Nordic Fintech Tales: Exploring Challenges and Opportunities

credit: Nordic Fintech Magazine

Last week, I had the opportunity to participate in Nordic Fintech Week, the foremost fintech event in the region, now encompassing the dynamic Baltic trio of Latvia, Estonia and Lithuania. The event organizers had anticipated some 2,000 + attendees including investors and speakers although at times the venue felt somewhat vacant.

Open Banking and Payments

The center stage stories by and large were, as expected, open banking and payments. The Nordic countries have made inroads with open banking by aggressively adopting the EU's PSD2 (Payment Services Directive), now in its fifth year. This has led to increased security for payment transactions, fostered innovation and increased competition. Regulation typically hampers innovation but on this side of the Atlantic, it's PSD2 has propelled growth and global presence.

source: Klarna 2022 Annual Report

Other, smaller cohorts, are also displaying impressive growth akin to a "hockey stick" curve. Danish-based Pleo has steadily but surely emerged as one of Europe's best expense management solutions (although the jury is still out). Meanwhile, another Copenhagen-based fintech company, Lunar, has achieved a significant milestone by crossing the $100M in annual recurring revenue (ARR) by aggressively targeting customers from 16 years old and up. Notably, Lunar holds banking licenses with the Danish FSA, offering a viable alternative to the traditional brick-and-mortar banks.

Founders face challenges

Emerging Nordic startup founders aspire to follow the footsteps of entrepreneurial giants like Sebastian Siemiatkowski and Nikolay Storonsky, founders of decacorns and backed by renowned investors like Bain Capital and Tiger Investments. Yet, these budding entrepreneurs face formidable challenges of building and sustaining momentum for their ventures, along the daunting task to secure capital so essential for expanding beyond their markets.

During a panel discussion "The Seamless Open Boundless Future of Finance," the fintech innovators shared their struggles, including the maturation of their local ecosystems, and the shortage of experienced and diverse talent. Surprisingly these challenges persist despite Stockholm boasting the second-highest number of startups per capita with Silicon Valley taking the top spot

The lack of diversity is not exclusive to the Nordics. It is an industry-wide problem, as highlighted by a report of LA Times, revealing that less than 2% of tech employees in Silicon Valley identified themselves as Hispanic/Latinos, despite the region's sizable Hispanic population.

Mentorship for Scaling

I resonate with the Silicon Valley mindset that champions continuous learning, rapid adaptation, networking, and the principle of "paying it forward" by passing on the help received to others.

• Growth mindset, a lifetime learner

• Fail fast, learn fast, grow fast

• Connect, network and pay it forward (when someone does something for you, instead of paying that person back, you pass it to someone else instead)

That last mantra really brings it home for me. Indeed one of the main ingredients for success in Silicon Valley.

Embracing Opportunities; Both Locally and Globally

Nordic founders must think ambitiously and consider expanding beyond their "local" markets. European-based entrepreneurs hailing from small countries like Denmark, the Netherlands, Bulgaria often contemplate global expansion almost from the outset. According to VC company Index Ventures, there were over 275 European based startups that launched in the US in 2020. Expanding abroad offers benefits such as: diversification of earnings, validating Product-Market Fit (especially in the US market), accessing diverse and sometimes more cost-effective talent, and capitalizing on growth opportunities that may be absent in certain countries.

Navigating Regulations and Attracting Capital

The regulatory landscape, discussed onstage, present challenges for the fintech companies, particularly in light of the "Brussels effect" whereby European digital laws like GDPR, the Digital Services Act, and the upcoming EU AI Act, have a substantial impact on businesses, especially smaller innovative companies. While the EU is focusing on crafting legislation, the US and China prioritize harnessing emerging technologies such as AI.

Nordic governments should adopt more proactive approach, akin Singapore's MSA, which offers a "light-touch" regulatory framework with sandbox environment to test new fintech products.

Raising capital in this environment is demanding with rising interest rates and lack of clear path to profitability. Nordic founders should focus on generating positive cash flow from the beginning of their journey.

Above all, founders should remain customer-centric by addressing customer's pain and be passionate about alleviating their customers' pain points, striving to make the future a better place, regardless of the challenges they face along the way.