The Need for Innovation in the Future Nordic Payments Market

The market for payment, card and information solutions in the Nordic countries is characterised by a mature, advanced payment infrastructure which, time and again, has enabled these countries to develop national payment infrastructure products with a high level of security, great efficiency and at low cost. The background to this is at least three hallmarks of the Nordic countries: a high level of IT readiness, a government digitalisation agenda and a long tradition of collaboration between the public sector and the financial sector.

For decades, the capacity for IT infrastructure development has been an undisputed Nordic strength, and the solutions and products that have resulted from this have in many cases proven to be significant economic and technological drivers, not only for the financial sector but also for the countries themselves.

The Danish national debit card, Dankort, is one of the best examples. Since its inception in 1983, Nets (formerly PBS) and the Danish banking sector have pooled their efforts to develop, take forward and maintain what is perhaps the best and least expensive national debit card in the world. Today, more than 4.4 million Dankort cards have been issued to a population of 3.9 million adult Danes, so the Dankort is extremely widespread and one of the most-used national debit cards in the world.

However, the Danish direct debit payment product, BetalingsService, used by 96% of Danish households, is another good example, as is the new Danish digital signature, NemID, which Nets developed for the banks and the Danish Government. In Norway, key infrastructure products such as BankAxept, eFaktura, BankID and AvtaleGiro are now central elements forming the backbone of the Norwegian payment infrastructure. In Finland and Sweden, too, infrastructure products in the field of payments – such as Pankkikortti and Sweden’s BankID – have played their part over the years.

Infrastructure Strengths and Challenges

The Nordic payment infrastructure is the obvious platform for the Nordic countries to continue to build on in the development of payment products – particularly when it comes to mobile solutions. However, the ability to succeed and proactively exploit the infrastructure depends entirely on agility and the ability to make timely judgement calls.

The arrival of Nets as a major player in the international markets is followed by increasing competition from other international players in traditional business areas such as card acquiring and card processing. At the same time, new global players – PayPal, Apple and Google – are putting themselves forward to challenge the financial sector and existing methods of payment in the Nordic countries, too. Here, the battle in years to come will be very much about getting the attention of, and reaching out to, new generations of customers – the first to grow up in an almost symbiotic relationship with their smartphones, long before they are introduced to payment cards.

This places demands on the old world of cards and the ability of the financial sector to think innovatively. The new, user-friendly smartphones have demonstrated that many customers put convenience and speed above old infrastructural virtues such as security and solidity. The question is whether the decades-long tradition of conscientiously starting the development of each new product with an infrastructural foundation could prove a hindrance to the sort of innovation, agility and decisiveness that are needed in the battle to develop the most attractive payment products of the future – and, not least, the battle for customers?

The Answer Lies in Strength, Trust and Innovation

The answer to these challenges varies from one player to another, of course. As far as Nets is concerned, the answer took the form of the merger of Norway’s Nordito (BBS and Teller) and Denmark’s PBS Holding (PBS and PBS International) during 2010.

First, the merger gives Nets the size and strength that are prerequisites to our ability to do battle with our international competitors in business areas such as financial acquiring, payments and cards. Today, key account customers want a single supplier who can handle payments in all the markets in which they operate. And this requires us to be able – consistently and cost-effectively – to handle SEPA-approved transactions in the markets where our customers are present and demand our services. Today, Nets handles payment cards from eight European countries, and the number of transactions measured in terms of authorisations and financial transactions exceeded five billion in 2010.

Prices in Nordic and European markets alike have come under increasing pressure, and the elimination race we have already been witnessing for some years continues to pick up speed and intensity. The winners will be those that are able simultaneously to consolidate their position and also create growth in new markets. Within a few years, only a handful of European players will remain in this market, and we intend to be one of them.

Second, the merger and the muscle it provides means that Nets is now in a position to allocate resources to focus areas, which will secure the company’s ability to innovate and compete.

Most of Nets’ focus areas concern new forms of payment such as:

  • Contactless cards and mobile contactless solutions – near field communication (NFC).
  • Mobile remote payments – the mobile payment service provider (PSP) and in-app compatibility.
  • Mobile payment solutions.
  • Prepaid solutions such as PayPal.

Nets is already an expert in prepaid cards and has been for a number of years. A natural next step is contactless cards – both plastic and issued on mobiles (NFC), delivering convenience and replacing cash.

The market for mobile transactions has matured, and more and more service providers are demanding new solutions for payment via mobile phones – not only as surcharged text message payments but as ‘real’ mobile payment. Despite massive use of cards, there is still a great deal of cash in circulation. But mobile and contactless technology will give consumers payment methods that are just as convenient as cash. This way, consumers will experience greater convenience, and merchants and service providers will benefit from faster and better customer transactions.

Specific solution concepts are currently being developed, offering efficient mobile solutions based on Nets’ existing infrastructure, primarily to transport operators, but also to other sectors.

Partnerships and the Innovations Laboratory

Nets is an active participant in Mobey Forum and Copenhagen Finance IT Region (CFIR), for example, and we are focusing our efforts to establish partnerships and business relationships with strong players in the Nordic IT and telecoms sectors.

Within a few months, Nets will also be opening its own innovations laboratory at its headquarters in Copenhagen, dedicated to the study and development of new mobile payment solutions involving contactless cards and, in the longer term, biometrics. The laboratory has been made possible by working with a number of partners as part of a joint innovation project entitled ‘Fremtidens Penge’ (future money).

The future of payments offers myriad opportunities, and narrowing our focus and making the right choices is a challenge in itself. What will be put to the test is our ability to persuade the market that future-proof, long-term mobile payment solutions must be built on a robust infrastructural foundation. The highly-developed payment infrastructure of the Nordic countries will no doubt be part of the future solution, as long as we are able to keep firmly in mind the need for grasping the innovative momentum.


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