Top Nordic Banks Stay Relevant by Investing in Fintech Startups

Investing in fintech is no longer exclusively for venture capitalists focussed on returns on ­investments. Top Nordic banks have gotten in on investing, and with a more strategic focus.

Just a few years ago, banks didn’t view fintech as a part of the financial ecosystem. In response, the startups turned into disruptive beasts that wanted nothing more than to overthrow the established system.

A lot has changed since then. Over the past year, top Nordic banks – like Danske Bank, Nordea, and SEB Bank – have entered into partnerships with fintech, pouring millions into up-and- coming companies. The Denmark-based fintech, Zenegy received an investment in the millions. Nordic API Gateway absorbed approximately €10M from DNB and Danske Bank. And Nordea and SEB Bank were among the investors behind Tink (from Sweden) raising €56M earlier this year.

More than just new sources of investment money, this shift has changed the entire structure around the startup’s strategies, according to Johan Lorenzen the former chief executive officer at Holvi, which as acquired by global banking group BBVA, as well as investor and board member in current advisor for a series of high-profile fintechs, including Brickshare, Nordic API Gateway, and Grandhood.

The different types of investments have different goals. Private investments from venture capitalists are, primarily, aimed at generating a financial return, while corporate money is aimed at generating a strategic return. Both models are viable, but also very different,” Lorenzen explaines. Where venture investments have the simple goal of earning more money from an exit than the initial capital invested, the strategic return for banks can have several strings attached.

“Often, early-stage investments from corporations are seen as an investment that adds something to the corporation that it didn’t have before – whether capacity, technology, or knowledge. If they are willing to work together on that premise, it can be highly beneficial for both parties. But it requires a more nuanced mindset,” Lorenzen says.

Danske Bank: A cornerstone going forward

By investing in innovative startups, corporations can access cutting-edge technologies, discover novel products or services, gain access to entrepreneurial talent, and experiment with different business models. Danske Bank is one of the Nordic banks pursuing this strategy.
“At Danske Bank, we view corporate venture capital as one of our innovation vehicles that we need to master going forward. It serves as one of the cornerstones in our quest to develop the best customer solutions. The long-term perspective is the knowledge return we harvest from gaining insights into how the solutions of tomorrow will be shaped – business model-wise as well as technology-wise,” says Katrine Mitens, Executive Vice President, Payments and Innovation at Danske Bank.

Danske Bank invest in funds, like ByFounders, and also acquire equity in relevant partners, like Spiir and Zenegy. These acquisitions lead to strategic fits that can add the most value for their customers. To be sure, the fintech’s solutions are being offered directly to customers, and the process of integrating the two parties allows for new terms. Startups are optimising for speed, while corporations are optimising for risk. These approaches must be balanced in order for the partnership to work. Quite simply, the startup can’t be caught up in rigorous processes, while the corporation can’t take the same risks as a startup.

“When developing new solutions or integrating with partners, we organise in agile teams, who are empowered to make the decisions needed. That said, we depend on solutions that are trusted, and, for that reason, we consider risk carefully in our development. That might sometimes seem like a heavy burden coming from a startup, but we try our best to organise the processes around this to fit with our agile development,” Mitens explains.

Strategic investments are more patient

“If you rewind and take a look at how we started Spiir, it was through blood, sweat, and tears – and a lot of battles with the banks. That environment has shifted drastically in the past few years, and today we’re partnering with the banks,” says Rune Mai CEO and co-founder of Spiir and Nordic API Gateway.

In the early days of Spiir – which is a budget management tool, founded in 2011 – some banks were actively working against the startup when they tried to integrate their solution with banking data. Today, the fintech scaleup and its API aggregator, Nordic API Gateway has generated approximately €10M in investments from Danske Bank and DNB. Their solutions are also integrated into Jyske Bank.

Instead of raising capital from venture funds, Spiir decided to enter into a strategic partnership with the established banks to access their expertise, networks, and explore product synergies. Paraphrasing Mai, taking this route gave them the peace of mind to focus on solving persistent problems in the sector, instead of relentlessly hunting growth opportunities to satisfy venture-investors.

“My biggest concern against hyper-invested fintechs is the fact that tremendous amounts are thrown at a relatively limited product. This means the startup has to run even faster to meet growth expectations. In the worst case scenario, this results in an odd platform that wants to be everything and nothing – without really solving anything,” Mai says.

Win-win requires alignment

More funding opportunities means more ways for startups to become established financial businesses. According to Lorenzen, there is plenty of capital for fintech. Fintech-specific funders have put knowledge behind their money over the past 5 years, and the opportunity to find a strategic partner among the banks creates access to new resources.

Katrine Mitens, Executive Vice President, Payments & Innovation at Danske Bank.

Johan Lorenzen, former CEO of Holvi and ­chairman in Spiir Nordic API Gateway and ­Grandhood.

If fintechs and their technological solutions succeed in working together with banks on innovative solutions for themselves and their customers, the result will be a win-win partnership. However, this requires for both parties to agree on a common goal. And Lorenzen thinks this is where the more experienced and sophisticated will depart from the rest.

“Banks who all of a sudden realise they want to invest in a fintech might want to get 90 per cent of the ownership for half a million Euros, and then expect the team to (more or less) work for them. This is the wrong foundation for a partnership. The bank’s directorship shouldn’t just sit back at the headquarters and expect fintechs to find them. Those who have been successful are leaning into the ecosystem – on the ecosystem’s premises – and actively pursuing the fintechs on their own playing field,” Lorenzen advises.