Payments solutions in the digital landscape<\/u><\/p>\n
When was the last time you used cash to transact? If you are from the Nordic region, it is likely you cannot even remember. In the Nordics, the share of transactions conducted in cash was 27% overall and only 15% among consumers aged 30-39[1]<\/a>\u00a0in 2016 (versus an EU-wide average of 60%[2]<\/a>). In the retail sector, an astonishing 95% of transactions are handled digitally<\/strong> and most outlets no longer accept cash[3]<\/a>.<\/p>\n The move towards a digital economy and alternative payments solutions offered by financial technology players such as PayPal and Apple Pay pose a significant threat to traditional banks\u2019 profitability model. Up to one-third of Nordic banking revenues are at risk by 2020 due to lost market share and pressure on spreads and commissions[4]<\/a>. As a result, banks face pressure to completely overhaul their payments solutions supply chains and rethink their legacy business models to stay up to date with their customers\u2019 needs. The good news is that the move away from costly cash supply chain activities such as ATMs and over-the-counter cash services also presents opportunities for substantial cost savings<\/strong>.<\/p>\n Nordea\u2019s digital transformation journey<\/u><\/p>\n Nordea, the Nordic region\u2019s largest lender, is directly impacted by these trends and has established a new Group Digital Unit to drive the digital agenda across the firm[5]<\/a>. The bank acknowledges that this process is \u201cnot only strategic and transformational, but absolutely essential<\/strong>\u201d[6]<\/a>. The CEO has stressed the need to think more like a financial technology start-up, and the bank is investing nearly EUR400m per year on simplification and digitalisation of its front- and back-end systems[7]<\/a>.<\/p>\n One example of Nordea\u2019s digital transformation in Sweden is the development of an e-commerce transaction app called Swish, which is co-developed with five other large banks. The app, which lets consumers seamlessly use their smartphones to make payments and transfer money to someone else\u2019s bank account, was launched in 2012 and has grown to over 6m users (over 60% of the country\u2019s population) in less than five years[8]<\/a>. This app represents a joint industry effort<\/strong> to counteract the threat of competitive payment methods and leverage the banks\u2019 strong customer base and knowledge of their home markets.<\/p>\n Another part of Nordea\u2019s move towards digital banking is the sharp reduction in cash services and ATMs provided to its customers. For example, Nordea Norway completely abandoned cash services in 2015 which the country manager described as \u201can important strategic step into the digital world\u201d since \u201ccustomers want to do as much as possible online or on mobiles\u201d[9]<\/a>. Nordea operates over 20 purely digital e-branches and over 20% of customer meetings are held online. This migration to digital platforms<\/strong> and closing of branches is expected to yield total annual cost savings of over EUR250m which can be reinvested in further development of the digital agenda[10]<\/a>.<\/p>\n \u2018Tis only the beginning\u2026<\/u><\/p>\n Nordea acknowledges that this is only the beginning of the digital revolution. The bank has launched the \u201cNordea Open Banking\u201d initiative, inviting programmers to co-develop its future application programme interfaces (APIs) in order to level the playing field with more agile FinTech players[11]<\/a>. This new initiative should focus on turning customer \u201cbig data\u201d into actionable insights<\/strong>, such as accurate risk-adjusted pricing and more personalised interactions and offerings[12]<\/a>. Traditional banks sit on a wealth of customer data but have historically been very slow to benefit from the insights hidden therein. Nordea would be well advised to prioritise this area going forward to safeguard their market leading position.<\/p>\n In order to successfully implement this digital agenda in the medium to long term, Nordea needs to stay at the forefront of the war for digital talent<\/strong>. Software developers and digital product designers are very sought-after commodities on the job market, and the bank needs to ensure that it offers competitive benefits and recruits in the right talent pools to attract the requisite talent. The alternative options for FinTech developers are plentiful, and only by positioning itself as an attractive place to develop payments solutions software will Nordea establish itself as a leading player in this field.<\/p>\n This digital revolution does not come without inherent risks. Less digitally savvy customers risk being left behind, and more vulnerable customers dependent on cash transactions might be cut off from the financial system. How to strike a balance between the preferences of the many and the needs of the few and vulnerable remains an open question, and as a market-leading bank with deep national heritage Nordea needs to address these concerns. Similarly, it is not certain the bank can guarantee an adequate level of cyber security<\/strong> to support a fully digital economy, and critics might make the argument that certain \u201cmanual inefficiencies\u201d in the system are warranted to prevent a systemic blackout caused by a targeted cyber-attack.<\/p>\n Word count: 793 words<\/p>\n [1]<\/a> \u201cPayments in the Nordics\u201d, data from the European Payments Card Statistical Yearbook 2015-16, https:\/\/www.nets.eu\/SiteCollectionDocuments\/PaymentsintheNordics.pdf<\/a><\/p>\n [2]<\/a> \u201cEuropean Cash Report 2016\u201d, latest available data, http:\/\/cashessentials.org\/publications\/publication\/2016\/05\/28\/2016-european-cash-report—g4s<\/a><\/p>\n [3]<\/a> Credit Suisse (2015), \u201cWe Don\u2019t Accept Cash\u201d, https:\/\/www.credit-suisse.com\/corporate\/en\/articles\/news-and-expertise\/sweden-we-dont-accept-cash-201503.html<\/a><\/p>\n [4]<\/a> Accenture (2015), \u201cDigital Disruption in Nordic Retail Banking\u201d, https:\/\/www.accenture.com\/t20150924T055551__w__\/se-en\/_acnmedia\/Accenture\/Conversion-Assets\/DotCom\/Documents\/Global\/PDF\/Strategy_7\/Accenture-Digital-Disruption-Nordic-Retail-Banking-Study.pdf<\/a><\/p>\n [5]<\/a> Nordea press release (2016), https:\/\/www.nordea.com\/en\/press-and-news\/news-and-press-releases\/press-releases\/2016\/06-30-09h00-nordea-establishes-new-group-digital-unit.html<\/a><\/p>\n [6]<\/a> \u201cAre you neglecting the internal digitisation?\u201d, Alvaro Garrido, Nordea Group CIO vlog (2017), https:\/\/www.nordea.com\/en\/press-and-news\/news-and-press-releases\/the-digital-hub\/2017\/2017-05-03-are-you-neglecting-the-internal-digitisation.html<\/a><\/p>\n [7]<\/a> Nordea Transformation Presentation (2017), https:\/\/www.nordea.com\/Images\/33-230367\/Nordea%20Transformation%202017-10-27.pdf<\/a><\/p>\n [8]<\/a> Swish press release (2017), https:\/\/www.getswish.se\/news\/nu-har-swish-6-miljoner-anvandare\/<\/a><\/p>\n [9]<\/a> The Local newspaper (2015), https:\/\/www.thelocal.no\/20151030\/norways-second-bank-to-refuse-cash-from-monday<\/a><\/p>\n [10]<\/a> Nordea Q3-2017 results release, https:\/\/www.nordea.com\/Images\/33-225590\/Presentation%20Third%20Quarter%202017.pdf<\/a><\/p>\n [11]<\/a> https:\/\/nordeaopenbanking.com\/<\/a><\/p>\n [12]<\/a> Accenture (2015), \u201cDigital Disruption in Nordic Retail Banking\u201d, https:\/\/www.accenture.com\/t20150924T055551__w__\/se-en\/_acnmedia\/Accenture\/Conversion-Assets\/DotCom\/Documents\/Global\/PDF\/Strategy_7\/Accenture-Digital-Disruption-Nordic-Retail-Banking-Study.pdf<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" The digital payments revolution is challenging traditional banks to remain relevant to their customers.<\/p>\n","protected":false},"author":9566,"featured_media":20969,"comment_status":"open","ping_status":"closed","template":"","categories":[2205,2029,219,259,3203,247,3204,425],"class_list":["post-20964","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digital-banking","category-digitization","category-ecommerce","category-fintech","category-nordea","category-payments","category-scandinavia","category-sweden","hck-taxonomy-organization-nordea","hck-taxonomy-industry-banking","hck-taxonomy-country-sweden"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n