For anyone trying to understand the credit landscape in the Nordics, my starting point would always be that Denmark, Finland, Norway and Sweden are four different markets, both culturally and regulatory. Therefore, it would be a mistake to view them as one.
However, some similarities apply across the region, and we can see those play out in the challenges and opportunities we see in the industry.
Many major financial services organisations have a good physical footprint but are perhaps less digitised than other markets. A number of the larger banks have grown through acquisition and therefore have legacy systems that require more time to digitise fully.
Where rapid changes have occurred in the Nordics and started to influence the financial landscape in the rest of Europe is with the growth of Buy Now, Pay Later (BNPL) products.
The concept is not entirely new. High-quality furniture and televisions have been available on finance programmes for decades, many of us look at the monthly instalments rather than the overall price. There was an expectation of 0% finance deals across multiple years to soften the cost of a higher value product.
Now new, innovative players are expanding their use to lower value products. For example, it’s possible to pay for a pair of jeans in three or four instalments or even spread the cost of a fast-food meal over 10 months. It reflects people’s wishes to live now and pick up the bill later on.
The long term impact of the rise of BNPL and other financial products and services hascaught the eyes of regulators and legislators alike. In Denmark, new rules are now applicable in which requires applicants, regardless of the loan’s size, to be assessed on their income, debt composition and monthly expenditure. Not applying interest or fees means there are for the time being fewer checks required for credit assessment, making it still easier to onboard a new customer.Sweden has also adopted a more rigorous approach during the autumn of 2021.
If, as expected, the BNPL sector will need to carry out more credit assessments, then it will want to do it with minimal friction for customers. Again, Open Banking data can answer the problem, enabling people to consent to share their bank account transaction data with a lender in seconds.
The financial services providers, including BNPL, which use Open Banking data and other third-party data sources to make informed credit decisions, will be best placed to remain profitable as organisations while complying with regulations.
Jakob Faergeman was interviewed on the podcast How To Lend Money To Strangers.