Payments Without Frontiers: A Nordic Journey

CROSSBORDER: NORDICS Dag-Inge Flatraaker, Senior Vice President of Norway’s DNB Bank, and Edward Ireland, Head of Strategic Products at digital payments aggregator Bottomline, agree that we’re entering the most significant period of change yet in crossborder payments and northern Europe is a standard bearer.

The Nordics include the most digitally-advanced nations on earth, so it’s no surprise that the region is on course to launch a groundbreaking real-time crossborder, cross-currency payments platform in 2021.

P27 is so-called because it aims to improve payments for all 27 million inhabitants in the Nordic region, although it will initially launch in Sweden, Denmark and Finland, where all the major banks have come together to drive the initiative. Norway is likely to join later.

In what can be regarded as a test bed for the world, P27 is intended to break down barriers for trade and financial interaction in the Nordics, where four separate currencies – the Norwegian krone (NOK), the Swedish krona (SEK), the Danish krone (DKK) and the euro, adopted by Finland – operate. Migrating to a single, shared infrastructure.

and thereby removing the need for domestic clearing houses, promises to make real-time, batch, domestic and crossborder transactions cheaper and more efficient. The platform operators took a major step towards that in October 2020, by acquiring Bankgirot, Sweden’s only clearing house for mass payments.

Of course, any seasoned banker will tell you that real-time, cross-currency, crossborder payments greatly rely on cooperation between sovereign authorities and the financial institutions that underpin them; overarching or compatible regulation; cast-iron measures to protect customer details and prevent fraud, and, of course, consumers’ and business’ willingness to use and trust in crossborder digital services, which requires an easy-to- use interface, speed and transparency. But more and more examples of real-time crossborder, cross-currency projects are emerging. P27 is just one – and, if it meets its deadline, it will be the first.

In fact, Dag-Inge Flatraaker, senior vice president of Norway’s DNB Bank – which has been closely involved in the P27 project by virtue of the fact that it operates across the whole region – and Edward Ireland, head of strategic products at digital payments aggregator Bottomline, agree that the next 12 to 24 months will be the most significant period of change yet.

“What we’re seeing, and what we will continue to see, is different real-time payment networks – in sterling, euros, US dollars, Hong Kong dollars, Singapore dollars, etc – starting to be integrated, so that institutions and individuals can make real-time payments crossborder,” says Ireland. “But I don’t think you’re going to have single regulators across jurisdictions, so it’s going to be a massive collaboration, through the technology companies and network providers, which can support that interoperability.“

There are other initiatives coming into play, including SWIFT gpi and Universal Confirmations, ‘which is going to give institutions and individuals a whole new level of expectation around payments’, says Ireland.

“Payments, in the past, have been a little bit of a fire-and-forget concept; you initiate a payment, then you wait for the beneficiary to tell you they’ve got it. What we’re going to see, with gpi and Universal Confirmations in crossborder payments, is real-time visibility of the status of that payment. The individuals and institutions initiating the payments will be able to track them through their life cycle, and see when they hit the beneficiary account. “There’s a lot of work going on in the industry now to become compliant with Universal Confirmations, and there’s a lot of increased adoption of gpi as a programme. As we start to feel the benefit of that, I think you’re going to see the expectation of visibility of crossborder payments become the norm,” he adds.

The accelerating rollout of the ISO 20022 global payments messaging standard (also adopted by SWIFT gpi), which allows for more granular data to be included in transactions, is another powerful existential pressure for cooperation.

“Some of the market infrastructure initiatives, like the SWIFT transaction management platform and the introduction of ISO 20022, had major impacts for the community, and really got them thinking about how they manage payments and how they’re going to manage them in the future,” says Ireland.

“We’ve had a whole raft of new institutions come into the space, including P27, all the new payment service providers, and the encouragement of small challenger banks by the regulators in different countries – and these things have all triggered innovation and change.”

The Nordic countries began their journey towards payments integration with some significant advantages.

Besides the highest rates of digital banking in the world, more than 80 per cent of their populations use e-IDs, helping to speed up identity and verification. Federated e-IDs, issued and supported by all the major banks and variously known as BankID (Norway and Sweden), TupasID (Finland) and NemID (Denmark), are credited with promoting trust between citizens and financial institutions – and they now play an integral part in everyday life, helping individuals to securely access state services such as, tax, health and education, thereby accelerating the digital agenda.

The trust capital that banks have built in the Nordics is crucial to the adoption of the open finance agenda as it’s rolled out across Europe, believes Flatraaker.

“The regulators understand you need, in this digital evolution, to have absolute trust. If you don’t, you won’t achieve public support for a digital society.”

Another key factor in the P27 story is the willingness of banks to collaborate with each other and with fintechs. There’s plenty of precedent for that.

Flatraaker points to the example of Norway’s leading mobile payment app, Vipps, initially developed by DNB but quickly adopted by other Norwegian banks. Vipps’ extraordinary success goes a long way to explain why Norway has the highest number of electronic payments per capita in Europe, with only three per cent of transactions in cash.

"What we’re seeing, and what we will continue to see, is different real-time payment networks starting to be integrated Edward Ireland, Bottomline “I would say it revolutionised payments in Norway,” Flatraaker says.

It also showed that collaboration in the banking sector was good for all – which brings us back to P27. The fact that banks are driving the new platform will ensure they get to dictate the future structure and technology around payments – an area where ownership of the customer relationship is increasingly contested.

“We are not sitting, waiting to let others do the distribution, because then somebody else decides the content and interface with our customers,” says Flatraaker. “Our aim is to be out there, having the customer interface and solving their problems.”