The relationship between established banks and fintech startups in Denmark hardly got off to a smooth start; it even involved a police report. In just a few years, however, the fintech industry has matured and have begun to collaborate with banks—a joint effort that may well be needed, if the financial industry is to weather the technological storms ahead.
Fintech startups are rushing in and toppling the banks with their new technology, was roughly how the story went, when ‘fintech’ first became a concept in Denmark. And it only added insult to injury when Jysk bank reported the fintech startup Spiir—one of the first Danish fintech startups—to the police in 2014 for copying bank customers’ data to its budgeting app.
However, with a little time, the fintech industry has matured and what was once a conflicted relationship has evolved into a synergy. It is very telling that, during this time, Jyske Bank has not only withdrawn the police report, but have also become a customer of Spiir’s sister company Aiia.
Originally it was all about fintechs vs. the banks—as if there was one cake and the fintechs were coming in to steal all the bank’s slices. That no longer holds true. Today, the most active customers for many fintech companies are the banks themselves,
Rune Mai, CEO and co-founder of Aiia.
He observes that, through PSD2, the banks have been able to re-enter the fintech scene, often helped along by fintech companies such as his own, making the story of banks versus fintechs obsolete.
“It’s more relevant to consider whether the banks will manage to become fintech again, so it’s fintech versus fintech. Because that’s a story about building the best solutions possible—for everyone’s benefit,” Rune explains.
The technology is built for collaboration
The conflict between Jyske Bank and Spiir was resolved amicably and resulted in a collaboration. Peter Schleidt, bank director at Jyske Bank and board member of Copenhagen Fintech, believes that, over the past few years, the fintech industry has reached a completely new level of maturity.
Jyske Bank has even redeveloped its digital bank on a cloud-based platform and one of the reasons, according to the bank director, is to make it easier to integrate with third parties such as fintechs and enable better collaboration between the two.
It makes far more sense to collaborate than to compete, We already have the customers and the distribution, so it’s fairly obvious that we are well situated to bring smart new fintech solutions out to the public.
Peter Schleidt, bank director at Jyske Bank
With a technological infrastructure that enables banks and fintechs to collaborate quickly and easily, it has become possible for banks to add new solutions without having to develop themselves. It’s often cheaper and faster for them to outsource to fintechs—in fact, banks already have a long tradition of outsourcing IT development.
The question is not the technology, but whether Danish banks are strategically ready to cooperate with fintech companies. On this matter, Schleidt has already witnessed major changes at Jyske Bank, who have several pilot projects underway with fintech startups.
“Right now it seems like there is huge potential for banks to evolve—to do more than what we already do. And I imagine that, in the coming year, we’re going to see a lot more bank-fintech collaborations. Both at Jyske Bank, but also in general,” he says.
No longer the disruptor
In an impressive six years, digital disruptor bank Lunar has amassed 300,000 users across Denmark, Sweden and Norway. More recently, 12,000 business customers have rushed to open a Lunar Business account. In this relatively short time, the company has also launched a plethora of new banking products and solutions—some developed in-house, others in collaboration. And a recent investment of 1.5 billion DKK makes Lunar one of Denmark’s fintech unicorns (a startup with a valuation of over 1 billion dollars).
Lunar is no longer the disruptor bank, but a bank now in a position to really change banking. They no longer spin the narrative of themselves as a disruptor, new on the scene, ready to overthrow the existing, traditional banks. Today, their story is a lot more about collaboration.
We started by collaborating with Nykredit, and from there began to build bridges to the existing players. Since then we’ve also begun to define and seek out collaboration opportunities ourselves—also with established banks, like our collaboration with Saxo Bank and their investment platform,
Morten Sønderskov, COO of Lunar.
Now that Lunar collaborates with early startups and established banks, it’s clear to Sønderskov that the days of “them” and “us” are long gone. He would rather describe the setup as a dynamic ecosystem in which there are competitors and partners, regardless of whether you’re an old, well-established bank or a young, energetic fintech startup.
This is the only way the financial industry can reach its full potential. However, if the established banks want to remain part of that ecosystem, they will need to be givers as well as takers—on this point, Sønderskov observes an imbalance.
“No matter how good your business case is, an ecosystem is going to alter it. It’s rare you end up where you thought you would, when there are so many players involved and it requires an open mind to continuously assess how a partnership develops and, based on that development, figure out how to slice the cake. So far, it seems that not everyone is on the same wavelength—that’s what needs to improve if we’re going to be in the same boat instead of each in our own,” Sønderskov concludes.
Partner or customer?
Pleo is yet another Danish fintech startup who was recently able to celebrate its newfound status as a fintech unicorn, after receiving an investment of 950 million DKK just before the summer holidays. Pleo offers businesses company cards with integrated expense management software.
Unlike several other fintech startups who also started out with the intention to challenge the banks, Pleo’s co-founder and CEO, Jeppe Rindom, doesn’t think the banks have shown serious interest in the young startups, even though the fintech industry has matured and become more open for collaboration.
Three years ago, everyone started talking about partnerships, but then it was as if we took a step back again,
Jeppe Rindom, CEO and co-founder of Pleo
“Sure, there are partnerships, but they involve infrastructure—such as what we’ve worked on with JP Morgen and Danske Bank—but I haven’t experienced many banks capable of building successful partnerships on the customer side of things,” he says.
If new fintech companies need account setup or payment technology for their solution and they don’t want to develop it themselves, they are quick to partner with established companies. The banks, according to Rindom, are less willing to enter into real partnerships and distribute new technologies from startups to their customers. As he sees it, the partnerships that do exist are more a case of one providing the other with something, rather than synergetic partnerships.
“The intention is there, and there is a lot of talk about collaboration, but rarely does it result in real, successful partnerships,” he says.
Competition is fiercer than ever
Regardless of competitors, partners or lack thereof, things haven’t been going too badly for Pleo. Since 2015, their customer base has grown to include 17,000 small to medium-sized companies in six different markets. From Rindom’s point of view, banks aren’t really the big competitor.
“Those who can figure out how to develop financial technology along with a good user experience at a decent pace are the ones we’re keeping an eye on. And the banks fail when it comes to both user experience and pace, so they aren’t on our radar. We’re more interested in other fintechs, especially some of the larger players. If Google and Facebook start to go into payments on the user side, we need to be able to keep up,” he says.
The same is true for Aiia and Lunar, who see other fintech startups as just as serious competitors, if not more so, than the banks. As the fintech industry has matured, the competition to give users the best solutions has intensified, but it has also become more nuanced, according to Lunar’s Morten Sønderskov.
“These days it’s everyone versus everyone, and that’s great! We were genuinely cheering and applauding when we saw that, only a week before our own funding round, Pleo was launching a unicorn round. It’s only a good sign, even though their product is one we’re also beginning to work with,” he says.
But beyond the Danish borders, as the competition becomes international, the time may come to seriously form partnerships across the spectrum of new and old, suggests Jyske Bank’s Peter Schleidt.
“There is a great potential for collaboration in the industry, but that’s not how I see it when it comes to big tech corporations like Amazon and Google. It won’t be long before we risk that they come along and compete for parts of the value chain that we offer as a bank. And it’s there we really need to be able to collaborate with fintech companies, in order to compete where it really matters,” he says.