Written by: Ruben Skrede

This was the backdrop for our recent cluster event where representatives from banks and fintechs discussed the state of Norwegian fintech, the banks’ role in opening to TPPs, and what the future might hold for the industry. The panel consisted of Ørjan Karlsen (Sparebanken Vest), Jarle Holm (Aritma), Ramtin Matin (Sparebank 1 SR-Bank), and Eilin Schjetne (Lunar), and was moderated by Stefan Astroza (Itera/Cicero Consulting).

The discussion kicked off with a general consensus that the banks' high and stable profits do in fact stifle their efforts towards innovation, as they are making good money by not rocking the boat, and that innovation often falls victim to other priorities. The bank representatives in the panel themselves questioned whether most banks today have strong enough incentives to take a more innovative approach. However, they point to the current trends of consolidations in the industry and harsh competition between banks as a driver for change and innovation. It's no longer a viable strategy to "hide" amidst other banks and wait out the storm.

Schjetne pointed out that even though a lot has happened in this space the recent years, we have mainly seen incremental improvements rather than radical changes in financial services and how they are delivered.

So how can we realize the potential that lives in the Norwegian finance industry? According to the panel; infrastructure, consolidation, and more diverse product development in banking products and services are key components to spark an innovative revolution in finance. But to make this happen, the established actors must dig deep and create a sense of emergency to up the tempo.

On a positive note, the panel seemed to agree that the incumbent's innovation appetite would only increase in 2023, driven by recent investments in infrastructure, increased consolidation, and collaboration between banks and fintechs in accordance with PSD2, as well as rising expectations by customers in challenging economic times.

When challenged to pick between culture, technology, and regulations as the main bottleneck against innovation in the banking sector, the culture perspective got the majority of the votes. They argued that incumbents are losing sight of the customer's perspective and lack a sense of urgency. It might be worth noting that the three proponents for this perspective were all bank representatives, while the fintech-representative Jarle Holm argued that regulations were the main barrier to increased innovation. His logic being that if regulations create a sense of urgency and set the right framework for innovation, everything else will follow.

Finishing off part one of the event, the panel predicted that sustainability, ESG demands, and open finance would be amongst the biggest buzzwords of 2023.

Part two: Keynotes from fintech entrepreneurs

Part two of the event really kicked things up a notch, with honest opinions and experiences from fintech entrepreneurs about working with incumbents.

First out was Alf Gunnar Andersen from Horde, who founded the company with an ambition to create “cool stuff out of PSD2”. He quickly realized that the banks were not ready for the possibilities PSD2 brought along, and had to pivot.

Andersen claimed that size actually does matter, as the bigger the actors you wish to cooperate with are, the more difficult the process becomes. As a startup, you need to at least have a plan B and C and be able to determine when to stick to the plan and when to change directions.

“Operating in a market with big margins is not necessarily easy”.

- Alf Gunnar Andersen

He argued that the bank managements need to increasingly support their innovation departments and that there are too many gatekeepers amongst the established actors. More project autonomy, increased risk appetite, and earlier commitment were just some of his wanted measures to increase the chance of innovation success.

Jonas Lisgård from Spence then shared his experience from working with Norwegian financial institutions to create a better payment- and user experience in the car industry. To sum up his experiences with various banks in simple terms: “bad, bad and bad”, and added that “Credit committees must never be involved in questions of innovation and collaborations with startups”.

He pointed out three ways for the banks to have more success when working with fintechs: 1) Open APIs, and make it easier for startups to enter the market faster 2) Establish innovation committees rather than credit committees, and 3) less talk, more action.

Rounding of the event, Jarle Holm from Aritma talked about how the banks are an important sales channel for Aritma, as they deliver solutions that the banks don’t. He adds that to succeed as a fintech such as Aritma, it helps to be bank-centric rather than customer-centric.

“Banks are an important channel for us because we solve a problem for them. We can’t expect that the banks will give us a place at the table if we don’t contribute with something.”

- Jarle Holm

Lastly, he called for better infrastructure in the payment market, pointing out that the problem is standardized access to the banks, as the volumes in the payment market are based on files rather than API-based access.

In summary, while PSD2 did not bring about the wide-reaching and revolutionary change that some feared and others cheered for, it seems evident that incumbents realize the need to adapt and figure out how to collaborate with both each other and smaller fintechs. For now, the high level of customer loyalty and quality of financial services delivered by Norwegian banks have prevented international challengers from getting a foothold in the industry - but how long will this last, and how can incumbents manage to change in time? A sense of urgency, a clearer regulatory framework, and cultural change have been proposed by our panel as central elements to this discussion, and to end on a hopeful note - they all seemed to agree we are heading in the right direction, and believe banks will have an increased appetite for innovation in 2023.