By Rune Sørensen, Product Manager, Card Processing, Nets.
The Nordic countries constitute the most advanced and digitally ready payment market in Europe, and one of the most advanced in the world.
The penetration of card, contactless card and mobile payments is high, and the race to be the world's first cashless country is essentially a competition between Norway, Sweden, Finland and Denmark. One of the ruling parties in Norway's coalition government has suggested that this will be achieved in Norway by 2030, and the Swedish Retail and Wholesale Council (Handelsrådet) estimates that Swedish merchants will stop accepting cash payments as early as 2023.
One reason for the advanced digital readiness of consumers in the region is Nordic issuers' determination to be customer-oriented and forward-thinking. They understand that the battle for present and future market share will be won by adding convenience and value to consumers' daily lives, especially as competition has intensified further with the Revised Payment Services Directive (PSD2), which is opening up the marketplace to new players. All of this requires issuers to retain a laser-like focus on innovation and the user experience.
So, why are the Nordics different?
50 years ago, banks across the Nordics began to realise that they could significantly reduce their costs through collaboration. Danish banks were the first to act on this opportunity by developing a shared payments infrastructure, and over the next few years Norway and Finland also adopted this model. Together, they then took a further step, creating an independent organisation that would form the backbone of the payments ecosystem across the Nordics.
This greatly simplified and reduced the cost of daily operations for the many Nordic banks issuing international and domestic card schemes, from Visa and MasterCard to Dankort in Denmark and BankAxept in Norway. Instead of having to invest heavily in building in-house systems and competences, Nordic issuers tap into an existing feature and service-rich infrastructure which includes card processing services. This enables them to take advantage of both greater efficiency and more revenue opportunity, without the capital investment or operational expenditures conventionally required.
That was 50 years ago – what about now?
The rapid evolution of the card payments industry has only increased the value of outsourcing core business processes. As new technologies impacting banking and financial services are developed, the only certainty is that consumers' expectations of their banks will continue to rise. By enabling issuers to plug into outsourced digital and mobile payment services, this independent infrastructure gives them the means to respond quickly to changing customer expectations, launch innovative new products and services, defend against disintermediation from new players and strengthen customer relationships. This enables issuers to create new end-to-end digital customer experiences faster and more efficiently than they could achieve alone.
The independent card processing outsourcer is also the most widely integrated issuing service provider in the Nordic markets, which enables issuers to build cross-country partnerships in the Nordic and Baltic markets by connecting directly to all leading acquirers. This capability opens the door to the rapid development of new, innovative and revenue-generating issuing services that can be quickly brought to market and improve consumers' banking and payment experiences.
Could this be replicated internationally?
In short, yes. Despite the unique historical circumstances, the Nordics are a success story for what banks can achieve through outsourcing not just secondary functions, but core business operations such as card processing. Issuers need easy, stable and secure services every time a cardholder makes a payment, while at the same time being able to concentrate on innovating to benefit their customers. This has been realised in the Nordics, leading to faster time-to-market for banking products and services and, as such, a digitally ready population en-route to leaving cash behind forever.
The demand for specialised capabilities will continue to grow as technologies such as AI, biometrics and VR flood the financial services market. By outsourcing core functions, issuers across the world can become increasingly agile and empowered to focus on their customers' journey.
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