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I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Tuesday, 15 February 2011

Consolidation in Nordic Payments

25 Jan 2011

On 9 September 2010, a new Nordic payment giant, Nets, was formed as a result of the merger between Norwegian Nordito, which is the parent company of BBS and Teller, and the holding company of the Danish company PBS.

Q (gtnews): Why did BBS and PBS merge to create Nets in September last year?

A (Susanne Brønnum, senior group vice president of cards, Nets): The Nets merger is symptomatic of the payments landscape across the world. There is increased consolidation because of the need to grow and absorb new costs from the Payment Services Directive (PSD) and the single euro payments area (SEPA), as well as new compliance initiatives from the Payment Card Industry (PCI). At the same time, the banks are trying to reduce their costs, due to some extent to the financial crisis. Therefore, they want to obtain economies of scale by outsourcing payments to large companies.

For all these reasons - the need to grow but also for the economies of scale that our clients desire - we decided to merge the two big processors in the Nordics: Norwegian Nordito, which is the parent company of BBS and Teller, and the holding company of the Danish company PBS. All together there were 10 different companies/subsidiaries as part of the merger, which made it a significant challenge and achievement. The merger gives us the leverage and size that will make us attractive to more international customers. In addition, existing customers and shareholders will also benefit.

Nets ownership structure:

* Nordea 20.0%.
* DnB NOR 18.2%.
* Danske Bank 16.1%.
* SpareBank 1-alliansen 11.7%.
* Danmarks Nationalbank 9.7%.
* Other banks in Denmark and Norway 24.3%.

Q (gtnews): In terms of the business strategy, will Nets remain focussed on the Nordics markets or look to expand into other regions?

A (Brønnum): We are based in all the Nordic markets - Sweden, Norway, Denmark, and Finland, as well as Estonia. We believe that there is room for expansion in our home markets, particularly Sweden and Finland. That is one ambition. The other is to expand with our customers into the northern European market.

In the payment card market, we have set ourselves the goal of becoming the second biggest processor in Europe - we are number five today. Therefore we plan to attract more international clients outside the Nordics market. It will be very challenging and exciting to move from being a Nordic - and, to some extent, a community - processor into being an international service provider. It is a journey we are currently undertaking.

Q (gtnews): What deadline are you working towards to accomplish this?

A (Brønnum): It is a three-year timeframe, so our goal of becoming the second biggest processor in Europe and number one in our home markets should be realised by 2014. Both are ambitious goals but I feel confident that we can achieve them. Although there are many complementary services because both PBS and BBS have been active in the payments and card space for more than 20 years, there are also products and services that are different in each market, so now we can cross-sell and sell into other markets as well. Part of the synergy is to be able to sell more services in various markets, as well as cross synergies in consolidating platforms, products and services.

Q (gtnews): How has the payments landscape changed with regards to SEPA and the PSD?

A (Brønnum): In the past few years we have seen a consolidation of processing companies due to the crisis and clients’ need for economies of scale. All sides are pushing for lower prices but in order to absorb costs of compliance - SEPA and PSD - such companies need to process a large number of transactions. On the other hand, an increasing number of banks and financial institutions want to outsource specific services, mainly because they want variable costs instead of fixed costs. In addition, some have realised that the types of services around payments and cards is not core business for them, so they would like to outsource these to a competent service provider to allow them to focus on their core competencies.

In the Nordic market, banks’ interest in cards is moving beyond them solely being a means of accessing a bank account towards them as a means of creating revenue. They are looking to differentiate themselves through developing cards as a specific area of the bank. We have already seen some new products being trialled in the marketplace, and there will be many more in the next few years from Nordic banks.

Q (gtnews): Is there a growing trend of integrating corporate cards into cash management and treasury? Are banks releasing products for this?

A (Brønnum): There is still a lot of work to do as banks have only begun to tap into the corporate procurement/purchasing market. Some banks are looking into the card market as a tool for attracting corporate clients, whereas most banks are using cards solely as part of a package. Banks need to see cards as business drivers - fundamentally as a credit limit and what client relationship opportunities that opens up. They need to plan how they can integrate cards into the corporate package much better than they have to date, by making specific cards for specific segments or size of business, etc.

On the purchasing side, there have been a few trials across the Nordic market and I believe that we will see much more in the next couple of years. Much of the drive is linked to electronic invoicing (e-invoicing). Governments also have a part to play - i.e. the Nordic governments have been engaged in initiatives such as digital signatures to make the interface between government and business much more digital. Governments could help the purchasing market by allowing all invoices on a purchasing card.

Q (gtnews): What were the hot topics in payments in 2010?

A (Brønnum): I think there was - and still is - a lot of SEPA fatigue. Everyone knows that SEPA is here to stay, and the whole debate is about the third debit product - will there be a third European scheme or not? This is quite an interesting topic but it is not being discussed at industry conferences.

The Nordic market has all four SEPA scenarios: Finland is a euro country and so by definition part of SEPA; Sweden is not a euro country but has opted into the scheme; Denmark is a EU country but not a euro country, so out of SEPA; and last is Norway, neither EU nor euro. Nets operates in all four countries and is able to support SEPA services in all the different markets for our banks.

The PSD, on the other hand, is a EU regulation and not a euro one - which is a bit confusing. The PSD has already been added into Danish and Norwegian legislation and came into force on 1 November 2009. Sweden transposed in August 2010. As you can see, there are many differences even in the small Nordic region.

There are some interesting developments in the card arena. For example, Finland is currently moving from its domestic brand, Pankkikortti, to Visa or Mastercard. That is a significant change in Finland. And Estonia has just migrated to the euro as of 1 January 2011, which was a significant project for Nets as it owns the Estonian card processor Pankade Kaardikeskus (PKK) - now Nets Estonia.

First published on www.gtnews.com