News & Press: Bank Interviews

Nordea Interview

16 December 2016   (0 Comments)
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Leslie Holstrom speaks to Patrik Havander, Head of Strategy & Development, Nordea Transaction Banking

What are the top three client-side trends in transaction banking that you are focusing on?

Fast time to market – This is a major focus for us. It is easy to identify a number of different trends and drivers in this transformation of the banking industry and the market. What we see is that the consumer is expecting things from us that we’re not used to supplying, such as 24/7 service, personalised services, global reach and omni-channel solutions. These demands originate in the retail part of the bank, but quickly become expectations of corporates.

To meet these customer demands and expectations, we need to be either ahead of the game or fast to react. This means fast time-to-market. Our focus on this is one of the reasons behind our €1bn Simplification program investment that will see Nordea replace its core banking platform, our payments platform and our data warehousing. We do this in order to reduce complexity, become more agile and ready for future developments and to shorten time to market to benefit our customers.

PSD2 leading to competition in the PSP arena – We are entering a very hot period in payments and in how banking fundamentally functions. A new landscape is taking form and we need to reshape our business. Banks need to ask themselves how they react in this new environment and if they want to survive, they need to deliver the benefits of these developments to their customers. For Nordea, this new era opens opportunities to develop and offer new multi-banking based, integrated digital financial services for consumers, merchants, retailers and corporates. We will work to create these in a clever and dynamic way and to respond to our customers’ fundamental needs, keep them satisfied and exceed their expectations.

We would like to offer the full package to the market and leverage off our comparative strengths: a large customer base, experience from compliance and regulation, strong investment capacity and wide product portfolios. We, of course, remain focused on creating, building and maintaining our customer relationships. But we know that to do this, partnership and a complete openness towards new competitors with a solid value proposition to the customer is vital. We believe that banks will still remain key players in the future payment landscape.

New customer relationships – It is easy to get carried away by the exciting landscape forming around us in the digital sphere. But it is important for us to develop new ways of working with the customer in both the online and offline world. Ultimately all our innovation initiatives focus on delivering a better experience and better solutions to our customers across segments. We are listening to our customers and working closely with them in many areas as we create how future banking should be. We are ready to partner with new entrants or compete, and with the foundations laid by Simplification, we will be in a position to be early to market with the latest developments, so we and our customers stay relevant.

But a very large part of this is the actual offline customer relationship, where we are running several internal initiatives, one of which is Customer First which aims to break down internal silos and bring new perspectives to changing customer needs. Our ability to think innovatively will play a significant role in enabling us to adapt and evolve with these changes. The Customer First programme was established to help us learn how to take an innovative approach to old challenges by putting the customer at the centre of our thinking.

What are the top 3 trends that are affecting the banking sector and how are those effects manifesting themselves?

The arrival of the personal digital experience now in the corporate environment – This customer-led change is due to expectations picked up elsewhere in the digital ecosystem and brought to banking. Banks have had to up their game to meet these new needs, firstly in the retail-consumer sphere and now in the corporate segment.

New payment landscape and new opportunities for banks and non-traditional challengers – Banks are under attack due to change driven by PSD2… but also banks can use their assets and advantages (mentioned in answer 1) in the right way. In short, banks and banking will change fundamentally… FinTechs won’t take over but this is the starting point of new ways of working and new ways of collaborating with partners.

Speed of development and time to market – As discussed earlier.

How are these client-side and bank-side trends affecting the way you offer and price your services?

Pricing – Payments as we know them today will become more or less free of charge. It will be the value-adds, that you can associate and connect to the payment and how you can bundle and create a customer-relevant package that will matter. This could be financing terms or other information… this will be the value proposition of tomorrow. The better this is executed, the higher you can climb in the value chain and the more opportunities that you will get. Owning the customer relationship is key.

Offering – Again, simplification and speed are key here. But in terms of how we offer services, of course, the digital transition is leading to more automation and self-service at the customer side and to balance this, we have increased focus on the ”human element”, hence the Customer First initiative, for instance.

In particular, how have you altered your product mix, your pricing and which regions/countries you offer your products? How have these changes been received by your clients?

We continue to offer the best products and services to optimise treasuries and develop new solutions for and with customers. New opportunities heralded by PSD2 and technology will only increase this. Structurally, we made a significant adjustment to compete in this area and to offer a holistic product suite to customers and at the end of 2015, we created a new Transaction Banking area. This significant move has helped us to begin maximising synergies across Trade Finance, Nordea Finance, Cash Management, Cards and Working Capital Finance.

Transaction Banking is a very important part of Nordea’s customer offering and the bank’s future income and it is also an area undergoing fundamental change due to digitalisation, disruptive new competitors and changing customer demands. The new structure has created a more focused and aligned prioritisation, improved our capacity to develop new and better solutions to all our customers, enhanced our ability to co-create across areas and be much faster to act to changing market conditions and to customer demands. The change importantly and strategically places the new TxB area close to the Digital Banking area, which will be an important partner in the overall corporate digital agenda of Nordea.

Geographically, Nordea is dominant in the Nordics and holds the accounts for practically every blue chip company in the region. We are also truly Nordic, spanning Finland, Norway, Sweden and Denmark in our physical presence, which is something competitors cannot match on the same scale. We are also a major player across the Baltics and support our customers with international offices and bank-to-bank partnerships. This means we have best practices and the most experience across segments and verticals and so can meet individual customer needs with closer aligned products and optimised pricing.

Are you finding that internal technology issues (silos, legacy systems, unavoidable complexity) create a disadvantage in competing with FinTech companies?

Interesting question, but no. FinTechs have helped forward-thinking banks like Nordea realise there are new ways of doing business and we have taken a long term perspective on this. We are open to partnerships as long as we see the customer benefit, and we are running our Simplification investment to ensure we are leaders in the new space and do not suffer from legacy issues.

Are you finding that internal technology issues (silos, legacy systems, unavoidable complexity) create a disadvantage in competing with FinTech companies?

We believe that banks in general, and Nordea in particular, will remain key players in the payment ecosystem and we are committed to working together with customers, third parties and banks in this new landscape. As a bank, customers are our central focus and meeting these new demands are primary to our business. What we can offer FinTechs and new entrants are customers. 11 million retail, half a million corporate. We can also offer reliability and compliance.

I don’t generally see this Open Data transformation as a threat. It is only a threat if you apply the Kodak thinking or the head-in-the-sand approach. If you believe that this is not going to happen or that it will not hit your institution, then it is a threat. But if you lean forward and embrace the opportunities we see, both from a technology standpoint, but also from a regulatory standpoint, then I would claim that most banks have a great opportunity of benefitting from what we see. So collaboration is important.

As I mentioned, all our innovation initiatives focus on delivering an improved experience and better solutions to customers. We are listening to them and whenever possible working closely with them to create the future banking experience.

Internally, we have formed an Innovation Lab, with responsibility for FinTech collaboration and initiatives around PSD2 among other areas. Among our many initiatives we are in close dialogue with the new financial technology companies to learn from each other and to find candidates for closer collaboration. Nordea has also initiated a Start-up Accelerator programme and a FinTech Roundtable Nordic program.

How far out do you see FinTech companies being regulated more in line with banks?

They will be regulated. That I think is certain. If FinTechs have the aspiration to become banks or provide banking services they will pretty soon realise that being a bank is not that easy and that could temper the FinTech spirit a little. The PSPs will be more stringently regulated at some point as well, and I feel sooner rather than later. With PSD2, there is an enormous responsibility to handle customer data and you need to be trust-worthy, secure and reliable. This will not escape the notice of the regulators.

Treasurers are now extremely cybersecurity conscious. Is this having any effect on your transaction management business? What about the so-called 'SWIFT hacks'?

This has always been a large investment and focus area at Nordea and we have significant competencies as a bank. This issue is a continuous concern and a big topic for our customers and something we focus a lot on. There is a quote from Robert Mueller, FBI Director for 12 years that “there are only two types of companies: those that have been hacked and those that will be. And even they are converging into one category, companies that have been hacked and will be hacked again”. So half our job is preventative (ensure IT hygiene) and to make Nordea as secure as possible but also focusing on the “killchain“ – that we detect hacking attacks and know how to shut it down before data is compromised.

In relation to SWIFT, the hacks seem to have been possible because an actor had operations that included a previously unknown vulnerability. Information about the attackers and the traces they left are actively being shared within the financial sector to strengthen defences and better understand the scope of the compromise. So far it seems banks in the Nordics have not been targeted but of course we are working proactively on these topics, in close cooperation with SWIFT and other banks.

What are your views on challenger banks? They have traction in the retail market, but what do you expect for the corporate market?

My feeling is that all kinds of competition is for the good. Our experience around P2P, for instance, is helping us in the B2B area and we are helping customers build their digital agendas and making sure they have the smartest and best payment solution to attract their customer base and make their organisation more efficient.

So competition will only help us to get better and see things we did not see ourselves before. Banking does not go from one day to the next, you need an organisation adapted for change. Then we can operate and succeed in this environment of change no matter how it plays out. We are confident as we have a super customer base, a AA- credit rating, and great people inside our organisation. I never see competition as being problematic – sure, we may lose in some areas but on the flip side, we will have great opportunities for growth in others.