Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
Part two of our Nordic adventure takes us to Sweden, the EU’s third largest country and one of the earliest adopters of technology in the financial industry since the 1980s. Following in the paths of some of its largest technology companies in the music streaming and gaming industries, Sweden’s fintech scene is similarly poised to become one of the most influential in Europe.
If ABBA and flat-pack furniture weren’t already incredible exports to introduce to the world, Sweden has a hell of a lot more. Those IKEA meatballs are nothing short of divine, with an average of 1,836,000 of the tasty morsels being consumed around the world every single day. On the music front, the country has produced such off-the-wall gems as black-and-white-clad garage rock revival heroes The Hives, 2-hit wonder Basshunter, the strange living meme rapper that is Yung Lean and this floor-filler from Eurovision 2012. Elsewhere, Swedes often enjoy salmiakki ice-cream (salty liquorice flavour, ew), Malmö is linked to Denmark via the world’s longest cable-tied road (Oresund Bridge) and it is the birthplace of football (thoroughly self-proclaimed) legend Zlatan Ibrahimović, the most recognisable figure in Sweden’s most popular sport.
Fun, Games and Fintech
Many inventions were crafted by Swedes, including the pacemaker, ultrasound, the refrigerator and the computer mouse. Technological advancement certainly seems to be the name of the game in Sweden, with its capital city of Stockholm producing three massive worldly recognised unicorns: Spotify, King and Mojang. In Sweden as a whole, in 2014 €251 milllion was invested in 15 deals, which made up 17.9% of total fintech investments across Europe that year, according to Forbes. The transaction value in the fintech market in 2017 amounts to US$16,766m according to Statista, with the potential number of fintech users amounting to 9.6 million by 2021. This is no surprise considering the increasingly low use of cash. Since 2009, The Independent notes that the amount of coins and notes in circulation has fallen by 40%; only a fifth of retail transactions are made in cash and all buses, trains, bars and restaurants refuse it. Sweden is so far the forerunner in the pursuit of a completely cashless society.
Although the aforementioned unicorns aren’t associated with the financial industry, out of Stockholm’s 5 unicorns, one is Klarna, a fintech company which will be explored later. In fact, Stockholm is 2nd in the world in terms of the number of unicorns per capita, beaten to the number one position by Silicon Valley. It has deserved its branding as a “unicorn factory”. Stockholm is an established business community; its ecosystem has a strong lean on IT and is large enough for a multi-disciplinary skillset, but small enough to foster the growth of individuals. The financial sector accounts for a third of the total Swedish economy, and is the fourth largest sector in said economy. Across the past five years, Stockholm has become the second highest funded city in Europe after London, hence why Invest Stockholm has dubbed it “Europe’s No. 2 Fintech City”. The greater “Stockholm Region” contains the county of Stockholm and municipalities in the Stockholm Business Alliance which include Uppsala, Katrineholm and Södertälje. In 2014, the number of fintech employees in Stockholm was 4,600, which is actually only 0.05% of the entire population, but did increase by 44% between 2010 and 2013.
It seems that Sweden’s rise to fintech prominence has been coming for around 30 years, considering its innovations in the 1980s. Since early on in that decade, the financial market was deregulated and in 1984, the Optionsmäklarna was created, the first options exchange which enabled remote trading. It was one of the first electronic exchanges in the world. As a result of such technological advancement, the amount of foreign investment in the country has increased, and smartphone penetration is extremely high.
In 2015, Sweden took 32 out of the 51 fintech investments in the Nordics; 2 in every 3 Nordics investments in the past two years have been made in the country. Infoworld owes Sweden’s fintech success due to the country’s “laissez-faire economics” – an abundance of wealth leading to heavy investment in R&D and its tech infrastructure – and it has adopted a so-called “non-bureaucratic” management style allowing for a high tolerance of creativity of innovation. State and non-state agencies are usually generous with their loans to startups. Work permits are granted to immigrants; between 2009 and 2013, 13,000 permits were approved, 11,000 of which were granted to computer professionals. The corporate tax rate is also less than the EU average of 23%. Stockholm is both the financial centre of the country – acting as the headquarters of Nordic banks such as Nordea, Swedbank, Handelsbanken and Skandinaviska Enskilda Banken (SEB) – and also an IT hub, with giants such as IBM, Ericsson and Electrolux calling Stockholm home.
Sweden Breeds Success
Deloitte also highlights that it is the capital rich economy of Sweden which gives it a “dominant role” as it provides local financing for companies. As well as individual startups (which we will outline later), banks have invested in technological advancements for quite a while:
- SEB had piloted a software robot called Amelia before exposing its capability to its customers.
- Swedbank owned a similar piece of AI called Nina, a virtual customer service assistant that is looking to expand its usage to a mobile app.
- Swedish bank Handelsbanken launched its internet banking service as early as 1997.
On top of this, the Swedish Financial Supervisory Authority (FSA/Finansinspektionen) has actively shared regulatory information. With the introduction of the impending Payment Services Directive (PSD2) in January 2018, the competitive playing field of fintech is hoping to be levelled across Europe, and the payment services industry looking to be secured further whilst innovation is promoted at all levels. There is also a requirement for banks to open up APIs to qualify payment services providers.
In a typically transparent fashion, a speech made by the Swedish Minister for Financial Markets (Per Bolund) in November of last year in Singapore can be found here, outlining the similarities between the two countries and how both should exchange ideas and practices to further exploit each of their fintech opportunities. Here are some of his main points, usefully outlining Sweden’s fintech past, present and future:
- From as early as 1998, employees at companies could purchase their own personal computer using a tax subsidy supported by employers and labour unions: “the home PC reform”.
- With the deduction of tax and large tenders lowering costs, cheap yet state-of-the-art computers were easily available at the inception of the internet’s revolution.
- There has been an ongoing process of a nationwide fibre network for maximum browsing speed.
- All interactions between citizens and companies and the government is mainly achieved through the use of electronic identification, developed in collaboration with the private sector (mainly banks).
- Swedish banks are the largest users of e-identity, with 9 out of 10 transactions made with it when a private person accesses their bank on the internet.
- E-identity tools have enabled the progression of services such as mobile payments and remittances.
- In 2016, 70% of income tax return forms were submitted electronically.
- Drawing on what has been said prior, Sweden is looking to become completely cashless in only a couple of years’ time. This may have been caused by other factors, such as the fact that banks charged for payments by cheque in the 1990s.
- There is a national trend for banks to collaborate with startups.
- Collaboration is also on a national scale in the form of the Financial Sector Public-Private Partnership (FSPOS). Its members include financial institutions such as banks, insurance companies, clearing organisations and public authorities. They are working together to create a robust financial infrastructure, discussing information on operational risks.
- A new public fund-of-funds investment company has been set up by the government, only to invest in private venture capital funds.
Luckily, Industrifonden has already outlined some useful statistics about fintech investment in Sweden. It is the most popular sector attracting investment in 2015 and 2016 (roughly 12%). In 2016, $1.6 billion was raised through 400 funding rounds and by 575 active investors. Angel investors and venture capitalists are the most active backers of technology startups (56% and 23% respectively). Foreign participation has, however, dropped between 2015 and 2016; UK and US backing was at 60%, and has now fallen to only 47%.
As this 2017 Fintech Disruptors Report lists, here’s the breakdown of Fintech Revenue in Stockholm in 2013 for a rough idea of its most successful sectors:
- Trading & Banking – 38.8%
- Payments – 33%
- ‘Other’ Fintech – 11.7%
- Wealth Management – 9.4%
- Innovative Lending – 5.2%
- Transfers – 1.9%
- Crytocurrency – 0% (!)
Although, it should be made clear that Invest Stockholm has since noted Sweden’s increased activity in the realms of innovative lending and cryptocurrency. Sweden’s main expertise hinges on payments and trading.
With this clearly effective fintech startup philosophy already established, this report also notes Sweden’s ongoing efforts to inspire innovation through the use of accelerators which are now really coming into play. Nordic bank Nordea has opened an accelerator in Stockholm, and Stockholm Fintech Hub opened in 2017, backed by Invest Stockholm (“the investment promotion agency of Stockholm”), KPMG, and a partner at startup firm BLC Advisors. It is connected with 42 fintech hubs globally, with a communication line with the FCA in London. It has also already established a close relationship with Copenhagen Fintech Hub and has an aim to work with Helsinki and Oslo too. Furthermore, Stockholm’s Innovation and Growth Hub (STING) is a fintech incubator set to join Stockholm Fintech Hub, a joint venture between KPMG, Invest Stockholm and NFT Ventures. Elsewhere, Swefintech (Swedish Financial Technology Association) officially formed on the 17th January 2017 as a platform for the industry. Their first constituent meeting took place in the premises of the Stockholm Stock Exchange (Nasdaq Stockholm).
Swedish fintech has a vast number of investors from around the world, as outlined in the Invest Stockholm report. Here’s a comprehensive list for your convenience:
- Atomico (UK)
- Dawn Capital (UK)
- GP Bullhound Sidecar (UK)
- Hasso Plattner Ventures (Germany)
- Index Ventures (UK)
- Octopus Ventures (UK)
- Sunstone Capital (Denmark)
- Zouk Capital (UK)
But, here are some domestic investors:
Creandum – With iZettle, Klarna and Spotify in their portfolio, it invests in a wide range of tech companies as an early stage VC firm. It has made 78 investments in 52 companies raising $535 million in funds. It was founded in 2003.
NFT Ventures – Specifically invests in fintech startups in the Northern European Region, founded in Stockholm in 2014.
NorthZone Capital – A technology investment partnership founded in 1996 with its HQ in Stockholm. It has invested in Klarna, iZettle, Spotify and Qapital, making over 120 investments with €1 billion under management.
SEB Venture Capital – The equity investor arm of SEB bank founded in 1995. It has invested over SEK 3 billion in 100 companies.
And finally, a rundown of Swedish startups, categorised by sector, starting with two of the most classic, well-known fintech companies on the map in the payments category:
Ranked 11th in the KPMG Fintech 100 2016, Klarna offers payment solutions for e-commerce, and is committed to allowing customers to receive ordered goods before payment is due. To this date, it has 45 million consumers and works with 65,000 merchants. It is valued at around $2.25 billion. It was founded in 2005 by Sebastian Siemiatkowski, Victor Jacobsson and Niklas Adalberth.
Founded in 2010 by Jacob De Geer and Magnus Nilsson with its HQ in Stockholm, iZettle is a mobile payments provider and offered the world’s first mini chip card reader and software for mobile. Its speedy payments for small businesses have made it extremely popular. It is active in 12 countries and attracts 1000 new business users every day. Deloitte has noted that it is the fastest growing fintech company in the EMEA region, with a 30.114% turnover growth rate between 2010 and 2015.
To put the success of these companies into perspective, in 2014 the combined value of investment in Klarna and iZettle (€106m and €46.6m respectively) exceeded the combined total of 17 other Swedish investments, which totalled €53.7m – incredible!
Trading & Banking
Nordnet – An online bank, acquired by Nordic Capital in February 2017, which offers free trading on the Stockholm Stock Exchange.
Avanza – An online bank with low fees which provides banking news and advice to its users, founded in 1999 by Sven Hagströmer.
Tink – An ‘Emerging Star’ in KPMG’s Fintech 100 2016, Tink is a virtual bank that can be used in conjunction with existing bank accounts and connects all accounts and cards in one place. It categorises transactions and provides daily analysis of spending with around 350,000 users.
Qapital – A banking and money management app which connects all accounts in a central place. Founded in 2012, it has been dubbed as “savings-orientated gamification”.
Safello – Offering real-time direct payments for bitcoins, it is registered with the FSA and banked by a top 4 Swedish bank since 2013. It is also based in Stockholm.
Alongside its Scandinavian cousin Denmark, Sweden’s fintech ecosystem is absolutely raring to go as one of Europe’s most promising stars. Having now established accelerators to promote the growth of new startups that are looking to follow in the gigantic footsteps of tech forerunners, its potential to reach complete cashlessness looks almost set in stone, allowing for the conjunction of banks, startups and the public sector to be similarly cemented. Watch out London, Stockholm is coming for your fintech crown.
If you have any thoughts about fintech in Sweden, let us know in the comments below, or you can tweet us.
Check back soon for more instalments of The Fintech World Series!