Why Brexit could give cashless Sweden a big tech boost
Stockholm is well-placed to take European fintech business from London post-Brexit, experts say – but only if Sweden can clear the hurdles ahead.
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Try to buy an ice cream in Stockholm and hand over the new 50 kronor bill featuring Ingmar Bergman and there's a high chance you will be turned down. Instead, the shopkeeper is likely to proffer a little black terminal attached to an iPhone. The terminal is the invention of iZettle, just one of hundreds of Swedish companies revolutionizing our relationship with money.
The way we manage our money is changing fundamentally thanks to new technology. Banks, insurance companies are having their business models challenged by tech startups – and many of these upstarts are in Stockholm. Now, with Brexit denting London's attractiveness, the Swedish capital is set to consolidate its position as a centre of financial technology, or fintech. But concerns over immigration rules, taxes and housing could make it hard for Sweden to reach its full potential.
Globally, the US and China are still dominant and Britain remains the centre of the fintech industry in Europe. Yet Sweden is growing fast, and accounted for 12 percent of European fintech deals in the first eight months of 2017 – a doubling since 2015 and on a par with Germany and France, according to figures from analysts CB Insights.
London, meanwhile, slipped from 44 percent in 2015 to 34 percent in the first half of 2017 (comparable full year figures are not yet available).
For an internationalized business such as fintech, Brexit makes London distinctly less attractive for investors and makes Sweden more interesting, says Matthew Argent, CEO of Fintech Hub Sweden, himself a Brit. Doubts about how the UK will follow EU regulations post Brexit are one issue, as are questions about how companies will be able to bring in developers from the rest of the EU, he argues.
"We have the opportunity here to pick up a lot of business post-Brexit. There are opportunities to build," he told The Local. Stockholm has already picked up the UN-backed Green Digital Finance Initiative, which was originally slated to launch in London but which chose Stockholm instead, largely due to Brexit.
His view is backed up by a new report from Michal Gromek and Timotheos Mavropoulos at the Stockholm School of Economics, who suggest that regardless of the final outcome of Brexit, "it might be argued that the uncertainty connected with Brexit could result in benefits for Stockholm, which is unquestionably at the European fintech forefront".
A global mindset
But Stockholm is not starting from scratch – far from it. The big local star is Klarna, which provides payment technology for e-commerce stores. The company, founded in 2005, has raised an astonishing $598m in investment – more money than any other European fintech company. Valued at $2bn, Klarna is worth more than any fintech company outside the US and Asia.
iZettle is the other Stockholm giant, having raised €270 million ($326 million) in investments. The company says it is the largest mobile payments provider in Europe and Latin America.
These two companies are just the tip of the iceberg. Fintech Hub Sweden, centred on a 2,000 square metre office in central Stockholm, now has over 270 member companies – many of which have their sights set on global expansion.
"There are so many ideas here that would work in countries ten times Sweden's size. The mindset is always that we need to think beyond Sweden," says Argent.
Sweden's fintech companies are transforming a dizzying array of sectors. BIMA, for instance, is a mobile platform that offers life or accident insurance for as little as six cents a month to people in developing countries. The company says it has served 24 million customers, 75 percent of whom are accessing insurance for the first time. The company received a $96 million investment from German insurance giant Allianz at the end of last year.
Also focusing on the developing world is Gothenburg based Trine, which connects investors with solar power projects in poorer countries.
Most Swedish fintech startups are firmly focused on first-world problems, however. Qapital, for example, is an app that helps users to save money, and also offers a current account and debit card. Despite being founded in Sweden and having Swedish investors including Northzone and Industrifonden, Qapital's products are only available on the US market.
Stockholm is also home to some of Europe's most active venture capital investors in the fintech sector. Three of European fintech's top 18 venture capital firms are based here – NFT Ventures, Northzone and Creandum – not bad for a place with a population just an eighth of that of Germany.
Swedes let their phones do the work
So why have so many fintech companies sprung up out of Sweden? In part, it's because Swedes have for years been intensely relaxed about letting technology take care of their money – in contrast to the cash-loving Germans, for instance.
"Swedes got used to dealing with their finances digitally at an early stage. The ten year old in the nineties was in their twenties in 2006 and building a fintech company," says Argent.
This is partly down to long-term computer literacy: the country offered tax subsidies for home computers back in the nineties, meaning expense was no reason not to go online. In addition, Swedish local authorities invested big and early in building fibre broadband networks, meaning fast internet was widely available.
But having tech-savvy consumers is not enough – they also need to be willing to entrust their hard-earned money to new and untested tech companies. Here, fintech in Sweden may have been helped by the high levels of trust in Swedish society: the World Values Survey (the latest was in 2015) shows that people in the Nordics are more likely than people anywhere else in the world to trust their fellow humans.
"We're among the most connected countries in the world and the majority of Swedes have smartphones and tablets and are happy to use them for financial transactions," says Johan Bendz, chief strategy and communications officer for iZettle. "Historically low corruption levels have also contributed to a high level of confidence in the suppliers of digital financial services."
"Technology and engineering in Sweden have a long tradition," says Joakim Blom of Capco, a global management consultancy that recently set up in Stockholm, attracted by the boom in fintech. "Financial technology started long before iZettle and Klarna – you can look back at OMX being taken over by Nasdaq for an older example," he says, referring to the 2008 takeover of the tech-savvy Swedish stock market operator by its US counterpart.
As a result, Sweden is one of the countries that has moved fastest towards becoming a cashless society. In 2016 there were just 65 billion kronor of notes and coins in circulation, compared to 100 billion in 2007. Pensioners groups and others have raised concerns about the disappearance of cash, but they have so far failed to stem the tide. Instead, 61 percent of the population has installed Swish, a payment app launched in 2012 – it is typical of the collaborative Swedish tradition that the app was launched as a joint venture between Sweden's major banks.
This collaborative spirit is in full view at the fintech hub: major Nordic bank Nordea is moving 22 people in, Handelsbanken is taking several desks and other banks are in discussions. Visa is also setting up its Nordic Innovation Lab up there.
"Banks want to be a part of it. If they're just sitting there with their whiteboards they're not learning anything," says Argent.
But where will they all live?
But the reasons for Stockholm's success aren't just historic – the state is actively encouraging the development of fintech.
Sweden's central bank, the Riksbank, is currently looking at the possibility of introducing an 'e-krona' – a digital currency guaranteed by the central bank, just like cash.
And many in the business are full of praise for Sweden's financial market regulator, Finansinspektionen (FI), which they say is well-attuned to the needs of fintech firms.
Unlike many other regulators, FI does not have a regulatory 'sandbox', in which new financial products can be given a limited launch without having to undergo a full authorisation process. However, it is launching an innovation centre, and officials from FI have spent time in the Fintech Hub in Stockholm, working side by side with fintechstartups. This collaborative relationship between the regulator and startups has enabled innovation – and having Fintech Hub Sweden as a facilitator has helped smooth the way, argues Argent.
READ ALSO: Sweden predicted to become the first country with its own cryptocurrency
Gilles Ermont, Head of Digital and Innovation at Capco, praises the way the regulator is working with Swedish companies:
"Banks are looking at collaboration, not so much at acquiring the next new thing on the market. The regulator is fostering that collaboration."
Yet the fintech sector in Sweden has concerns – serious ones. First and foremost is the question of attracting talent.
"Sweden's existing talent pool is good because of the universities and the social system. But when you start to grow and want to attract people from outside, it's difficult, says Capco's Joakim Blom.
Stockholm has some very distinct plus points for international workers – work-life balance being one:
"The lifestyle factor is a huge thing. Our American colleagues come over here and are amazed by the holiday," says Matthew Argent.
But the lifestyle is not enough on its own, argues Joakim Blom:
"Sweden's politicians have a chance to attract people here, following Brexit, by fixing the housing market and encouraging the regulator (FI) to innovate," he says.
Another issue that many point to is the fact that Swedish tax rules currently make employee option schemes almost impossible for most companies.
iZettle's Johan Bendz is blunter:
"I think the major threat to Sweden's future as a fintech hub is the same as for Sweden as an hub for innovation – we're struggling with pressing regulatory issues such as high taxes, bureaucratic migration rules and housing shortages which makes it difficult for us to compete in the global war for talent."
Whether Sweden's authorities rise to the challenge could determine whether the country remains a leader in this transformative sector, or becomes a footnote in the history of its development.
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This article is available to Members of The Local. Read more about membership here.
Try to buy an ice cream in Stockholm and hand over the new 50 kronor bill featuring Ingmar Bergman and there's a high chance you will be turned down. Instead, the shopkeeper is likely to proffer a little black terminal attached to an iPhone. The terminal is the invention of iZettle, just one of hundreds of Swedish companies revolutionizing our relationship with money.
The way we manage our money is changing fundamentally thanks to new technology. Banks, insurance companies are having their business models challenged by tech startups – and many of these upstarts are in Stockholm. Now, with Brexit denting London's attractiveness, the Swedish capital is set to consolidate its position as a centre of financial technology, or fintech. But concerns over immigration rules, taxes and housing could make it hard for Sweden to reach its full potential.
Globally, the US and China are still dominant and Britain remains the centre of the fintech industry in Europe. Yet Sweden is growing fast, and accounted for 12 percent of European fintech deals in the first eight months of 2017 – a doubling since 2015 and on a par with Germany and France, according to figures from analysts CB Insights.
London, meanwhile, slipped from 44 percent in 2015 to 34 percent in the first half of 2017 (comparable full year figures are not yet available).
For an internationalized business such as fintech, Brexit makes London distinctly less attractive for investors and makes Sweden more interesting, says Matthew Argent, CEO of Fintech Hub Sweden, himself a Brit. Doubts about how the UK will follow EU regulations post Brexit are one issue, as are questions about how companies will be able to bring in developers from the rest of the EU, he argues.
"We have the opportunity here to pick up a lot of business post-Brexit. There are opportunities to build," he told The Local. Stockholm has already picked up the UN-backed Green Digital Finance Initiative, which was originally slated to launch in London but which chose Stockholm instead, largely due to Brexit.
His view is backed up by a new report from Michal Gromek and Timotheos Mavropoulos at the Stockholm School of Economics, who suggest that regardless of the final outcome of Brexit, "it might be argued that the uncertainty connected with Brexit could result in benefits for Stockholm, which is unquestionably at the European fintech forefront".
A global mindset
But Stockholm is not starting from scratch – far from it. The big local star is Klarna, which provides payment technology for e-commerce stores. The company, founded in 2005, has raised an astonishing $598m in investment – more money than any other European fintech company. Valued at $2bn, Klarna is worth more than any fintech company outside the US and Asia.
iZettle is the other Stockholm giant, having raised €270 million ($326 million) in investments. The company says it is the largest mobile payments provider in Europe and Latin America.
These two companies are just the tip of the iceberg. Fintech Hub Sweden, centred on a 2,000 square metre office in central Stockholm, now has over 270 member companies – many of which have their sights set on global expansion.
"There are so many ideas here that would work in countries ten times Sweden's size. The mindset is always that we need to think beyond Sweden," says Argent.
Sweden's fintech companies are transforming a dizzying array of sectors. BIMA, for instance, is a mobile platform that offers life or accident insurance for as little as six cents a month to people in developing countries. The company says it has served 24 million customers, 75 percent of whom are accessing insurance for the first time. The company received a $96 million investment from German insurance giant Allianz at the end of last year.
Also focusing on the developing world is Gothenburg based Trine, which connects investors with solar power projects in poorer countries.
Most Swedish fintech startups are firmly focused on first-world problems, however. Qapital, for example, is an app that helps users to save money, and also offers a current account and debit card. Despite being founded in Sweden and having Swedish investors including Northzone and Industrifonden, Qapital's products are only available on the US market.
Stockholm is also home to some of Europe's most active venture capital investors in the fintech sector. Three of European fintech's top 18 venture capital firms are based here – NFT Ventures, Northzone and Creandum – not bad for a place with a population just an eighth of that of Germany.
Swedes let their phones do the work
So why have so many fintech companies sprung up out of Sweden? In part, it's because Swedes have for years been intensely relaxed about letting technology take care of their money – in contrast to the cash-loving Germans, for instance.
"Swedes got used to dealing with their finances digitally at an early stage. The ten year old in the nineties was in their twenties in 2006 and building a fintech company," says Argent.
This is partly down to long-term computer literacy: the country offered tax subsidies for home computers back in the nineties, meaning expense was no reason not to go online. In addition, Swedish local authorities invested big and early in building fibre broadband networks, meaning fast internet was widely available.
But having tech-savvy consumers is not enough – they also need to be willing to entrust their hard-earned money to new and untested tech companies. Here, fintech in Sweden may have been helped by the high levels of trust in Swedish society: the World Values Survey (the latest was in 2015) shows that people in the Nordics are more likely than people anywhere else in the world to trust their fellow humans.
"We're among the most connected countries in the world and the majority of Swedes have smartphones and tablets and are happy to use them for financial transactions," says Johan Bendz, chief strategy and communications officer for iZettle. "Historically low corruption levels have also contributed to a high level of confidence in the suppliers of digital financial services."
"Technology and engineering in Sweden have a long tradition," says Joakim Blom of Capco, a global management consultancy that recently set up in Stockholm, attracted by the boom in fintech. "Financial technology started long before iZettle and Klarna – you can look back at OMX being taken over by Nasdaq for an older example," he says, referring to the 2008 takeover of the tech-savvy Swedish stock market operator by its US counterpart.
As a result, Sweden is one of the countries that has moved fastest towards becoming a cashless society. In 2016 there were just 65 billion kronor of notes and coins in circulation, compared to 100 billion in 2007. Pensioners groups and others have raised concerns about the disappearance of cash, but they have so far failed to stem the tide. Instead, 61 percent of the population has installed Swish, a payment app launched in 2012 – it is typical of the collaborative Swedish tradition that the app was launched as a joint venture between Sweden's major banks.
This collaborative spirit is in full view at the fintech hub: major Nordic bank Nordea is moving 22 people in, Handelsbanken is taking several desks and other banks are in discussions. Visa is also setting up its Nordic Innovation Lab up there.
"Banks want to be a part of it. If they're just sitting there with their whiteboards they're not learning anything," says Argent.
But where will they all live?
But the reasons for Stockholm's success aren't just historic – the state is actively encouraging the development of fintech.
Sweden's central bank, the Riksbank, is currently looking at the possibility of introducing an 'e-krona' – a digital currency guaranteed by the central bank, just like cash.
And many in the business are full of praise for Sweden's financial market regulator, Finansinspektionen (FI), which they say is well-attuned to the needs of fintech firms.
Unlike many other regulators, FI does not have a regulatory 'sandbox', in which new financial products can be given a limited launch without having to undergo a full authorisation process. However, it is launching an innovation centre, and officials from FI have spent time in the Fintech Hub in Stockholm, working side by side with fintechstartups. This collaborative relationship between the regulator and startups has enabled innovation – and having Fintech Hub Sweden as a facilitator has helped smooth the way, argues Argent.
READ ALSO: Sweden predicted to become the first country with its own cryptocurrency
Gilles Ermont, Head of Digital and Innovation at Capco, praises the way the regulator is working with Swedish companies:
"Banks are looking at collaboration, not so much at acquiring the next new thing on the market. The regulator is fostering that collaboration."
Yet the fintech sector in Sweden has concerns – serious ones. First and foremost is the question of attracting talent.
"Sweden's existing talent pool is good because of the universities and the social system. But when you start to grow and want to attract people from outside, it's difficult, says Capco's Joakim Blom.
Stockholm has some very distinct plus points for international workers – work-life balance being one:
"The lifestyle factor is a huge thing. Our American colleagues come over here and are amazed by the holiday," says Matthew Argent.
But the lifestyle is not enough on its own, argues Joakim Blom:
"Sweden's politicians have a chance to attract people here, following Brexit, by fixing the housing market and encouraging the regulator (FI) to innovate," he says.
Another issue that many point to is the fact that Swedish tax rules currently make employee option schemes almost impossible for most companies.
iZettle's Johan Bendz is blunter:
"I think the major threat to Sweden's future as a fintech hub is the same as for Sweden as an hub for innovation – we're struggling with pressing regulatory issues such as high taxes, bureaucratic migration rules and housing shortages which makes it difficult for us to compete in the global war for talent."
Whether Sweden's authorities rise to the challenge could determine whether the country remains a leader in this transformative sector, or becomes a footnote in the history of its development.
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