On March 27, 2019, I gave a presentation about mobile payments in the Future of Payments 2019 seminar in Helsinki. One point and key take-away I raised during my presentation was that Nordic banks are more reluctant to join global Pay’s (Apple Pay, Samsung Pay etc.) than other European banks. As an evidence, I listed all banks which support Apple Pay in Finland, Sweden, Norway and Denmark – and there were only two traditional Nordic banks on the list: Nordea and Jyske Bank from Denmark. But I was so wrong in claiming that the Nordic banks are not interested in global mobile payment brands! On April 2, 2019 – only six days after my presentation – Finnish Aktia Bank announced they are joining the Apple Pay band wagon, and Danske Bank announced to follow later this year.
In my presentation, I reasoned that Nordic banks are playing a defense game with their own mobile payment applications. And that they are playing the game pretty well! MobilePay, initiated by Danske Bank in Denmark, DNB’s Vipps in Norway and Swedish banks’ joint effort Swish have managed to acquire 13 million users1 among the population of 27 million people in the Nordic countries – with a record-breaking speed of adoption. So, has something fundamental changed, when Danske Bank, the early mover and creator of one of the most successful mobile payment schemes, will be joining Apple Pay?
Nordic banks and financial institutions supporting Apple Pay (March 2019)2
Person-to-person (P2P) has been an important stepping stone for mobile payments in the Nordics. The initial problems that MobilePay and the followers were solving related to how to share restaurant bills between friends, how to pay back ten euros borrowed from a friend, or how to pay the second hand children’s bike bought online, and so forth. And that turned out to be very successful. So successful that e.g. in Sweden Swish also became a commonly used verb, meaning transferring money to a friend. Thus, P2P has been a very successful customer acquisition channel for the Nordic mobile payment schemes.
Finland deviates from the other Nordic markets. Here, the mobile payments market is more fragmented, with no clear market leader. A local ATM operator Automatia developed Siirto, an instant mobile payment scheme, enabling interoperability between different mobile applications. This means that a person who is using Nordea’s mobile application can pay to a friend who is using e.g. OP Group’s Pivo application. In addition to apps using Siirto, MobilePay is available for Finns, but so far it has not been able to reach similar adoption rates in Finland as in Denmark. Partly due to this fragmentation, adoption of the Nordic mobile payment schemes is much lower in Finland and does not remarkably deviate from the adoption of Apple Pay in the country3.
The most popular mobile payment brands in Finland4
However, even though P2P has been a very successful customer acquisition channel for the Nordic mobile payment schemes, it provides no earnings. It is very hard to charge consumers from P2P payments. To generate revenues and to cover the high investment and operating costs, all of the schemes are expanding to merchant services. By today, Nordic mobile payment schemes are available in online, in-app and in-store payments. Alongside payments, the schemes are also introducing added value services, e.g. loyalty program integration for merchants and lending for consumers, in order to seek further new revenue streams. Furthermore, some of the schemes are turning into service platforms by providing their partners a direct access to the schemes’ customers through the platform in a similar manner as the Chinese super-app’s Alipay and WeChat Pay.
Evolution of Nordic mobile payment schemes
What is the future of mobile payments in the Nordics? If comparing Finland and the other Nordic countries, it seems that in P2P payments having one dominant scheme is the winning formula: network effects are more visible, and the scheme is easier to adopt for both consumers and merchants at least in the short term.
However, the global brands will challenge the local ones in any case. Especially in in-store payments, it is very hard to beat Apple Pay in user experience. And since Apple Pay is relying on card payment infrastructure, it doesn’t require additional investments on POS and ECR environments on the merchants’ side. In order to compete, the Nordic schemes must not limit their focus only on payment transactions, but on the entire shopping experience in difference use cases.
But is there room for multiple players in the Nordic mobile payment markets? To consider that, let’s take the taxi market as an example. A few years back Uber was expected to conquer the global taxi market. Yet, the biggest impact of Uber seems to be that it forced traditional taxi services to renew, and today local taxi companies are able to provide similar mobile user experience as Uber. However, there is still room for Uber in the market. For tourists around the world (at least where not banned), Uber is compelling compared to local players with its familiar user experience independent of the traveler’s current location. Still, at home, travelers (like me) may prefer to use local service providers.
Could a similar logic work in payments, too? When buying movie tickets or paying a friend, I would use a local mobile payment app, when sharing a restaurant bill with my French friend I would use PayPal, or when paying for groceries in a local supermarket or paying in a global online store I would use Apple Pay? This sounds like a potential scenario, but how many schemes can generate sufficient enough volumes to achieve the required network effect? And how able and willing are merchants to adopt multiple payment schemes? There are many open questions still, which make mobile payments extremely interesting right know.
We at BearingPoint believe that there is room for more than one mobile payment solution in a single market. Customer journeys are fragmenting across the channels and use cases in-store, online and in-app, and a one-size-fits-all solution may not be the winning formula. However, payments are still heavily dependent on network effects, which will ultimately set the limit of how fragmented the market can be.
What is your take on the future mobile payment market in the Nordics? Will the Nordic mobile payment schemes flourish also in the future, or will it turn to a surviving game? What are the key elements that make or break the market? Please don’t hesitate to leave your comments.
Jani Ristimäki, Manager, BearingPoint, Digital & Strategy