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Nordic banks target SME customers with fintech services

Large Nordic banks are rapidly moving to a digital delivery model, with redundancies inevitable as they try to fend off smaller competitors – and the SME (small and medium-sized enterprise) business banking sector is becoming a key battleground.

Nordea, OP Financial Group, Danske Bank, Gjensidige, Swedbank, Tryg and DNB are all working on ambitious projects to develop and introduce higher levels of robot-automated customer services as they become more technology-focused to compete with emerging, non-traditional fintech (financial technology) competitors.

In the case of OP Financial Group, the Helsinki-based bank is looking to move all its standard branch services online by 2025. This could lead to the virtual disappearance of its branches from Finland’s high streets. Other Nordic banks and financial groups have similar plans.

But shifting most of their products online means Nordic banks might need to reduce their workforces by thousands.

Almost all of them are involved in advanced or preparatory talks with employee groups or unions in the financial sector.

Job cuts will hit employees in traditional high-street branches the hardest.

OP Financial’s restructuring plan, which is focused on technology, cost reduction and improved productivity, will affect more than 6,000 employees. It aims to reduce the scale of projected redundancies by retraining and relocating staff to newly created positions.

“Like many banks, we must face the reality of change,” said Timo Ritakallio, OP Financial’s CEO. “We need to transform in a way that best serves the needs of our customers. The wider use of digital and artificial intelligence technologies will cause some job functions to become extinct or change substantially. That said, changing to a more technology-rich environment will also create a significant number of new opportunities.”

The advent of robotic consulting services is also helping to drive change, with many banks, online security brokers and pension fund management companies turning to robot technology specialists for cost-efficient customer service and product delivery.

 

But it is small Nordic online investment banks such as Avanza and Nordnet that are acting as a real catalyst for change by challenging the market dominance of the leading high-street banks.

Nordnet and Avanza have both been investing in machine learning technologies since 2016. This has resulted in the introduction of “robot advisers” to guide bank customers through the often complicated maze of savings and investment products.

In Sweden, the growing army of interactive robot advisers now includes the Avanza Auto, Nordea Nora, Nordnet Robosave and Sigmastock.

The niche Nordic online banks pose a very real threat to the traditional banks, who find themselves in a battle to retain customers and market share. New disrupters, such as Apple Pay and Google Pay, also pose a threat.

The main target for these challenger banks is to win more business from SMEs.

Faced with this unprecedented competitive challenge, and fearing a migration of SME businesses to the generally lower-cost online banks, the big Nordic finance houses have now begun to form alliances with external fintech providers.

Swedbank has hired Asteria to develop specialised digital products and services that are customised for SMEs. The partnership is focused on delivering next-generation, simplified, cost-saving financial planning digital banking for small companies.

The Swedbank-Asteria alliance’s primary objective is to provide SMEs with advanced digital tools that enable them to take a “360-degree view” of their financial planning and business cycle processes, said Per Skargren, Swedbank’s head of segment management corporate.

“We want to develop digital solutions that target and fix many of our clients’ pain points,” he said. “These are solutions that can simultaneously remove time-consuming administration and enable companies to concentrate on their core business and growth.”

AI and machine learning

Swedbank is working on an SME-focused offering called Smart Cash Flow in the coming months. It will use AI and machine learning to support SMEs’ cashflow forecasting needs.

In Norway, DNB and Sparebanken Vest are scaling up their digital and cloud technology-based services with the aim of retaining and growing their SME business.

DNB has partnered with Oslo-based Luca Labs to roll out enhanced digital systems, and regional savings bank Sparebanken Vest has formed a partnership with fintech Folio that will lead to the bank merging its online SME-focused banking and accounting functions to strengthen its cloud-based accounting services.

Fintech providers are also in the sights of leading Nordic financial services groups. Danish financial group Tryg is bidding to acquire non-life insurer Alka Forsikring, a move that is heavily influenced by Alka’s online distribution and data analytics expertise.

“Alka is a natural bolt-on acquisition for us,” said Morten Hübbe, Tryg’s CEO. “It is a leading player in the development of customer-friendly digital distribution products and services. It is a good fit in our expanding Nordic business.”

Tryg’s interest in Alka is heightened by the target company’s successful use of data analytics to achieve a higher rate of fraud detection. Also, about 36% of Alka’s insurance premiums are currently sold through its digital channel platform, a level that is expected to rise above 50% within five years.

Oliver Smith

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