Nordic payment collaboration will ease cross-border payments

Despite often being grouped together under the “Nordic” classification, Norway, Finland, Denmark and Sweden all have their own culture, economy and currency.

Increasingly, however, efforts are being made to forge closer ties between the countries, often with IT at the core. This is especially true of the region’s banking sector, which in recent years has undergone significant transformations that have placed it at the forefront of global banking and payments technologies.

The latest attempt to bring the Nordic countries closer together is an initiative by Mastercard and the P27 Nordic Payments Platform, the latter being a collaboration owned by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank.

The new partnership between these two groups, announced in June this year, is intended to provide real-time and batch payments across the Nordic markets, which means handling payments across multiple borders and in multiple currencies, quickly and seamlessly.

That would be a daunting prospect with any randomly selected group of countries, but there are some aspects of the Nordic banking landscape that make the region an obvious choice to attempt a project such as this. Banking is already tightly integrated in the Nordics – there is an extremely high take-up of online banking and payment apps across the region, and the population has a high level of trust in the Nordic banks.

Javier Perez, president Europe at Mastercard, said: “The Nordic markets are global leaders in the development and usage of electronic payments and this new infrastructure will maintain their advantage over the rest of the world.”

The new venture is intended to replace existing payment frameworks. Assuming that regulatory approval is obtained and the project goes according to plan – not least in terms of investment commitments – then in 2021, banking participants will be able to send and receive funds immediately across the Nordic markets at lower cost and with greater security. The system will be a new platform for participating banks, covering both instant and batch payments in the Nordic currencies.

The cross-currency aspect is important. This is not like sending payments within the Eurozone, for example. The platform will have to offer competitive exchange rates to customers, otherwise the project may lose business to specialist currency-transfer companies, such as HiFX and TransferWise, that have been putting pressure on international banks’ often less-than-optimal customer exchange rates for several years.

Lars Sjögren, CEO at the P27 Nordic Payments Platform, said: “By joining forces across the Nordics, we will be able to develop instant payment solutions in a way that each country never would accomplish by themselves. By sharing the costs between the Nordic countries, we will get a state-of-the-art payment infrastructure in the Nordics with the highest standard when it comes to security and efficiency.”

Martin Georgzen, head of strategy and communication for P27, said the new initiative builds on an established base. “The aim with P27 was from the beginning to build a payment region in the Nordics,” he said. “The idea was to cluster Nordic payments volumes together and create a payments region covering both instant and batch payments under the same standard.

“The goal was to build a lean system and outsource the underlying operations to a third party, with the aim of creating a payments infrastructure that could offer real-time and batch payments, lowering costs, increasing security and strengthening competition in the market.”

The groundwork for the scheme was laid some time ago, with participants from all P27 banks involved. According to Georgzen, more than 100 people [from the P27 banks] were investing time in the project, so this was a large investment by the banks.

“The collaboration between the banks within this project is still very strong,” he said. “We are, of course, restricted by law in how the banks can and can't collaborate within the competitive space, but the proof is that the project has actually been going on since late 2017 and is still progressing full steam ahead. Now the company is established, preparation for migration has begun and we are about to file for a clearing licence.”

Mastercard was chosen to provide the underlying clearing operations after a comprehensive request for proposals process that considered several suppliers. “The evaluation criteria was a combination of commercial terms and quality of services – and Mastercard simply came out strongest,” said Georgzen,

Asked whether there are any plans to extend the project beyond the Nordic region, Georgzen said: “This is a Nordic project between Nordic banks. When it comes to the Euro region, we will offer full reachability and interoperability. For the banks and countries to come together under a project of this kind is an effort in itself and the interest in the project is extensive within the payments universe. For now, the scope is the Nordics and if further expansion is to be considered, that is in the future.”

Asked about whether any core IT system developed and shared by multiple participants runs the risk of creating systemic advantages for one participant over another, Georgzen said: “We have been very clear that P27 is about creating a level playing field for all participants. Price ladders belong to history and flat, same terms will apply to everybody. Also, the participation agreement will be the same for all participants. So we are doing our utmost to avoid these type of situations.”

Sjögren added: “Not too far in the future, family and friends might be able to pay each other using mobile devices, regardless of what service they use or which country they live in. Businesses can take advantage of access to a wider network of customers and suppliers, and the seamless movement of money when paying or getting paid. This one single interface will make it easier for banks to handle all payments – domestic, European and beyond.”