PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES Spring Edition 2017 2 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 3 Contents The world of banking is changing 3 Interview with Marcus Agius, Chairman of the board at PA Consulting Group How FinTech will impact the Nordic financial 8 services industry Interview with Thomas Krogh Jensen, CEO at Copenhagen FinTech Financial services in 2017 - is winter coming? 10 The countdown to 2018 is ticking away - a timer that many belive could be a start to the era of Open Banking GDPR overview in the Nordics 14 Brings major changes to the current EU Data Protection legislation Quarterly performance development 16 Latest trends in the Nordics Value map for financial institutions 19 The world of banking is changing Nordic Q4 2016 financial highlights 20 Interview with Marcus Agius, Chairman of PA Consulting Group and former Chairman of Barclays, the British Bankers Association and Factsheet 28 Deputy Chairman of Lazard Ltd. The world of banking is changing. It is impacted by economic conditions in countries and regions, by technological trends, new competition and changing preferences and behaviour of their customers, among other factors. PA: What is your view of the situation in the The Scandinavian countries are among these. banking industry around the world today? Is it The second group consists of developed countries different from five years ago? Ten years ago? where banks are technologically lagging. It is most Agius: The global financial crisis started in 2007, intriguing that we find the United States in this ten years ago. Banking has gone through more category. Although the US is the home of world- Contact us change in these ten years than it has in any leading technology, its banks are rather antiquated, equivalent period in the past. Regulation has played and well behind the curve in technological advances. Knut Erlend Vik Thomas Bjørnstad an important role in that change, and it is likely The third group contains developing countries Member of PA's Management group Member of PA's Management group to continue to do so. Going forward, we will see where banking is technologically advanced. An regulation and technology combine in new ways. [email protected] [email protected] example here is Kenya. Without going through We can split the global banking scene into four traditional intermediate steps, they have leap +47 913 61 525 +47 917 91 052 groups of countries: frogged into an impressive banking setup based on First, we have the developed and technologically mobile phones. advanced countries. The banks in these countries are Finally, there are the developing countries where building significant technological advantage, exploiting technology is lagging. We find both India and China Fintech through dynamic customer involvement. here, with banking systems still evolving. 4 PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES PA PERSPECTIVES ON NORDIC FINANCIAL SERVICES 5 a bank and its customers is a very personal thing and PA: In past financial crises, we have seen that those it has to reflect local traditions, local habits, local banks who are very strong in their local knowledge spending patterns and all the rest of it. Having said have had smaller losses than those who have that, globalization is not going to go away, despite become very integrated, very centralized and very some cries for protectionism right now. In trade international. Do you think that is something of the terms, the world is getting smaller and smaller. For past, or could you see the same in the future? trade to continue there will be a need for global Agius: Your question touches on one of the key banks which operate across country borders and elements of banking, which is bankers, and the across currencies. need to have people who know that banking is all PA: So you don’t believe we will see a phase of about risk. Every time a loan is made, the banker protectionism that will slow this down? doesn’t know whether the loan is going to be repaid. He has to make an assessment, based on the Agius: I don’t think that protectionism is going to customer, their credit history, the asset cover etc., stop globalization, but it may affect the pace of and that requires judgement skills. I will give you a change. It has become part of our everyday life. We precise example: When the financial crisis hit the go to Marks and Spencer now to buy a rose, but UK, it wasn’t just caused by problems with exotic the rose is not grown in Kent but in Kenya. This is financial instruments or sub-prime mortgages. what globalization is about. For your smartphone, Some of the banks that were worst hit, were hit the supply chain is really very complex and reaches because of an overextension of poor credit and right around the globe. This is not going to stop. poor lending to the real estate industry. Property Globalization will continue and bankers will need to was overvalued, leverage was too high, and when be active in every stage of the process. the market crashed, it crashed. There were one or PA: Getting back to my first question, you said that two banks who had been caught out in a similar the answer to that was all of the above. Banks are way in similar cycles in the past. They weren’t so We should watch them carefully. Their governments PA: Some say that it might not be just the global, they are regional, they are national, and they exposed, and so did relatively well. The situation have committed to making big changes, and I challengers who will benefit from PSD2 and open are local. But if you think about the competitive was analogous in other geographies where banks think this is ultimately going to lead to the fast banking. It may increase competition among the big scene going forward, do you think there is some part came out relatively well. Canada is a good example, development of new banking services in this group. banks, who will change and develop and compete that may need to become more internationalized and Scandinavia another. And the reason for that wasn’t effectively for each other’s customers? PA: Many have claimed that we are entering a new some parts that may need to remain local? that they were immune to these risks. It was just era: The old banks are becoming dinosaurs, unable Agius: This is a very valid view. Large banks are not that there had been crises in those countries in the Agius: I suspect we will see a further consolidation to keep up with the changes, innovation and the about to cave in to new entrants but they will need past, and they had learned their lessons. When the right at the very top. But there will continue to be evolution of Fintech. New players in the industry and to consider whether the smart thing to do is to be a overheating took place they saw it for what it was a handful of very large global banks, who have the from other industries will take over. On the other pioneer or whether it is better to wait and see which whereas others didn’t. scale, the asset base and the skills to operate that hand, many observe that current challengers have technologies may succeed before they act. There is way. But I don’t see any reason why, at a more local PA: You have previously stated that “Just because grown slower than expected, and the “dinosaurs” no doubt that the pace of change is so great, that level, you can’t have challenger banks or existing the City is strong at the moment doesn’t mean that seem to innovate. What is your view? Will the failure for some banks and some new technologies smaller banks operating perfectly well. it has a perpetual right to remain so.” How do you industry change dramatically, and if it does, will it be will occur. A bank or an existing company could think Brexit may impact the banking industry? driven by current major players or by the challengers easily spend a lot of money trying to push a new or new entrants? device or a new technique, only to find out that they Agius: Brexit is work in progress and I can’t sit have been left behind by someone with a newer or a here and say that I know exactly what is going to Agius: I think there will be different answers to "A bank or an existing better idea. The second point is that many banks are happen. What is clear, is that the banking industry that question in different countries. Many find it big, rich and powerful organizations. They take this will be affected. According to the Prime Minister’s surprising that the new challengers have not yet company could easily threat very seriously. I don’t know of any banks who speech, we are going to leave the single market and been more successful and that the classic stickiness are complacent. They are spending a lot of money on therefore, the access which UK based banks have of existing customers has prevailed. This is spend a lot of money their own research, and they have access to a wide had into the rest of the EU will change. principally because banking is all about money and range of solutions. I think it is difficult to call right trying to push a How that is going to be done remains to be seen.