Sweden is close to being a cash-free society as electronic payments have dethroned cash and day-to-day banking has moved online. But is there room for bank branches in a country where street suppliers selling the local magazines take card?
“Almost never,” is the answer from 34 year-old Stockholm resident Livia Podesta when asked how often she visits her local bank branch. “I always do banking online and often pay my bills on my smartphone while commuting to work. In the past nine years, I have visited my bank’s office only twice.”
Podesta is a perfect example of personal banking in Sweden, where 82% of the population used online banking in 2014, with mobile banking not far behind. According to a recent KPMG study, approximately 45% of Swedes use mobile banking, compared with the European average of 38%.
Mobile banking represents the largest channel for most banks when looking at volume of transactions. For example, Swedbank – one of the “big four” banks in Sweden – says customers visit its online bank nine times per month on average and access its mobile banking app 24 times per month.
“Most people aged 60 and under rarely go to bank branches anymore. If you speak to someone under 30, they usually have never been to a bank branch. Everything is done online,” explained Robin Teigland, associate professor at the Stockholm School of Economics.
Unified systems
The migration to online and mobile banking has been driven by Sweden’s impressive digital infrastructure – its smartphone and internet penetration is among the highest in the world – but it is helped by some unique features in its banking sector.
Key among them is “BankID”. Established in 2003, it is a secure electronic identification system used on the internet and was brought to mobile in 2010.
BankID was originally developed by a consortium of large banks and is used by government authorities, businesses, banks and individuals across the country as the principal system for digital identification, including signing transactions and agreements. Out of 9.6 million Swedes, around 6.5 million use the system for online and mobile banking to online shopping and tax declaration.
“It is pretty unique for all the banks to get together in conjunction with the government, to have a single security system to be used across all your financial services – but also to submit tax returns,” said Ross Methven, director of client services at digital banking focused Mapa Research.
“That is unique to the Swedish market and it reduces the barriers for people to adopt mobile banking. The biggest barrier to adoption in most other markets is security concerns, such as when different banks have different security models.”
Another example of successful banking collaboration in Sweden is the Swish mobile payment app, launched in late 2012 by Danske Bank, Handelsbanken, Länsförsäkringar Bank, Nordea, SEB and Swedbank. The app – which uses Mobile BankID for authentication – offers real-time payments between bank accounts using mobile phone numbers.
How does this work? Let’s say you run into a friend on the street and remember you need to pay back a debt. Open Swish, type in the amount and your friend’s mobile phone number (if they are a Swish user) and the payment from your bank account reaches your friend’s account in 10 seconds.
Swish has quickly gathered a strong following. Around 3 million people have enrolled for the service since its launch, with over 6 million transactions performed every month. In 2014, the app was expanded to cover consumer-to-business payments, including retail. According to Nordea, the service will be extended to e- and m-commerce payments by the end of 2016.
“Swish shows there is collaboration in Sweden and banks can work together to develop innovative systems,” said Teigland. “For example, in Denmark they couldn’t get the banks together to do something like this. So they ended up with only one bank doing it.”
Growing competition
While traditional banks have woken up to digitisation, they are also starting to see a very different competition. Financial services are not the exclusive right of banks anymore, with startups such as Sweden’s own iZettle – which turns smartphones and tablets into payment terminals – disrupting through financial innovation. Crowdfunding and cryptocurrencies are gaining a foothold and even technology giants such as Apple, Google and Samsung are stepping into payments.
“Banking is becoming very dispersed. Different types of products and activities are being offered by a set of players, not just one player,” explained Teigland.
“Bill Gates said: ‘Banking is essential – banks are not.’ That is what we are starting to see. I can do all my online banking through other services.”
Swedish banks plan to rise to this challenge. They are focused on enhancing their mobile offering, increasing differentiation through personal financial management tools and embracing collaboration with startups.
For example, Nordea – one of Sweden’s largest banks – launched the “Nordea Next” mobile app in 2014 as a development and test tool for new services and features, with a limited group of customers before larger roll-outs. Nordea was also among the frontrunners to launch a banking app for the Apple Watch.
The future of bank branches?
The growth of cashless transactions and digital banking has seen Swedish banks move away from bricks and mortar. In the past 10 years, the country’s biggest banks have closed around 250 bank branches, with most local branches no longer offering manual cash-handling services. While there are more than 1,600 commercial bank branches in the country – around 900 of them cashless – their roles are changing.
“What we have found banks do is create new kinds of flagship branches. The branches reduce in number, but the branches banks do have are given a revamp in what they offer. This tends to focus more on advice and complex transactions, such as home buying,” explained Methven.
“We also see increased use of technology in branches – such as banks with tablets and computer screens for customers who go to a branch, but actually conduct their transactions and find out about other products and services using these devices.”
Teigland believes the transformation should be taken even further.
“Banks can do away with the traditional form of branches and should think more about their customers. Why not have a ‘bank on wheels’, which could go the areas where the elderly live, or perhaps offer banking services in libraries,” said Teigland.
“Banks need to think differently about where to offer their services, what services are needed and how can they be provided to their customer groups in different ways. We will see banking move away from traditional branches to more innovative ways of offering services to people who still require physical banking.”
Thanks to the country’s digital credentials, the transformation could happen in Sweden a lot faster than many anticipate. “It’s hard to predict, but maybe three years,” said Teigland, when asked how long it will take for bank branches to disappear in their current form.
“Maybe even 2 to 3 years, because banks are really starting to wake up to things happening in this space and competition is becoming tougher and tougher – especially as a new group of customers grows up,” she said.
