That also experiences, that develops new and innovative means that the governance around this will need to solutions, and that has a culture where this stay agile and that's also the message from us to is embedded. We need to work on having an the partners and from the partners to us. MobilePay operational framework that can deliver. And we needs to be able to move more freely than sector need to have a right ‘hammer for the nail’ approach. companies have done previously. It’s not a sector company. It’s a commercial company. PA: New ideas, innovation and Fintech is important. What I hear you say is that to achieve your ambition PA: You’ve talked about new delivery models. for personal banking in Danske Bank, it's really What will your customer interface be for you in about how you manage to take those inputs from the future? What are the main changes you’ll see the outside and do something about it and do it happen? You’ve said that more and more will be fast and right, with the right people, small teams digital and some will be robotized, but person to and make it happen in the marketplace. person interaction won’t cease to exist. What else? What are you going to do which is unique, different Jesper Nielsen: Sometimes we do that together from the others? with a Fintech partner. Sometimes we’re co-locating with the Fintech partner. Sometimes we do it Jesper Nielsen: Where we’re trying to be unique together with a merchant. Actually, one of the first is in the level of execution. I think that’s our business solutions for mobile pay was made with competitive advantage. All our competitors read the a small coffee operator – a simple business with a same reports. They talk to the same consultants and simple payment interface, but one that needed a they probably reach many of the same conclusions mobile interface. Partnerships like that are getting that we reach. more and more valuable for us.

Many of the themes are similar, and the logic is the PA: Thank you very much for being so candid, same on where we need to go as banks and where and sharing your thoughts with us.

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 7 Platform THINKING Why platform business models represent a double-edged sword for big banks.

AUTHOR: FREDRIK BRANDT

The term “platform business” has become one a platform model, and consequently the value of the hottest buzzwords in business in recent chain is not linear. years, much like “disruption” before it. In fact, the two terms are often used in the same sentence. There are many examples of platform business This is especially true when it comes to Airbnb models, as well as Uber and Airbnb we also have and Uber, which have become popular examples companies like Amazon and WeChat. Despite the of both terms. However, Uber and Airbnb only fact that these successful platforms businesses represent a small share of what is also referred now operate across vastly different industries, they to as the “platform economy”. In fact, five of the all share common traits such as a rapid growth world’s most valuable companies are now platform rate, disruptive impact on industry profitability businesses, up from just one in 2007. and customer relationships, and a winner-take-all market dominance. This raises the question, what is a platform business and how is it different from a traditional business For incumbents, platforms represent not only a model, also referred to as pipeline business? A potential threat but also an unmatched opportunity. traditional business model is a single-sided model A handful of companies have successfully pivoted focused on bringing goods or services along a their business model towards the platform economy linear value chain, a pipeline, with clearly defined by opening themselves up to both sides of the suppliers and customers. In contrast, a platform market, i.e. both consumers and producers, and by business model is a multi-sided model focused on doing so establish new revenue streams and market facilitating an interaction between the producer and dominance. Perhaps the two best examples of such consumer. The interaction element is core to a strategic pivot are Amazon and Apple, with their

8 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES marketplace and app store, respectively. of services. To successfully design a platform and take a truly dominant position on it, banks must Despite the massive success of platform models, first focus on facilitating interactions and how the global banking industry has yet to see the they can create value to both the consumer and emergence of the Uber of banking. However, with producer side of the market. global Fintech investment still rising, increasing interest from big tech, and the regulatory catalyst The process of pivoting to increased openness of PSD2, the platform revolution in banking could to both sides of the market is often viewed as one be right around the corner. which requires a trade-off between the different interests and clouded by fears of giving away The world’s top banks, particularly those heavily competitive advantage. However, if the pivot is exposed to the retail sector are increasingly designed and managed strategically, the need becoming aware of both the risks and opportunities for this kind of trade-off disappears. associated with the platform economy. That awareness is being accelerated by PSD2 as banking PA Consulting Group has been working with is set to become more open, more competitive, one of the largest European banks and Sangeet and with more empowered consumers. The truly Choudary, an MIT professor and author of two innovative banks will respond to PSD2 by increasing books on platforms, to develop a methodology that their openness beyond what is legally required in an effectively and comprehensively designs a platform effort to take a dominant position in the platform strategy that can minimise the need for trade-offs. economy. The bank, having recognised that the future of banking is evolving around platform models, can A number of large retail banks in Europe are in the use the methodology to create a structured process process of strategically assessing what position in for designing a platform model and then use it as a the platform economy they can take. Most large strategic tool to manage the model. banks already hold strong technological platforms with significant consumer bases, however, their Developing the Uber of banking is the subject of producer side consists almost exclusively of the a fiercely intense competition between big banks, banks’ own financial products and services. Their nimble startups, and big tech. Applying the latest challenge is how to pivot this existing model knowledge and adopting a proven methodology towards an open platform where third parties can could give the players the vital edge they need to increasingly operate as producers and providers succeed.

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 9 10 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES What is a NEOBANK – really? The term ‘neobanking’ is gaining increasing attention in the media – but what is a neobank?

AUTHOR: SOPHIE GRINDSTAD

The deregulation element of PSD2 means new fully from traditional banks, it may be useful to look at digital players can emerge, offering everything from how they relate to a pillar of traditional banking: the savings and loans to insurance and credit. These right to offer banking services. All traditional banks players are all very different, so we’d argue that the have their own bank license, but one way to group term ‘neobank’ doesn’t do enough to describe the challenger banks is based on how they acquire the organisations in the challenger-banking sphere. right to operate.

In the myriad of emerging players, it can be New banks difficult to identify the different segments. This isn’t These banks apply for a full banking license, and surprising, because the challenger banking market a so can compete independently and on equal terms way off maturity. Here, we provide some guidelines with traditional banks. to the unstructured landscape. Examples: MYBank, N26, Atom, Starling bank, Challenger banks can be characterized in various Monzo ways. To understand how challenger banks differ

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 11 Beta banks services in other non-traditional ways. An example These are greenfield subsidiaries of existing banks, of this is Monese, which bases its offering on an or joint ventures where existing banks are central e-money license. Non-banks are Fintech start-ups owners. Beta banks get the right to offer bank that operate independently of existing banks, and services through the existing bank’s license. If the can largely disrupt traditional banking. beta bank’s purpose is to allow the mother bank to expand across country borders, betabanks may Examples: Monese also leverage partner banks’ licenses in the target market. Because beta banks are often set up as Consumers want to carry out their financial tasks lightweight entrants to new markets, the services in a simple and seamless way. When confidence they offer may initially be limited – but the strategy in technology increases, the traditional banks that may be to expand by offering more services as they keep focusing on owning the customers rather than gain foothold. solving customer problems will lose the race against players who manage to offer good user experiences Examples: Sberbank direct, Baidu Bank (China’s – with or without bank license. largest search engine in alliance with Citibank China), Simple (BBVA) The functionalities banks offer vary both internally and across the various categories we’ve described, Neobanks and may also vary over time. The Norwegian peer- These are neobanks in the true sense of the word: to-peer payments market is an example of this, they don’t have their own bank license, but use where the battle for supremacy is arguably cooling partners to offer bank-licensed services. Apps that down. As the countries’ largest bank coalitions facilitate the administration of accounts and credit accumulate behind the common platform VIPPS, cards are typical neobanks – they rely on customers more functionalities will likely be added to the having an account with an underlying bank with platform. Meanwhile, neobanks like Lunarway, Yolt a corresponding bank license, but offer a user- and Moven are expected to launch their solutions friendly interface. The extent to which customers for cross-account spend analyses and tracking in are aware of the underlying bank relationship day the same market. Which players will win the market to day may vary. remains to be seen.

Examples: Yolt (ING’s newly launch in the UK retail In addition to this, we see the emergence of actors banking market), Lunarway, Webank (Tencent, the offering niche services that traditionally may not company behind China’s most popular social media have been regarded as core banking services, like platform WeChat), Moven peer-to-peer loans. Other examples include account services for immigrants, facilitated through new Non-banks onboarding procedures not based on traditional ID Perhaps the most exciting category of challenger documentation. With initial narrow targeting, such banks: these are players who don’t have a players could expand by adding more functionality connection to traditional banking licenses, but meet and services over time. the conditions necessary to provide financial

12 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES “Traditional banks that keep focusing on owning the customer rather than solving customer problems will lose the race.”

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 13 Is BankID positioned FOR THE FUTURE? The increasing importance of digital identity was forecasted in the spring ‘17 edition of PA’s Financial Newsletter. To shed more light on this development we spoke with Jan Bjerved, CEO of the Norwegian identity scheme BankID.

AUTHOR: KNUT MARTIN HAUGE

PA: What has the development for identity services market for identity management services? and BankID been like over the past 3 years? Jan Bjerved: PSD2 will impose new requirements Jan Bjerved: We have seen strong demand for on the authentication of users through Strong secure digital identity technologies. BankID has Customer Authentication in a wide range of user gone from being an “e-bank login” to becoming scenarios. In the near future, PSD2 could give a master key that provides access to more than Norwegian end-users the opportunity to use a 2,000 webpages and services. Today, each of us Spanish app e.g. to check the balance in their must keep track of more than 100 usernames and Norwegian bank. This situation makes it essential passwords, but with BankID you only need one that end-users feel confident that their data is being password. The result has been a strong growth for managed in a safe and secure manner. Moreover, BankID: the number of transactions has almost GDPR will increase the focus on privacy and how doubled in three years, meaning that the average personal data is managed, and with it the need to user today accesses BankID between 160-170 times secure digital identities. BankID Norway will this fall per year. launch a PSD2 pilot for the BankID service, which will be compliant with the Regulatory Technical PA: How will PSD2 and Open Banking impact the Standards (RTS).

14 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES Average number of identifications* per user per year: 160-170

3-year growth: ~100%

Jan Bjerved is the CEO of the Norwegian identity scheme BankID. PHOTO: BANKID

PA: Is BankID positioned for the future? that we are a Norwegian service which has secured customers’ identity for more than ten years. Based Jan Bjerved: Yes, the company is well positioned on this experience, we can continue to build our for the future. In the past few years BankID Norway services. Faced with the choice between foreign has undertaken a number of actions to improve user actors and Norwegian BankID or xID, we believe friendliness and to make it easier for businesses people will choose a simple and user-friendly to adopt the service. By the end of this year we provider who end-users trust will protect their data. will have launched a new service – xID – which We believe there will be increased focus on this eliminates the need for usernames and passwords once the GDPR comes into effect. once and for all; or rather “forgotten username or password” which most of us are familiar with. The PA: What are your messages regarding digital ID in service is not a replacement for today’s BankID, general and BankID particularly to politicians, banks but a new, supplementary service that can be used and the public respectively? in settings where we currently employ usernames and passwords. The service will allow us to offer Jan Bjerved: Norway has a unique opportunity to a broader spectrum of ID-services than we have take a leading position within Fintech. A central today. reason is our common solution for ID verification. Not many other countries can boast a similar PA: What core developments do you foresee for starting point as Norway, where just about BankID in terms of services and usage areas? everybody has a BankID with a real underlying identity. Through a common ID verification, used Jan Bjerved: BankID is, and will continue to across all industries and in both the public and remain, a central part of our users’ daily lives. This private sector, we can develop world leading means that we have to develop our services by innovative and digital solutions, connect services continuously improving user experience, offering and devices (IoT) together as well as digitalize our new innovative login solutions and ensuring that we processes. To succeed, we need to continue to build are relevant on the platforms our users prefer. Our on our common solutions which have given us this strength lies in the enormous trust we have built opportunity, and compete on the quality and user- over several years, a trust which is based on the fact friendliness of solutions offered to consumers.

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 15 The dance around THE GAFA GOD The traditional ways of adopting best business practice, such as lean, benchmarking and learning from other organisations in the same industry is no longer enough.

AUTHOR: THOMAS BJØRNSTAD

Google, Apple, Facebook and Amazon (GAFA) According to the classic definition, competition have changed competition dynamics and the parity has happened. Toyota inspired many with rules of the game. But instead of copying GAFA, its “lean manufacturing”, while General Electrics digital transformation is about finding your own has inspired many with its models of strategy and path based on an honest assessment of your own management. However, the significance of these capabilities, but not least creative and critical examples fades in light of GAFA. thinking form the boardroom and all the way through the organization. Facebook has managed both to create addition and to define reality through just being “the social The digital prophets have managed to scare top network”. Apple is another example that has management and boardrooms, and “everyone” created a faithful church through user experiences is now desperately looking for digital heads. The and it's own eco-system. While Google’s advanced irony is that the boardrooms in particular lack algorithms determine what information you get and fundamental technology skills. Another irony is control the most important portal to the world. that individuals represented on boards and group management tend to have a lot of self-confidence Every visionary business leader drams of disrupting in their decision-making. The combination can his market, but GAFA has characteristics that go potentially create a Molotov cocktail of unhealthy far beyond a business. GAFA is like a nation and a decisions, chaos and lack of action. window to the world, and top executives should

16 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES therefore be more concerned about ensuring a interdisciplinary teams working together with successful digital transformation for their business. mutual respect and high efficiency for the collective best interests. Many traditional businesses have created a digital surface with online solutions and applications. There are a lot of party talks and digital words The digital words have appeared in strategies, role these days. Top management must of course set descriptions and in the project portfolio, but has direction, but change requires that the elephant is the business transformed for that reason? divided into pieces. Area by area must be fixed with dedicated teams. Top executives must understand A successful digital transformation begins with the the business in terms of platform and modular recognition that the business must find its own path thinking. Some things can be solved separately, based on an honest self-image, and some clear while other things must be built and open to others. theses of key beliefs for the business. It all starts with critical and creative thinking. The totality and You should be taking away the prophecies relevance of the business must be understood. The about GAFA dominance, and instead be directly skills shortage must be offset, and it requires time, concerned with how the leading players in the focus and new skills. industry seize the change from inside. Look at how to build structural capital and expertise to find new HR must also be the business and not a support revenue sources, create profitable new business function. New digital heads do not help models and how to change the kernel bit by bit. development if they do not work closely with the entire business. It is challenging to create Over the last 24 months, PA has been working on projects and observed how from PSD2 to Open Banking the focus has been on “beyond banking”, “platform as a business” and “disrupting the core”. “Every visionary business The interesting thing here is not whether anyone is predicting a day of judgment and a paradigm shift leader dreams of “overnight” but rather how developments take place disrupting his market, but through a series of changes to the margin that will GAFA has characteristics eventually create significant change needs. If you manage to adjust your actions to the terms of that go far beyond a the day, you will win. However, if you stick to your business.” own actions or dreams, and do not take account of what is happening elsewhere, you will get it wrong.

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 17 Quarterly Perfomance development

Quarterly performance development Norway

• This September, Norwegian banks launched the new With the launch of VippsGO, Vipps has taken the share savings account, earlier introduced as part of first step towards becoming a broader commerce a new savings scheme proposal in the Norwegian platform. Government National Budget for 2017. The share savings account enables private investors to trade • Skandiabanken has become the biggest investor shares and equity funds without triggering capital of local Artificial Intelligence and machine learning gains tax, for as long as the value of the sales is company Quantfolio AS after acquiring a 39.9% kept in the account. The goal is to simplify the stake in the company. This investment represents reallocation of shares and equity funds, and increase an important step in the bank’s ongoing initiatives the attractiveness of share investments in order to to further strengthen and facilitate digital saving stimulate share savings among private investors. options for the private market. The acquisition will enable Skandiabanken to provide customers with • More than 20 banks and technology companies automated and tailored savings advice through a in Bergen have joined forces to create a Fintech user-friendly robo-advisory service. hub, called Finance Innovation, in order to support the growth of Fintech companies and new • Earlier this year, the Ministry of Finance placed product developments. According to Christoffer Norwegian Pension Company Silver under O Hernæs, CDO of Skandiabanken, the cluster administration after failing to comply with will act as a catalyst to launch new initiatives in regulatory capital requirements required under research, education, innovation infrastructure and Solvency II. The company's administrators may internationalisation. have found a solution that can save the pensions for the around 20,000 customers in the company. • Vipps, the leading mobile payment service in The plan implies that all available funds in Silver, Norway, recently launched a new service making including the company's equity, are placed into a it possible for merchants to set up their own online pot distributed among the customers. This means shop within the Vipps app. The service, called that the shareholders in Silver will lose all the “VippsGO”, allows customers to use the Vipps app investments they have made in the company. to find a merchant’s goods, pre-order and pay from the Vipps app before picking up the goods ordered.

18 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES Quarterly performance development

Quarterly performance development Denmark

• Denmark is fast moving towards a cashless society credit card. Nordic payments processor Nets will with only 6-7% of the transaction being carried be deploying the system, which will use digital out in cash. MobilePay, the peer-to-peer money tokens to replace the use of Dankort card numbers transfer app from Danske bank currently has more at the point-of-sale for tap-and-go payments. than 3.4 million customers. On an average, DKK 84,480 is transferred every minute through the app • Apple recently announced that its contactless and MobilePay has become the third most used mobile payments system, Apple Pay, will be app in Denmark. Their customer base grows by launched in Denmark, Finland and Sweden before about 1,400 new users every day and more than the end of this calendar year. Luca Maestri, CFO 4,600 web shops accept payment through the app. at Apple, claims that Apple Pay is the number During the spring, MobilePay signed a contract with one NFC payment service on mobile devices, Checkout Finland, which will take the number of with nearly 90 percent of all transactions globally. MobilePay compatible shops to 10,000 across the When iOS 11 launches this fall, it is expected that Nordics. Apple Pay-powered peer-to-peer payments will be integrated in the Messages app. • Danish insurance player Tryg is among the first companies in Nordics to develop a cyber insurance • Danske bank has launched “digital Pocket Money”, product called “E-Protect” for small and medium which includes an app and a pocket money card size enterprises. The company sold 2,800 cyber for children. The digital solution will help both insurance policies in the second quarter, up from parents and children to keep track of their money. 700 in the first quarter triggered by recent cyber- According to Danske Bank, children can use the attacks. pocket money app to see when their money is paid into their account and how their savings develop, • The 62 co-operative and savings banks that form while parents can use a feature in the new Mobile the Bokis banking collective along with four Banking app to transfer money and keep an eye nationwide banks Sydbank, Spar Nord Bank, on their children’s pocket money. Arbejdernes Landsbank and Nykredit Bank have become the first banks in Denmark to offer mobile payments using Dankort, the national debit and

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 19 5 What is a neobank – really?

Quarterly performance development Sweden

• Klarna, one of the largest and most successful part of Ingenicos ambition to expand its digital Fintech unicorns in Sweden, recently received footprint, and is one of the largest deals of its their banking license from the Swedish FSA – 20 kind. Bambora employs more than 700 people months after filing for one. Their next move is still and delivers in-store, mobile and online services unknown, but the CEO, Sebastian Siemiatkowski, through end-to-end payment solutions for over has communicated that they want to be part of 110,000 merchants and enterprises globally. reshaping the retail banking industry. Just a week after Klarna received their banking licence, it • Nordnet bank, an internet based Nordic bank, became official that the credit card giant Visa has recently launched a new AI-based advisor, IPSoft’s acquired a strategic stake in the company. Klarna “Amelia” AI platform in order to make customer serves more than 60 million customers across interactions more effective and at the same time Europe and had more than €13bn in transactions increase service availability for their customers. processed last year. Just weeks later, Nordnet launched the option for customers to make deposits through Swish, • Nordea is the first bank in the Nordics to release the leading mobile payments service in Sweden, an Open banking/Open API-portal for third-party becoming the first bank in Sweden to do so. developer and Fintechs to register and start their According to Nordnet, this will allow customers collaboration with the bank. Currently, the site has to transfer money to their accounts in real-time limited functionality and only pilot activities are and thereby translate their ideas into investments being conducted. Nordea has picked up a group faster. of 22 customers, Fintech firms and third parties for its new pilot. The new pilot will allow developers to test the API by retrieving account information details, account balances, and transaction history.

• Bambora, one of Sweden’s leading payment providers, was just sold by private equity investor Nordic Capital to the French company Ingenico Group at a price tag of €1,5bn. The acquisition is

20 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES Value map for FINANCIAL CORPORATIONS

2.50

2.00 Swedbank Handelsbanken

1.50 P/B Sample average Q2 2017: 1.41 Spar Nord Sydbank SEB Bank Nordea 1.00 Jyske Bank DNB Danske Bank Sample average Q2 2016: 1.07

Storebrand 0.50

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

Total assets in mEUR 2016:Q2 2017:Q2

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 21 Nordic Q2 2017 FINANCIAL HIGHLIGHTS

Consolidated 642,756 29.0% 2.9% bEUR Nordea highest total assets in Handelsbanken highest core Storebrand highest Q2 2017 capital ratio in Q2 2017 asset growth in Q2 2017

Life & Pension

1,211 6.2% 2.6% mEUR

Danica Pension highest Nordea highest ROE Nordea highest premium income in Q2 2017 before taxes in Q2 2017 investment return in Q2 2017

22 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES Banking 4.9% 38% 0.49% Swedbank highest ROE Swedbank lowest cost/ SparNord Bank highest net before taxes in Q2 2017 income ratio in Q2 2017 interest/total assets in Q2 2017

Casualty/non-life

1,040 77.8% 10.9% mEUR

If highest premium Topdanmark lowest Tryg highest ROE before income in Q2 2017 combined ratio in Q2 2017 taxes in Q2 2017

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 23 FACTSHEET

Size Profitability Efficiency Valuation Solidity

Asset Relative Core capital Consolidated Total Assets ROE after tax3 Cost/income4 P/B5 P/E6 growth1 size2 ratio

17Q2 16Q2 17Q2 17Q2 17Q2 17Q1 17Q2 17Q1 17Q2 17Q1 17Q2 17Q1 17Q2 16Q2

Handelsbanken 305,740 326,603 1.3 % 13.2 % 3.0 % 3.1 % 46.9 % 44.8 % 1.7 1.8 14.5 14.5 29.0 % 28.9 %

Nordea 642,756 671,236 -1.2 % 24.6 % 2.4 % 2.9 % 53.6 % 50.6 % 1.4 1.5 15.1 12.8 19.2 % 16.8 %

SEB 286,730 288,527 -5.1 % 12.6 % 3.3 % 3.2 % 48.0 % 48.5 % 1.6 1.6 12.3 12.8 22.1 % 21.1 %

Swedbank 250,503 266,832 -2.5 % 12.9 % 3.8 % 4.3 % 38.2 % 37.6 % 1.8 1.9 12.0 11.3 27.8 % 25.3 %

Danske Bank 480,535 468,205 0.8 % 17.3 % 3.2 % 3.4 % 49.1 % 45.3 % 1.6 1.5 12.2 10.6 16.2 % 18.3 %

Jyske Bank 77,991 75,870 1.7 % 2.5 % 2.0 % 3.0 % 66.5 % 54.4 % 1.1 1.0 13.1 8.1 16.5 % 15.8 %

SparNord Bank 10,706 10,414 1.6 % 0.8 % 3.4 % 3.5 % 61.7 % 54.3 % 1.4 1.1 10.3 7.6 13.2 % 14.0 %

Sydbank 18,840 19,897 1.8 % 1.2 % 3.2 % 3.9 % 62.4 % 60.3 % 1.5 1.5 11.4 9.4 16.1 % 16.1 %

DNB 290,712 285,803 -5.1 % 13.5 % 2.5 % 2.2 % 42.4 % 44.0 % 1.1 1.1 11.0 12.2 19.8 % 19.0 %

Storebrand 58,934 55,051 2.9 % 1.5 % 2.6 % 1.6 % 92.5 % 96.3 % 0.9 0.9 8.4 12.9 16.1 % 15.8 %

KEY: • Highest or Best Performing • Lowest or Worst Performing

24 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 25 ROE Net interest/ Cost/ Bad debt/ Other income/ before taxes7 total assets8 income9 total assets10 total income Banking 17Q2 17Q1 16Q2 17Q2 17Q1 16Q2 17Q2 17Q1 16Q2 17Q2 17Q1 16Q2 17Q2 17Q1 16Q2

Handelsbanken 4.2 % 4.1 % 4.1 % 0.3 % 0.3 % 0.3 % 47 % 45 % 45 % 0.03 % 0.03 % 0.03 % 28 % 29 % 31 %

Nordea 2.3 % 2.7 % 3.3 % 0.2 % 0.2 % 0.2 % 55 % 53 % 49 % 0.07 % 0.08 % 0.09 % 41 % 42 % 44 %

SEB 4.1 % 4.0 % 4.4 % 0.2 % 0.2 % 0.2 % 49 % 49 % 48 % 0.03 % 0.03 % 0.03 % 50 % 52 % 52 %

Swedbank 4.9 % 5.3 % 6.1 % 0.3 % 0.2 % 0.2 % 38 % 38 % 34 % 0.07 % 0.05 % 0.09 % 41 % 44 % 52 %

Danske Bank 4.6 % 5.1 % 4.0 % 0.1 % 0.1 % 0.1 % 48 % 44 % 51 % -0.01 % -0.01 % 0.01 % 35 % 40 % 35 %

Jyske Bank 2.6 % 3.8 % 3.4 % 0.3 % 0.3 % 0.3 % 67 % 54 % 57 % -0.03 % 0.02 % -0.01 % 35 % 45 % 30 %

SparNord Bank 4.2 % 4.4 % 3.6 % 0.5 % 0.5 % 0.5 % 62 % 54 % 58 % 0.05 % 0.01 % 0.41 % 52 % 55 % 49 %

Sydbank 4.1 % 5.0 % 3.9 % 0.4 % 0.4 % 0.3 % 62 % 60 % 59 % -0.06 % 0.03 % 0.12 % 53 % 54 % 54 %

DNB 2.7 % 2.8 % 2.8 % 0.3 % 0.3 % 0.3 % 48 % 48 % 41 % 0.07 % 0.00 % 0.34 % 36 % 36 % 44 %

KEY: • Highest or Best Performing • Lowest or Worst Performing

Operating cost/ Premium income (mEUR) Investment return11 ROE before taxes12 Total assets13 Life & Pension 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2

Nordea 154 159 148 2.6 % 1.2 % 2.3 % 6.2 % 6.6 % 5.9 % 0.31% 0.32% 0.31%

SEB 157 148 153 0.0 % 0.0 % 0.0 % NA NA NA 0.40% 0.39% 0.46%

Danica Pension 1,211 1,533 1,035 0.0 % 0.0 % 0.0 % NA NA 2.3 % 0.00% 0.00% 0.00%

DNB Livforsikring 401 709 382 2.2 % 1.0 % 1.9 % 2.8 % 1.6 % 4.3 % 0.40% 0.42% 0.47%

Storebrand 665 812 604 0.9 % 1.4 % 1.9 % 2.4 % 1.8 % 2.0 % 0.48% 0.53% 0.48%

KEY: • Highest or Best Performing • Lowest or Worst Performing

26 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES Premium income Investment return14 ROE before taxes15 Combined ratio Casualty/ non-life 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2

If 1,040 1,543 1,04 0.6 % 0.4 % 0.4 % 5.5 % 4.6 % 6.1 % 0.0 % 87.4 % 84.5 %

Länsförsäkringar 657 644 636 2.9 % 1.9 % 1.8 % 5.8 % 4.3 % 3.8 % 95.0 % 94.0 % 94.0 %

Topdanmark 301 301 300 0.7 % 0.2 % 1.8 % 10.5 % 9.2 % 11.1 % 77.8 % 85.8 % 86.2 %

Tryg 597 600 589 0.3 % 0.5 % 0.4 % 10.9 % 9.6 % 9.8 % 81.7 % 87.3 % 82.6 %

Gjensidige 622 617 594 0.9 % 1.0 % 1.0 % 7.0 % 5.8 % 8.1 % 83.3 % 86.6 % 80.6 %

KEY: • Highest or Best Performing • Lowest or Worst Performing

Operating cost/ Premium income (mEUR) Investment return11 ROE before taxes12 Figures are based on annual and quarterly reports, Total assets13 Life & Pension and may contain non-recurring items 1. Asset growth last quarter 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 17:Q2 17:Q1 16:Q2 2. Relative size of market capital (out of a total of 100) 3. Quarterly earnings/equity Nordea 154 159 148 2.6 % 1.2 % 2.3 % 6.2 % 6.6 % 5.9 % 0.31% 0.32% 0.31% 4. Operating cost/total income 5. Number of shares*share price at end of quarter/book value of equity 6. Number of shares*share price at end of quarter/earnings last twelve SEB 157 148 153 0.0 % 0.0 % 0.0 % NA NA NA 0.40% 0.39% 0.46% months 7. Quarterly earnings before tax/equity Danica Pension 1,211 1,533 1,035 0.0 % 0.0 % 0.0 % NA NA 2.3 % 0.00% 0.00% 0.00% 8. Net interest quarterly/total assets bank Definitions 9. Operating cost /total income (quarterly) Asset growth = Growth in assets last year DNB Livforsikring 401 709 382 2.2 % 1.0 % 1.9 % 2.8 % 1.6 % 4.3 % 0.40% 0.42% 0.47% 10. Losses last quarter*4/total assets ROE = PAT/Average equity capital 11. Quarterly return on total portfolio P/B = Market value end of period/Book value end of period Storebrand 665 812 604 0.9 % 1.4 % 1.9 % 2.4 % 1.8 % 2.0 % 0.48% 0.53% 0.48% 12. Earnings quarterly/equity P/E = Price per share end of period/PAT per share 13. Operating cost quarterly*4/total assets life insurance Tier 1 Ratio = Tier 1 Capital/Risk weighted assets 14. Quarterly return on total portfolio Cost/Income = All operating costs/Total income 15. Result before tax quarterly/equity in casualty Cost Ratio = All operating cost/Average assets

PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 27 PA Consulting Group. We Make theDifference. PA. Make theDifference and get thejobdone. that really work in practice, notjust onpaper. Then we roll upoursleeves Our clients chooseusbecausewe challengeconcention to finthesolutions governments andcommunities worldwide. and deliver exceptional results that have alasting impact onbusinesses, technology andinnovation allows usto challengeconventional thinking Our deepindustry knowledge together withskillsinmanagement consulting, and transport, travel and logistics. financial services, government, healthcare, life sciences, manufacturing We are experts inconsumer, defence and security, energy andutilities, across theAmericas,Europe, the Nordics, theGulfandAsiaPacific. An independent firmof over 2,600people, we operate globally from offices

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