Learning From Our Nordic Neighbours

The Nordic region comprises Denmark, Finland, Iceland, Norway and Sweden – countries renowned for the healthy glow of their inhabitants as well as their large tax-funded public welfare sectors and socialist legislation. As a result, on a political and social stage, the Nordic or Scandinavian countries are considered to be among the most forward thinking in Europe. The same characteristics are apparent in the cash management and banking landscape, where the region can boast of being one of the most technologically advanced, as they embrace the electronic era.

“Scandinavian countries such as Sweden and Norway have been characterised in the past few years by the high level of advancement in the development of IT infrastructures for their financial systems,” claims Mario De Lorenzo, director of payment systems at SIA-SSB. In his article, Sweden and Norway: Implementing a 2nd-Generation RTGS System, he explains that Scandinavian central banking systems are among the first ever established – the Central Bank of Sweden is one of the first in history – and are still considered to be sophisticated by today’s standards.

“Sweden and Norway are among the first countries in the world to have adopted an electronic real-time gross settlement system (RTGS). With an economy strongly dependent on commerce with foreign countries, the rapidly evolving globalisation process has led these countries to understand the importance of establishing efficient and secure payments systems,” he says. “At the same time, Scandinavian countries have experienced an incredibly high pace in the widespread use of electronic money.”

Indeed, the Nordic countries have always been ahead of the curve when it comes to e-initiatives and this is evident in their adoption of e-invoicing and e-payment methods.

Front-runners in E-initiatives

“The [Nordic] countries lead the way in electronic processing and e-invoicing,” affirms Warren Bolton, director, cash management corporates, Nordics at Deutsche Bank. “Cheques are rarely used, with most payments being made by bank giro or card. Smaller volumes in the region mean that new technologies and approaches can sometimes be pioneered there with the result that Nordic corporates are often able to gain cost-savings more quickly than their counterparts based in larger markets.”

The Nordic region continues to be a proponent and front-runner with regard to e-invoicing. In Finland, for instance, companies have been sending each other e-invoices over the last decade with 30% annual growth over the last few years. E-invoices make up 10-20% of business-to-business invoicing in the country but, according to Tuija Sipila, director of cash management at OpusCapita, forecasts made in recent years have suggested that the share of business-to-business invoicing would reach over 50%. In her article, How Can We Accelerate Electronic Invoicing?, she considers what factors could further promote the adoption of e-invoicing.

She identifies the invoice recipient’s behaviour as the most important growth driver for the e-invoicing market. “The benefits of e-invoicing chiefly concern the recipient, who can automate and accelerate the processing of incoming invoices. On the other hand, becoming an e-invoice sender does not require any major system changes,” she explains. “In this respect, business-to-business invoicing could be enhanced significantly, and companies should actively request, or even demand, e-invoices from their suppliers.”

Sipila is confident that environmental values are likely to become major drivers of e-invoicing. “Green IT is making a breakthrough, promoting more ecological system solutions, and the image value of e-invoicing may lead to a remarkable increase in its use,” she says.

The proactive approach from the State and public sector has also been instrumental in driving forward e-initiatives in Finland and Denmark – a key differentiator compared to the rest of Europe. In the Finnish public sector, the recommendation to use e-invoicing has been in force since 2003 and since February 2005, the Danish public sector only accepts e-invoices.

“In the Nordic region, our experience shows that the public sector is constantly seeking increased efficiency and optimisation of processes in order to reduce costs, and it is the major driving force behind e-business and cash-pool solutions,” affirms Inger Christiansen, head of international customer solutions, cash management at Danske Bank. “The major challenge for all of us regarding e-invoicing and payments services is that we still don’t have uniform standardised formats across countries in the EU.”

In her article, Development of E-initiatives in Denmark, she outlines significant Danish e-initiatives to date, such as the fact that the Danish public sector has decided to use a particular format for e-invoices (OIOXML) in order to move forward in the absence of a pan-European standard. “The state and private sector are already working on an open process in order to develop e-commerce further and the goal is to support the entire supply chain process from order-to-payment,” she explains. “The solutions will be based on international open standards and so far it has been agreed that in Denmark the standard will be changed from OIOXML to OIOUBL 2.01. This could also be the preferred standard for Iceland, Sweden, Finland and Norway and potentially other European countries to support their efforts in e-governmental e-procurement issues.”

This illustrates how the Nordic region is leading by example and paving the way for wider adoption of e-invoicing. “What we can do on the bank side is contribute to these initiatives in order to agree common formats,” adds Christiansen. “Until then, the reality is that banks, in order to service their customers within the value chain, must be able to adapt to every major format type in the market.”

Nordic banks have played a significant role in raising awareness about e-invoicing. In fact, according to Niclas Osmund, head of large corporates, cash management, Sweden at SEB merchant banking, e-invoicing adoption has been driven by the banks and telecoms/utility companies in Sweden by highlighting the cost-benefit of e-invoicing compared to paper invoices. “This began five years ago in the business-to-consumer (B2C) market and around two years ago in the business-to-business (B2B) market,” he says. “Adoption is growing in the corporate sector and 2008 might be the breakthrough year for B2B e-invoicing in Sweden and the Nordics.”

Cash Management and Banking Relationships

Cash management banks operating in the Nordic region do need to be able to serve the region as a whole as well as cater to the specific characteristics of each country – much like cash management operations in Latin America or Asia Pacific. “From a global perspective, the Nordics is a small region but it is complex due to the number of currencies that are used as well as different legislative environments,” says SEB’s Osmund. “In the Nordic/Baltic region, there are seven currencies including the euro that need to be handled in corporate cash management operations. It is not a harmonised market but it is partly integrated.”

The region is dominated by a competitive group of local and regional institutions, however, according to Bolton at Deutsche Bank, given the importance of trading relationships between the Nordic countries and the EU, EEA, Asia and the Americas, “the Nordic area is of great strategic importance to global banks as well”.

Partner or correspondent banking models, as well as mergers and acquisitions, are prevalent in the region where banks leverage each other’s networks and branches to serve customers. Significant examples of this include ING’s alliance with SEB in 2003 in order to gain a foothold in the Nordic and Baltic regions and Danske Bank’s acquisition of Sampo Bank (Finland’s third largest bank) in February 2007. “The overall aim of the ING/SEB alliance is to enable corporates to do business in the whole of Europe,” explained an ING representative. “The services are tailored to suit the demands of the individual country as well as the central requirements for the client’s overlay solutions. ING can offer cross-border pooling, automatic sweeps, same day value and payment factory solutions – all as if the accounts were held within the same bank.”

In addition, Nordea, one of the largest financial organisations in the region, was created from four Nordic banks: Merita Bank, Nordbanken, Unibank, and Christiania Bank og Kreditkasse, from Finland, Sweden, Denmark and Norway, respectively. Since December 2001, all operations have been conducted under the brand name of Nordea. The organisation’s website describes Nordea as ‘the clearest example of the structural change that has characterised the Nordic banking and insurance operations during the last decade. Certain transactions have been conducted between the countries, while others have been transacted across national boundaries. The tendency to consolidation has, however, been prevalent throughout the entire Nordic and Baltic Sea region.’

Nordic banks are also moving further afield. “Relative to our size, Nordic banks do have a large international presence,” says SEB’s Osmund. “For example, Nordea, Handelsbanken and SEB are all currently competing to get their full local banking licence in China, while SEB already has a presence in the Ukraine, Russia, Poland, Singapore, France, the UK, US and Germany, for instance.”

Banks in the Nordic region are progressive in forging links and partnerships with other banks, particularly when these relationships benefit their clients. This is a healthy and strategic approach to banking and one that other non-Nordic players might follow.

And when it comes to serving the Nordic corporate community, are their requirements unique to the region? “There are proportionally many large international companies in the Nordic countries than in other regions, which has forced banks to develop solutions according to their needs,” explains SEB’s Osmund. “For Nordic corporates, IT integration is high on the agenda. For example, Nordic corporates are well-advanced in terms of their technology infrastructure, such as integrating their ERP or treasury management system (TMS) with their banks.”

Osmund also highlights a “Nordic style of cash pooling”, which has been developed in the region due to corporate demand. “In the international area, zero balancing is the standard cash management technique but within the Nordic region, banks take more responsibility for the functionality of cash pooling in-house, such as automacially calculating and posting interest, which seldom appears as a function of zero balancing,” he explains. “In addition, Nordic banks have been required by corporate clients to set up reporting with other banks and file communication for cross-border and domestic transactions in a straight-through manner.”

Impact of SEPA

In his article, #gtnArticle(7308)#, Bolton at Deutsche Bank outlines how the introduction of the single euro payments area (SEPA) is driving development in the Nordic region, as it is across the whole of Europe. “Even though Norway, Denmark, Sweden and Iceland remain outside of the euro, transferring money across the region has become more efficient – making cash management techniques, such as cash pooling more effective. And the SEPA Direct Debit (SDD) – due to be introduced in 2009 – will also enhance the efficiency of collections across the region,” he says.

A common decision that many banks have had to make as result of SEPA is whether to outsource their payments processing because of the inability to make a return on the investment in technology and infrastructure required for SEPA compliance. This difficult decision is applicable to those financial institutions operating in the Nordic region and is explored in the article, A Finnish Case Study of Outsourcing Payments Processing, by Harald Krueger, regional manager for Scandinavia, Austria and Eastern Europe, business development department at Equens.

The OP-Pohjola Group is a Finnish financial services group with more than 4.1 million customers in Finland including 3.2 million banking customers and 1.6 million insurance customers. In 2005, the bank made the decision to outsource its payments processing as a result of SEPA. A key factor in the OP-Pohjola Group’s decision was the fact that its existing payment systems and infrastructure would not be able to handle the new SEPA formats or instruments. The bank didn’t want to invest in a new system nor did it want to have to make further changes as a result of SEPA going forward.

The article outlines the Finnish bank’s selection criteria and the lessons it learnt from the migration project, which is of great value to other banks in Europe facing the same decision. “It is important that there is the same understanding on both sides and that your own organisation understands what it will be like to work on an international project compared to a typical internal project,” said Petri Aalto, head of payment systems development at the OP-Pohjola Group Central Cooperative. “As a result, strong project leaders are essential within the organisation to drive the project forward. To make the integration phase as easy as possible, it is also important to use standardised interfaces and technology.”

This is the first case of a Finnish bank outsourcing its payments processing to a service provider based abroad. While we know that many banks must make the difficult strategic decision to outsource their payments processing, there are few examples of this currently happening in the market. Admittedly, some banks may prefer not to publicise this decision and it is over the next six months that we are likely to hear more news about outsourcing partnerships.

Interestingly, according to Osmund at SEB, Finland is not yet considered as part of the eurozone but this is something that is likely to change in the coming months. “Outsourcing will also continue to be an ongoing trend in the Nordic countries in terms of accounts receivable and accounts payable and we might see more treasury outsourcing in the future,” he says.


The Nordic region is one of innovation and technology advancement. The challenges and issues that the banking and cash management community in Denmark, Finland, Iceland, Norway and Sweden face are ones that corporates and banks in the rest of Europe – and indeed the rest of the world – also face. The necessity to comply with stringent financial regulations, establish automated and effective payments systems as well as adopt electronic solutions are universal challenges. What is unique about the Nordic region is their response to these dynamics, which is underlined by de Lorenzo at SIA-SSB in his comment that these countries are characterised “by their capability to foresee important changes within the global financial market and react accordingly”. This is a vital survival and growth tactic in today’s ever-changing environment and one that other regions could learn from.


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