Includes a comprehensive list of Danish fintech start-ups
A city with a vision for growth and quality of life Anna Mee Allerslev, Mayor of Employment and Integration, CPH
Compliant disruption blockchain pioneer turning compliance into a business
Parenting advice from a godfather of start-ups
Michael Grønager, CEO, Chainalysis
Trade union launches fintech incubator Kent Petersen, Chairman, The Financial Services Union Denmark
Towards the crownless kingdom Ulrik Nødgaard, CEO, The Danish Bankers’ Association
- an interview with the Danish serial investor and entrepreneur, Morten Lund, who has parented more than 100 companies over the past 20 years
FINTECH COPENHAGEN, 2016 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of Copenhagen Capacity. Unlawful use of this publication is covered by the Danish Copyright Act. The information contained in this publication has been obtained from sources the proprietors believe to be correct. Copenhagen Capacity cannot be held responsible for information or statements in this publication which turn out to be incorrect. Furthermore, Copenhagen Capacity cannot be held responsible for content that does not derive from Copenhagen Capacity but is included in this publication deriving from third parties. If Copenhagen Capacity becomes aware of any incorrect information included in this publication, we will make efforts to issue a statement correcting this, but accept no legal liability.
FINTECH COPENHAGEN is published by Copenhagen Capacity, Nørregade 7B, 1165 København K, Denmark. Text and editing by Norfico (norfico.net). The contributing editors are Michael Juul Rugaard and Kristian T. Sørensen (email@example.com). Printed in Ballerup, Denmark by Dystan & Rosenberg. Graphic design by Hanne Simone. For any enquiries or questions relating to the magazine, please contact Marianna Lubanski, Director Investment Promotion, Copenhagen Capacity (firstname.lastname@example.org). © Photos by Copenhagen Capacity, Wonderful Copenhagen, Carsten Andersen, Henrik Jauert, Iwan Baan, Jacob Schjørring & Simon Lau, Bella Center, Nicolai Perjesi og Adam Mørk.
TABLE OF CONTENTS
Building a fintech hub requires an effort
Welcome to a city with a vision for growth and quality of life
A comprehensive study published in December 2015 analyses Copenhagenâ€™s potential as a leading Nordic fintech hub.
Foreword by Anna Mee Allerslev, Mayor of Employment and Integration at the Municipality of Copenhagen.
Visionary Trade Union launches fintech incubator The Financial Services Union Denmark (Finansforbundet), has decided to support the Danish fintech development by taking the lead in the first fintech entrepreneurial environment in Copenhagen.
Parenting advice from a godfather of start-ups An interview with the Danish serial investor and entrepreneur Morten Lund, who has parented more than 100 companies (and four children) over the past 20 years.
Solutions that drive self-service and digitisation for both citizens and businesses. Scan the QR Codes
One for all, all for one Collaboration is one of the keys to realising the vision of Copenhagen as the Nordic fintech hub says Anna Mee Allerslev, Mayor of Employment and Integration at the Municipality of Copenhagen.
Towards the Crownless Kingdom Less than one-fourth of payments in Danish retail stores is made in cash, and a large and growing number of Danes have, in practice, said their final goodbyes to cash.
When Temenos, the global core bank system provider, won a major contract with Nordea, Copenhagen was the natural choice for its Nordic headquarters.
List of Danish Fintech start-ups
The digital revolution has only just started
Denmark has only seen the beginning of the digital revolution, and Danish citizens and companies will witness massive digital changes in the years to come.
Nets opens up to new partnerships With 6.5 billion transactions a year, Nets plays an important role in the Nordic payment ecosystem, connecting banks, businesses, the public sector, and consumers via a long-established and deeply entrenched international network.
The Danish blockchain pioneer Michael GrĂ¸nager has turned compliance into a business by establishing Chainalysis.
What the Danish government will do for fintech
An interview with the Danish Minister of Growth, Troels Lund Poulsen.
Copenhagen â€“ probably the smartest city in the world
In the last few years, Copenhagen has repeatedly won awards and recognitions as one of the worldâ€™s leading smart cities. The reason is that Copenhagen has been capable of combining elements that are normally opposites.
Welcome to a city with a vision for growth and quality of life
By Anna Mee Allerslev
For the past three decades, Copenhagen has undergone fundamental changes. Copenhagen has transformed from being a somewhat sleepy and old-fashioned place known and visited by relatively few people outside of Scandinavia to a modern international metropolis that has even been voted as ”the world’s most liveable city” by Monocle magazine1, ”one of the smartest cities in the world” by Smart City Expo2 and Fast Company3 and ”the easiest place for business in Europe” by the World Bank.4 The background for these choices is that Copenhagen, in spite of undergoing a modernisation process, has insisted on maintaining its core values, i.e. putting people, the community and collaboration at the centre. Of course, as everyone else, Copenhagen faces a number of challenges – managing traffic during rush hours, providing housing and employment to the growing number of citizens and making new businesses grow to mention a few. Even so, the result remains that the city, concurrently
1. monocle.com/film/affairs/most-liveable-city-copenhagen 2. smartcityexpo.com/en 3. fastcoexist.com/3038765/fast-cities/the-smartest-cities-in-the-world/1 4. doingbusiness.org 5. wallpaper.com/design-awards/2016#140974
with becoming more modern, more international and more focused on safeguarding business interests and needs, has become cleaner, greener, safer, smarter and much more ”livable” for children, young people, families and older people. It is this combination of contrasting elements that gives the city its distinctive identity. Today, Copenhagen is an efficient ”city for business” which, in recent years, has been capable of attracting a great number of international businesses and create thousands of new jobs. At the same time, Copenhagen is a big city, where business people ride their bikes to work, because it’s fast, easy and healthy. Where large groups of citizens never carry cash because digital payments are accepted everywhere - even by the small mobile coffee cars in the city’s parks. And where thousands of citizens go for a swim in the city harbour during the summer, because the quality of the water is just as high as the quality of the waters surrounding Denmark. Copenhagen has a number of strong business clusters and has, over the past years - thanks to among others a collaboration between leading universities, public authorities and organisations - established a reputation as the home of a large number of cleantech and medico companies, but many creative companies within fashion, movies, food, architecture and design have also set up in the Danish capital. Copenhagen’s position in the design field was recently confirmed by Wallpaper5 magazine, who awarded their design prize 2016 to Copenhagen. The purpose of this magazine – Fintech Copenhagen – is to give a varied picture of Copenhagen’s new great vision; a vision about utilising one of the most important global tendencies for years and seizing this unique opportunity to position Copenhagen as a leading Nordic hub in financial technology - fintech. A number of public and private players, including
Danish Bankers’ Association (Finansrådet), the Financial Services Union Denmark (Finansforbundet), the Danish Association of Lawyers and Economists (DJØF), Nets, Saxo Bank, BEC, Tryg, CFIR, and the Copenhagen Municipality are, at this very moment, establishing a common foundation on which to build a fintech hub. And there are many reasons to believe that it is possible to realise this vision. Positioning a city as a fintech hub requires being able to attract the attention of international investors and businesses looking for the right place to invest their money or establish their Nordic or Northern European headquarters. We know from surveys that investors today assess cities based on a number of parameters, and that a position as one of the world’s leading ”smart cities” and most ”livable cities” is a decisive factor in the overall picture. Furthermore, already today, Copenhagen is in a strong position in terms of certain fintech niches (e.g. within userfriendliness, process optimisation and IT security), housing several leading IT and fintech companies, including SimCorp, IBM, Microsoft, CSC, Tradeshift, and Nets. New York, London, Silicon Valley and Singapore constitute the global premier league of fintech cities. Copenhagen has a clear ambition to position itself as a Nordic fintech hub. At the same time, we have a high ambition and expectation to both learn from, and collaborate with, the global fintech cities. Welcome to a city with a vision, and welcome to a magazine that presents the vision from various angles, using many strong voices. Happy reading! Anna Mee Allerslev Mayor of Employment and Integration, the Municipality of Copenhagen
Building a fintech hub requires an effort Words: Norfico
A comprehensive study published in December 2015 analyses Copenhagen’s potential as a leading Nordic fintech hub. The overall conclusion is that Copenhagen is capable of growing significantly in the area of fintech, but it requires a strong collaborative effort from private and public stakeholders as well as more risk capital, access to talent and increased political attention and support. According to the CPH FinTech Hub Study1, the Danish fintech industry employs a total of almost 15,000 people, and the average expectation in the fintech companies “is that the number of jobs will increase by 36% in five years [This means that] in 2020, the number of Danish fintech jobs will be 19,410.”2 In order to realise this potential and perhaps even exceed expectations by further increasing the growth of the companies and attracting a significant number of new and foreign companies, numerous parameters need to be taken into account and several requirements need to be in place.
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Success criteria The study mentions six key criteria for becoming a successful fintech hub, and it analyses the actions required for Copenhagen to meet these criteria. The six criteria are: 1. A vibrant fintech start-up community 2. Active, established players 3. Access to risk capital 4. Political support and ‘friendly’ regulators 5. Access to talent 6. Branding as a fintech hub.
Regarding the first criterion – having a vibrant start-up community (1) – the study sees it as a strength that Copenhagen has a well-established digital start-up scene, but the lack of a meeting place or start-up community dedicated to fintech in the city is a weakness. However, this is no longer the case, since the new start-up community for fintech companies – Copenhagen Fintech Hub - housed by the Financial Services Union Denmark (Finansforbundet) opened its doors at the beginning of 2016 (see separate article about the new community at page 10) and this turned out to be an instant success. Relating to the established players (criterion 2) the unique, long-standing Danish tradition for collaboration in terms of developing infrastructure and broad digital solutions is clearly a strength, and this tradition could prove extremely valuable going forward in the further development of the Danish fintech scene. Access to risk capital Concerning access to risk capital (criterion 3) the study points out that Copenhagen has “no or few dedicated fintech investors”. This has undoubtedly been the case until recently, but as the attention on fintech is heating up it is very likely that an increasing number of investors will start looking for fintech investment opportunities - in fact, during the second
BUILDING A FINTECH HUB
half of 2015 and the beginning of 2016, we have seen clear signs in Copenhagen of this new trend. Furthermore, under the ‘access to risk capital’ category the study mentions Denmark’s “lack of tax incentives for business angels compared to for example the UK” as a weakness. This is true, but it is also true that when it comes to choosing countries and cities to invest in, tax rates are only one of many factors which must be taken into account. And this is probably the reason why Denmark once again in 2015 was ranked by Forbes as the best country in the world for business. In Forbes’ comparison of 144 nations, taxes are weighted equally with ten other factors, namely property rights, innovation, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance. Forbes about Denmark’s top position: ”Denmark ranked in the top 20 in all but one of the 11 metrics we used to gauge the Best Countries for Business (it ranked 28th for red tape). It scored particularly well for freedom (personal and monetary) and low corruption. The regulatory climate is one of the world’s “most transparent and efficient,” according to the Heritage Foundation.”3 More political support needed Regarding success criterion number four (4) –“Political support and friendly regulator” – the study sees it as a strength that Denmark has “a strong political agenda from central government on digital infrastructure and digitisation” and that, accordingly, Denmark has a high level of e-readiness. As weaknesses the study points out that the Danish FSA needs to act more proactively towards the fintech startups and that more “dedicated political support for fintech” is needed.
There is no doubt that these are very important points. If we look at the fintech development in London it is obvious that the clear attention and support offered by the British government has been one of the reasons why London has been able to rapidly grow its fintech scene and position the city as the leading fintech hub in the world. On the regulatory side, the British counterpart to the Danish FSA is playing a very active role, which is much appreciated by the fintech environment. In November 2015, Nektarios Liolios, Managing Director of Startupbootcamp Fintech, told the Financial Times that: “In terms of regulation, the FCA [Financial Conduct Authority] is the most openminded regulator around. Others are trying to ignore bitcoin or blockchain, but the FCA is recognising the importance of them.”4 In 2014, the FCA in the UK launched the so-called Project Innovate with the purpose of supporting the development of the fintech industry. The FCA explains: “Through our Innovation Hub we want new and established businesses - both regulated and non-regulated - to be able to introduce innovative financial products and services to the market.”5 Through the project the FCA offers fintech companies the following services: • A dedicated team and contact for innovator businesses • Help for these businesses to understand the regulatory framework and how it applies to them • Assistance in preparing and making an application for authorisation, to ensure the business understands our regulatory regime and what it means for them • A dedicated contact for up to a year after an innovator business is authorised.6
ARKEN Museum of Modern Art
In the Danish study, the wishes for the future role of the local FSA is phrased like this: “Ideally, The Danish Financial Supervisory Authority (Finanstilsynet) would dedicate resources to have ‘open office hours’, where established players and start-ups could meet the regulator in an informal environment and get support and work together.”7 Inexpensive skilled labour Access to talent (criterion 5) is obviously important when trying to build up a new area of competence in a city, and the study consider it a strength that skilled labour is less expensive in Copenhagen than in the world’s leading fintech hubs such as London, Silicon Valley and New York. At the same time, the study points out that the level of really specialised fintech expertise in Copenhagen is not as high yet as you might wish for, and the study recommends upskilling employees and introducing programs to attract more international talent. Regarding the final success criterion – “branding as a fintech hub” (6) – the study points out that more attention on Copenhagen as a fintech hub is needed in order to further accelerate the positive
1. CPH FinTech Hub – Study and recommendation for making Copenhagen a Nordic FinTech hub, Rainmaking Innovation and Oxford Research, December 2015 2. ChP FinTech Hup Study (Full report) p. 78 3. onforb.es/1Vj3CdE 4. on.ft.com/1Vj6Y0r
development, and it underlines the huge value of Copenhagen being selected as the first and perhaps permanent European destination for the worlds’ leading fintech event, Money20/20. Establishing ‘Project CPH Fintech Hub’ The conclusion of the Danish study is that Copenhagen certainly has the potential for further growth and a position as a Nordic fintech hub, but realising the potential requires an effort. The study recommends the establishment of ‘Project CPH FinTech Hub’ covering nine specific actions: • E stablishing a fintech co-working space in the centre of Copenhagen • R unning multiple early-stage activities • L aunching accelerator or other support programs • E stablishing a pool of high-quality mentors • Working closely with established players • C onnecting investors and start-ups • L obbying the Danish government and the Municipality of Copenhagen to gain political support for the fintech agenda • E ncouraging regulators to work closer with innovators • C onducting communication and marketing.8◼
CPH Fintech Hub – Study and recommendations for making Copenhagen a Nordic FinTech hub was initiated by a group of influential public and private players in Copenhagen, including the Municipality of Copenhagen (Københavns Kommune), the Financial Services Union Denmark (Finansforbundet), the Danish Bankers’ Association (Finansrådet), the Danish Association of Lawyers and Economists (DJØF), Copenhagen Fintech Innovation & Research (CFIR), the payment processor Nets, the bank data centre BEC, the insurance company Tryg, and Saxo Bank. The study was carried out by Rainmaking Innovation and Oxford Research and resulted in a report, which was published in December 2015.
5. innovate.fca.org.uk 6. innovate.fca.org.uk 7. ChP FinTech Hup Study (Full report) p. 34 8. CPH FinTech Hub Study (Summary Report), p. 13
Read the summary report: CPH FinTech Hub – Study and recommendations for making Copenhagen a Nordic Fintech Hub
BUILDING A FINTECH HUB
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Trade union launches fintech incubator Kent Petersen, Chairman of The Financial Services Union Denmark Words: Norfico
Since the beginning of the financial crisis in 2008, 9,000 jobs have been cut in the Danish financial institutions as a result of the closing of branches, streamlining and new technology. This corresponds to 20 per cent of the labour force in the traditional part of the banking sector, and this seems set to continue. At the same time, the international fintech industry, which is challenging these same financial institutions, is booming. It may at first seem like a paradox, but the Danish trade union for people employed in the financial sector, the Financial Services Union Denmark (Finansforbundet), has decided to embrace and support the Danish fintech development by taking the lead in the first fintech entrepreneurial environment in Copenhagen. The initiative, which has been named the Copenhagen Fintech Hub, is a long-term attempt to try to create new growth and jobs in new financial areas, thus improving the chances of the Financial Services Union’s members’ of finding employment within the financial sector. In September 2015, as a pilot scheme, the first fintech entrepreneurs moved into the Financial Services Union Denmark’s office in Copenhagen. A few months later, the trade union had a list of well over 30 small companies who wished to become part of the first Copenhagen entrepreneurial environment exclusively for fintech companies. With this, an innovative idea was becoming a reality, and, at the end of the year, the trade union named the new entrepreneurial environment Copenhagen Fintech Hub. Constant downward trend since the financial crisis Chairman of the Financial Services Union Denmark, Kent Petersen, discusses the
idea behind the Copenhagen Fintech Hub: that it has arisen gradually as a consequence of the massive changes experienced by the financial sector in Denmark. ”Since 2008, more than 9,000 jobs have been lost in the financial sector, and it just seems to be continuing. Part of the reason has to do with cost control during the financial crisis. Another part of the reason is that the digital development has gathered a lot of pace due to that same financial crisis,” says Kent Petersen, and continues: ”The digitisation wave has swept over the financial sector for many years and has
TRADE UNION LAUNCHES HUB
actually gained in strength – from the PC that put the typewriter out of business to the invasion of the Internet, to today, where the financial sector is already the home of a huge number of IT staff. We have not always been quick enough to seize development opportunities, and we don’t want to make that mistake again. That’s why we now open the door to fintech and welcome all new development, so that we can quickly learn and understand the new trends and technologies, and identify the areas in which we need to take action to ensure that our members get the skills required to profit from the development.” It’s about creating new jobs According to Kent Petersen, the Financial Services Union Denmark concluded that it was more important to concentrate on job opportunities rather than jobs lost. And since the union’s analysis showed that these new job opportunities mainly arose in the field of financial technology, the conclusion was pretty clear. According to Kent Petersen it makes good sense to support the union members through collection of new knowledge and skills development in a business where digital development changes the labour market at an extremely high pace, as has been the case in the financial sector in the past years. And exactly that is one of the union’s underlying motives for asking the new fintech companies in. ”So, it’s largely about creating new jobs,” says Kent Petersen, ”and it’s about getting a crystal ball to gaze into. The benefit of having entrepreneurs in our office is that we can simply go over there and talk to them and see what they’re up to and
in this way get an idea what’s hot right now and what to pay attention to. For us not to utilise this access to insight and knowledge would be crazy.” ”I believe that this will become a trend in future, because it makes really good sense for our union to contribute to creating jobs and, at the same time, work with our members’ so-called employability so as to maintain and develop their market value, as the sector is changing. It’s useless to try to desperately cling onto jobs that are being lost. Instead, we should try to develop the labour force’s skills so as to enable them to adapt to the development.” First of its kind in the world Kent Petersen is well aware that some will be surprised about the trade union undertaking the role as the driving force behind a fintech entrepreneurial environment. It may seem like a paradox, since, at the end of the day, it is small business owners and employers that you are creating. So why is this task under the auspices of the union rather than on the other side of the table?
It was more important to concentrate on job opportunities rather than jobs lost. Kent Petersen explains that he himself has been looking for examples of financial trade unions that have done something similar, but without luck, and he is therefore inclined to believe that the Financial Services Union Denmark’s initiative is probably the first of its kind in the world.
”I think it’s a pretty unique project we have going on. But remember, this is Denmark. We’re used to doing things a little bit differently, and we’re used to collaborating across the traditional boundaries between employer and employee. The vast majority of times, we actually sit on the same side of the table. And I’m very much interested in the companies succeeding and having good wages, as it contributes to creating jobs and gives scope to creating good, decent working conditions.” In the case of Copenhagen Fintech Hub the Danish Bankers’ Association (Finansrådet) also actively supports the project, as do the Municipality of Copenhagen and several other central private and public players. Kent Petersen explains that the parties, instead of becoming “hypnotised” by their mutual contrasts, focus on the shared interest in lifting the financial sector in Denmark, so that it can prosper in future as well: ”What’s really interesting is that this is in itself an entrepreneurial project, and I don’t believe we’ve seen anything like it in other places. We are the parties of the labour market, the employers’ associations, the trade union movement and, for that matter, the public sector getting together and saying: Why not try to create 10,000 jobs in Copenhagen? That’s unique.” Blockchain nerds are in the majority At present, Copenhagen Fintech Hub is
already populated by a medley of startup fintech companies dealing with areas such as asset management, digital credit rating, Bitcoin compliance, blockchain solutions, humanitarian assistance based on Bitcoin, new payment card solutions and strategic advice in fintech and other areas. Even though the group of start-ups already represents many facets of fintech, the composition clearly reflects that Bitcoin, and not least the underlying blockchain technology, are the areas that are really attracting attention these days, especially among fintech entrepreneurs. The whole of Denmark’s project in a couple of years Even though the Financial Services Union Denmark is currently renovating and fitting out approx. 1,000 square meters in their headquarters to make room for an even greater number of entrepreneurs, the idea is not for the trade union to become an office hotel and caretaker for the Danish fintech companies in perpetuity. ”I hope that the project has grown too big for our offices in two or three years. Actually, I hope that it will grow so big and successful that we will have to build a large fintech entrepreneurial office somewhere in Copenhagen with room for thousands of entrepreneurs,” says Kent Petersen, and continues: “By then, the project will no longer have the Financial Services Union Denmark as a driving force. It will then become a project for the entire Copenhagen and Denmark with many active parties involved.”◼
FACTS FINTECH TURNS
COPENHAGEN FACTS ◼ Denmark is Europe’s easiest and the
world’s third easiest country for doing business (The World Bank)
The word fintech was coined by Abraham Leon Bettinger, VP of a New York bank, who in August 1972, in an article for the magazine Interfaces, wrote: “Over the last four years, [our bank’s] research department has developed approximately 100 models that are currently used throughout the bank. A group of 40 models has been set aside and designated as FINTECH. FINTECH is an acronym which stands for financial technology, combining bank expertise with modern management science techniques and the computer.”
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INTERVIEW MORTEN LUND
Parenting advice from a godfather of start-ups Giving money away in a clever manner is a difficult and delicate business. Start-ups need smart investors to parent them, just like children need clever parents in order not to get either spoiled or bullied in the school yard. Smart parenting of money and companies is key for Copenhagen to succeed in the international fintech space. This is one of the messages from the internationally known Danish serial investor and entrepreneur, Morten Lund, who has parented more than 100 companies and four children over the past 20 years. Some of the companies got spoiled or bullied or eaten up, while others - like Skype, Zecco, Bullguard, and Maxthon - grew up to become strong and viable businesses. All four children are doing well - two of the boys even called their father during this interview! Over the last few years, and especially since he met his kindred business spirit, Danish Lone Fønss Schrøder, known as one of the top business women in the Nordic region, Morten Lund has been very much into fintech. He currently runs eight partially secret fintech projects. These are united under the enigmatic brand OnlyXO, which has a website that only a select few can view. We will come back to that. My first question to the casually dressed guy with long hair seated across me in big leather Chesterfield chairs in a Copenhagen cocktail bar is about whether or not the idea of making Copenhagen a leading Nordic fintech hub is realistic. It turns out that he is far more optimistic than I would have expected.
be as lucky as we were when the great Svend Auken (former Danish minister) enforced the bottle-return system. But by pushing an agenda you can often be successful, as was demonstrated by the Danish windmills. There’s always a certain degree of luck needed, but if we push from all directions, and if we get the regulatory authorities to be more flexible and convince the Danish Financial Supervisory Authority (Finanstilsynet) to provide more than just yes or no answers, then of course we can do it. People tend to forget that Copenhagen already has some of the most successful European fintech companies, including SimCorp, Saxo Bank, Nets, Tradeshift and CashWorks. So, I think it’s definitely possible although finance is not really in our blood. But that could turn out to be an upside.
Morten Lund (ML): Of course, it’s always difficult when it comes to realising visions, and we’re probably not going to
Interview with Morten Lund Investor & Entrepreneur Words: Michael Juul Rugaard, Norfico
Michael Juul Rugaard (MJR): How can that be an upside? ML: In the existing fintech hubs and big established systems people are often blind to innovation. Even if it’s right next to them they cannot see it because they’re part of a hierarchical structure. If they get a new idea they’re afraid that the guys underneath or above will disagree or perhaps steal the idea and make a career out of it. They lack the juice of innovation that I think we have here in Copenhagen at this very moment in time. Denmark wins the European championship of technology soccer again and again, although we’re a tiny country with only a small talent pool and limited access to capital.
Denmark is ranked by Forbes2 as the world’s best country for business. The formula behind this is a unique combination of ingredients, such as the fact that Denmark has a fundamental layer of social security in place, which gives five million Danes a creative freedom allowing them to be more innovative than 1,4 billion Indians. In short, I have big hopes and expectations for Denmark and my home city. MJR: If you had to mention three areas that require strengthening before Copenhagen can claim its position as a Nordic fintech hub, what would they be? ML: We have to turn compliance into an upside, and we can do that by making the banks contribute with people who have the skills to solve compliance problems such as KYC/AML.3 Secondly, we need to convince talented people living abroad to come back and feed the ecosystem. Copenhagen is a strong place, and you don’t have to be in London, New York or Silicon Valley to realise your career ambitions.
MJR: So, although you’ve been all over the world for many years you still believe in your home city? ML: I fully believe in Copenhagen – especially after it got a new three Michelin star restaurant.1 The Danish capital has changed significantly during the last ten years, and I think it’s possible to turn Copenhagen into a strong fintech hub. As a matter of fact, I’m putting a lot of effort into exactly that.
Finally, we must develop a fine balance between access to and demand of capital. Everybody wants more capital, but I know from my own experience that the important part is to be able to spend it right. You have to be careful not to overfeed the start-ups - they’re simply not supposed to have too easy access to capital. It’s like a horse, it will eat until it dies if you just give it unrestricted access to food. I know that I will be unpopular for saying this, but believe me, it’s the truth. In some ways start-ups are like children, who need responsible and wise parents to guide them, and I’m afraid that there are too few good parents around. You know, there are no stupid kids, only stupid parents. And there is no stupid money, only stupid investors. In order for the investors to act as responsible parents, they have to be guided right too, and that is a very important task.
INTERVIEW MORTEN LUND
MJR: But I guess you do believe that we need more risk capital too?
large, international corporations such as Maersk, Volvo, and Ikea.
ML: We can always use more risk capital, but we’re even more hungry for smart investors with lots of experience, and we have to be able to attract them. We simply need experienced coaches to go with the money.
Lone and I have been working together for three years now, and one of the solutions in our OnlyXO portfolio is called CashWorks. It turns the boring process of factoring upside down. The problem today is that when you, as a provider, have done some work for a big company and send them an invoice, you’re at a disadvantage because you don’t get paid until three months later. What we’ve created is a digital solution for early payment of invoices against a dynamic discount.
MJR: In order to turn Copenhagen into the Nordic fintech capital, we have to be able to attract top talent, foreign investors and foreign companies. Why should an investor or a company choose Copenhagen instead of Stockholm, Oslo or Helsinki? ML: There are a number of reasons why Copenhagen is more attractive than Oslo and Helsinki, but I’m not sure we can compete with Sweden. Stockholm has a very international DNA because of the many international companies made in Sweden. If Copenhagen could just get up to the pace of Stockholm we should be proud, since that would put us in the global top ten. MJR: Let’s talk about your own interest in fintech. I have tried to look into your OnlyXO website, which is apparently all about fintech projects, but it’s not easy to get access. Could you reveal something about the fintech projects you’re currently working on? ML: Well, I’m trying to build a variety of financial technology companies that are taking advantage of the sudden openness within banking driven partly by new international regulations. This openness combined with the digitisation that has happened over the last few years offers a completely new set of opportunities.
In some ways start-ups are like children, who need responsible and wise parents to guide them, and I’m afraid that there are too few good parents around. CashWorks benefits the buyers, the providers and their banks as well. Nobody wants to pay for banking services anymore, and banks are looking for something positive to talk with their clients about. So, we introduce a solution that can actually give them more business and make the CFO area a heavy profit centre. The solution is bankindependent, and there is zero integration for the banks. They can just flip on a switch and get going, and the same goes for their clients. It’s unbelievable that this solution has not been made before, but that is a fact, and we have already sold it to a large Danish bank and to some of the largest banks in the world. MJR: Just recently?
I’m trying to explore these opportunities in close collaboration with my brilliant business partner, Lone Fønss Schrøder, who has in-depth knowledge of banking and finance and many years of experience from key positions in
ML: Yes, within the last quarter, and actually even before we managed to register the company. At the moment, we’re about to sign an agreement with another 3-4 banks. It’s almost like selling candy to children. 21
Superkilen by Superflex and Bjarke Ingels
Besides CashWorks we’re working on six disruptive solutions. One of them is about SME lending and another is a new concept about payout accounts. Every large corporation that pays out a lot of money to partners and suppliers could use this new solution and actually take advantage of the cash flow one more time, if they choose to pay out within their own payment infrastructure. If a company pays you for a consulting service, why should the money arrive in your existing bank? Why not in a new bank together with a bank account and a payment card? Normally you forward the money to your existing bank, but perhaps a new bank and bank account could have some features attached to it that would be interesting for you as a consultant. MJR: Sounds interesting... have you published any information on this solution yet? ML: No, you cannot find anything about these projects. It’s too early, but stay tuned for more! MJR: Okay, but tell me, when did you get interested in fintech?
Strøget/the main shopping street in Copenhagen
ML: I have been playing around with fintech since I co-founded the brokerage firm Zecco 12 years ago. Back then we didn’t call it fintech. Later, I got involved in establishing the business platform Tradeshift, which is partially a fintech company. Tradeshift was actually founded in my basement,4 and today it’s probably the largest invoicing network in the world. I got a really big appetite for the potential of financial technology at that time, and I saw how the processes around money are just unexploited territory. It’s so beautiful! MJR: One of the challenges when we talk about making Copenhagen a Nordic fintech hub is to convince the fintech companies to stay in Copenhagen when they start growing
and – some of them – eventually become successful. How do we make them stay here instead of moving to London or Silicon Valley? ML: Listen, you cannot fight or compete with Silicon Valley! It’s simply the perfect ecosystem in terms of technology, and if you want to be really global you should probably consider going in that direction, mainly to get investment fuel. The only way for Danish society to get a share of companies started here is to make public funds invest at an early stage and keep their equity when the companies become large and successful. But it’s not a problem, because as I said, Copenhagen is a strong place, and as it gets even stronger it’s likely that even the most successful companies will keep at least part of their business in Copenhagen. MJR: Do you believe in an increasing role for the public funds? ML: We already have the largest public funds in the world - both the ATP5 and the pension funds, which is something that doesn’t exist anywhere else except in the Netherlands and Canada. The pension funds have put money into the Danish Growth Fund (Vækstfonden), which has actually been fairly successful. We have a great infrastructure for injecting money into start-ups. We need money so that we get equity before they leave, and the way to avoid companies leaving without society getting the full impact is to have smart investors, who invest at a very early stage. As I said earlier, giving money is really difficult to master, you know it from your children. If you give them too much they become spoiled, and if you give them too little they might not get that perfect education. The parents of the money have to be smart, but of course it’s interesting to make some big bets.
X INTERVIEW MORTEN LUND
Copenhagen is a strong place, and as it gets even stronger it’s likely that even the most successful companies will keep at least part of their business in Copenhagen. Morten Lund
MJR: When Tradeshift became successful, they moved their headquarters to San Francisco. Why didn’t they keep it in Copenhagen?
1. The restaurant Geranium is the first Danish restaurant to earn three stars in the Michelin Nordic guide.
ML: By moving the headquarters we raised the valuation of the company approx. five times. But you must remember that Tradeshift still has a big office in Copenhagen – a huge office, actually. And we have no intention of changing that.◼
4. World famous Skype was started in the very same basement.
2. onforb.es/1Vj3CdE 3. Know Your Customer (KYC), Anti-Money Laundering (AML).
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Heading North Anders Holm, Nordic Delivery Director of Temenos Words: Norfico
When Temenos, the global core bank system provider, won a major contract with Nordea, the largest bank in the Nordics, Copenhagen was the natural choice for its Nordic headquarters Anders Holm, Nordic Delivery Director of Temenos, tells us that while the choice to locate in Copenhagen was very much influenced by the task at hand, Copenhagen was the preferred choice. He explains that among the four Nordic capitals, Copenhagen provides the best infrastructure, most convenient location – with short flight time from e.g. London and Frankfurt – and not least the overall attractiveness of the entire Øresund Region (which includes the southernmost parts of Sweden) as an existing hub of important financial services companies.
Banks need to be able to demonstrate that agility drives them towards more simple solutions. The strategy and model that Temenos has applied to the setup is starting out almost as a replica of the existing Temenos offices – starting with a small operation with highly skilled process and integration consultants and then gradually growing into a full service setup. This will allow Temenos to deliver according to its existing contracts, while at the same time preparing for additional Nordic solutions. Anders Holm elaborates on the model:
“We start by delivering to Nordea and build something that is specific for them. Then we move on to building something that is specific for the region, which will be generally available and usable in the entire Nordics. This is our strategy.” This strategy brings local and regional knowledge and experience back into Temenos’ existing operations and thereby helps to develop the overall platform and solutions. Working Labs While the Nordea implementation is a very large project, the size and skillset of the Danish operation allows for a very high level of agility. Anders Holm explains that the process of working in an agile manner, which is similar to the way way the new fintech start-ups work, challenges the existing organisation in a positive way: “We bring a trial-and-error approach to our work that would normally be very difficult to apply to most larger organisations.” Building this working lab in Copenhagen has brought many nationalities together – Temenos currently has 13 different nationalities working in the Danish office. Anders Holm finds that the Danish mentality seems well suited for such an environment.
In addition to the international contributions, Temenos also relies on local talent: “In Copenhagen, we have good access to skilled people – this is also due to a good education system. We have very positive relationships with the technical universities as well as the business schools where we have recruited some of our business consultants.” More support needed The current fintech wave is a very tangible example of how new ideas shape the future. Anders Holm is supportive of the idea of developing Copenhagen as the Nordic fintech hub as this fits perfectly with Temenos’ plans for the region. London and Frankfurt have been the traditional financial centres of Europe and London has managed to build an exceptionally strong fintech environment on top of this position.
Fintech is not a threat. Quite the contrary – we need the fintechs to deliver even more flexible solutions to our customers. In Anders Holm’s view, if Copenhagen aspires to be second to London it will require a dedicated effort; also because Stockholm and some of the German cities like Frankfurt and Berlin see a lot of fintech activities. It also requires close collaboration between private companies and public institutions. Activating the business schools One important factor will be increased collaboration between the educational system and the private companies. Having worked with innovation and incubation previously, Anders Holm hopes to see more incubator activities with e.g. the business schools. Anders Holm also considers taking Temenos’ integration with the educational system further: “We would even consider
a graduate programme as this would bring us the people that will create our future business – it’s not us, but the young that will provide the new ideas.” Anders Holm also shares a bit of advice for other international companies considering building a base in Copenhagen: “Do your homework in terms of understanding the Danish organisational culture,” and he continues: “Secondly, seek support and advice about labour laws to avoid potential pitfalls related to work permits – it’s a good investment to get professional support for this. And finally, I would also advise larger companies to go for a blend of local and ‘imported’ talent.” For those companies who follow Temenos’ lead and Anders Holm’s advice, there will be good things in store: “They will get the opportunity to be part of an exciting fintech environment in a country with high levels of technology and digitisation. I have worked in many countries, and Denmark is ahead of most – also its close neighbours. This has become a self-enforcing system, with digital solutions that you don’t see anywhere else.” From legacy to efficiency and flexibility Temenos has two major focus areas in their value proposition to the banks. One is to increase the operational efficiency by consolidating old and often fragmented legacy systems onto one core platform: “We see ourselves as a catalyst transforming the banks’ complex systems, application structures and integration structures. Someone who can straighten out the processes and make it easier and cheaper to run a bank,” says Anders Holm. Reducing costs and increasing flexibility is, according to Anders Holm, vital for the banks to be able to compete against the new wave of competitors, who are not burdened by the same type of legacy systems.
Going forward, banks will find it increasingly difficult to earn money on core services – especially in a low or zero interest environment. Anders Holm explains: “I think many banks are asking themselves – they should be asking – should we be white label providers for the newcomers, should we still be the brand owners, or should we just provide the backend processing? I believe that we will see a higher degree of specialisation over the next years. Some will aim to be specialised providers whereas others will try to be the financial supermarket.” Taking our own medicine As Temenos also needs to keep innovating and developing their products, they face some of the same challenges that the banks face and the recipe for success is the same – embrace change and embrace the fintechs: “We’re very open and we have actually created a small hub similar to what we see here in Copenhagen with Copenhagen Fintech Hub, where we actively host and service start-ups with access to the transaction platform and a number of apps they can play around with and adapt or enhance with their own technology,” says Anders Holm, and concludes: “Fintech is not a threat. Quite the contrary – we need the fintechs to deliver even more flexible solutions to our customers.”◼
A unified platform in itself is not enough in the world we live in – you also need to have open interfaces in order to be able to integrate with others.
DANISH FINTECH START-UPS MARCH 2016 Company
A Aguilonius Aidbuilder
Other Fintech Innovative Lending
B Bancore Basset.io Beancounting Better Rates Betternow Birdback Booomerang
bancore.com basset.io beancounting.dk betterrates.dk betternow.org birdback.com booomerang.dk
Trading & Banking Other Fintech Trading & Banking Innovative Lending Innovative Lending Wealth Management Innovative Lending
capdesk.com capitalaid.com cmp.as
Other Fintech Innovative Lending Other Fintech
C Capdesk Capital aid Capital Market Partners Card Academy Cocoa Invest Chainalysis Clearhaus CodersTrust CodeSealer Coinify ConsultingXO Cranberger CrediWire Crowdcube Cryptomathic D Dansk Faktura børs Dansk Låneformidling Dare Disrupt Debito Dencrypt Design IT Dinero Donation Road
cac-cardacademy.com Other Fintech cocoainvest.dk Trading & Banking chainalysis.com Cryptocurrency clearhaus.com Payments coderstrust.com Other Fintech codesealer.com Other Fintech coinify.com Cryptocurrency onlyxo.com Other Fintech cranberger.com Trading & Banking crediwire.com Other Fintech crowdcube.com Innovative Lending cryptomathic.com Other Fintech
Trading & Banking Innovative Lending
daredisrupt.com debito.dk dencrypt.dk designit.com dinero.dk donationroad.com
Other Fintech Trading & Banking Other Fintech Other Fintech Trading & Banking Innovative Lending
LIST OF FINTECH STARTUPS
E Easy Park eBinder Ernit
easypark.dk ebinder.dk ernit.com
Other Fintech Other Fintech Wealth Management
F Ferratum Festina Lente FinE Analytics First Treasury Flexfunding FraudID
ferratum.dk festina-lente.dk fineanalytics.com irst-treasury.com flexfunding.com fraudid.dk
Innovative Lending Other Fintech Other Fintech Other Fintech Innovative Lending Other Fintech
G Gate2Payments GetFigure.io GodBank Gokredit
gate2payments.com Transfers getfigure.io Trading & Banking godbank.dk Wealth Management gokredit.dk Innovative Lending
K KreditMatch Innova Financial Solutions/Risk Butler
Trading & Banking
kreditmatch.dk Innovative Lending iskbutler.com Transfers
L Lunarway Lendino
M MeeWallet Mikrokredit Monera Monso More2Save My C4 MyMonii
meewallet.com Wealth Management mikrokredit.dk Innovative Lending monera.dk Trading & Banking monso.dk Payments more2save.dk Wealth Management myc4.com Innovative Lending mymonii.com Trading & Banking
Trading & Banking Innovative Lending
LIST DELIVERED BY CFIR
COPENHAGEN FINTECH INNOVATION AND RESEARCH
DANISH FINTECH START-UPS MARCH 2016 CONT.
Trading & Banking
N NetDania Technologies Next forsikring NineConsult Norfico NorthHolders November First
next.dk Wealth Management nine.dk Other Fintech norfico.net Other Fintech northholders.com Wealth Management novemberfirst.com Payments
P Partisia PatientlĂĽn Paylike Paymenter Penso Pay Peercraft Pocket Risk Proinvestor
partisia.dk Other Fintech patientlaan.dk Innovative Lending paylike.io Transfers paymenter.com Transfers pensopay.com Payments peercraft.com Transfers .pocketrisk.com Transfers proinvestor.com Trading & Banking
R Raft Consulting Realview
Other Fintech Other Fintech
S Samlino Sepior Sharefunders Shopbox Spiir Sproom
samlino.dk Trading & Banking sepior.com Other Fintech sharefunders.dk Innovative Lending info.shopbox.com Payments spiir.dk Wealth Management sproom.net Wealth Management
T TickCOM tickcom.com Tradable tradable.com Tradeshift tradeshift.com Magick / Tradeworks tradeworks.io Tradimo tradimo.com U Udenombanken udenombanken.dk Unwire unwire.com
Trading & Banking Trading & Banking Trading & Banking Trading & Banking Trading & Banking Technologies Trading & Banking Wealth Management
LIST OF FINTECH STARTUPS
W Wallmob Wecrowdfund Winspire
wallmob.com Payments wecrowdfund.com Innovative Lending winspire.dk Other Fintech
Fintech Segments Defined Type Description Cryptocurrency
This segment includes any companies primarily involved with generating profits around cryptocurrencies.
Both innovative lending and crowdfunding companies are included in this category. Traditional banks are not included in this segment.
Other Fintech Companies
Companies that do not fit in the other categories are included in this segment. A wide range of fintech businesses fit in here from stock market analysis software to specialized financial security software.
Companies that provide payment and payment processing services. These range from traditional POS providers to new online transaction processing systems.
Trading & Banking Technologies
Companies conducting the core banking functions for example online stockbrokers, exchange back ends, banking back ends, etc.
Companies that are involved with balance transfers between B2C, B2B and C2C are included.
Wealth Management Consumer wealth management companies are included in this segment, companies that help users maximize wealth through service comparison (ex. Insurance) are also included in this segment.
LIST DELIVERED BY CFIR
Source: Wesley-James, N., Ingram, C., KĂ¤llstrand, C. & Teigland, R. (2015) Stockholm FinTech: An overview of the FinTech sector in the greater Stockholm Region. Stockholm School of Economics.
COPENHAGEN FINTECH INNOVATION AND RESEARCH
FACTS Why Copenhagen makes out the natural hub for the Danish fintech scene Though fintech companies can be found in most parts of Denmark, Copenhagen makes out a clear epicentre of the Danish fintech ecosystem and also has some valuable ‘hub-assets’ in an international comparison.
More than 60% of all Danish fintech companies are in the located in the Capital Capital Region and around 40% in the City of Copenhagen. Both the city and the surrounding Capital Region has a large concentration of headquarters of financial services and IT suppliers as well as relevant universities, authorities and fintech organisations.
Copenhagen offers a relatively low cost of life and labour compared to leading fintech cities such as New York, Silicon Valley and London.
The City of Copenhagen is already the epicentre of the vibrant Danish digital start-up scene.
Almost 60% of fintech start-ups are located in the City of Copenhagen. More than 60% of both start-ups and established companies within fintech find Copenhagen an attractive place for doing business.
The city ranks no. 5 in the European Digital City Index.
It is a highly human centred city crowned several times as the world’s most liveable city.
It is Scandinavia’s most internationally connected city in terms of international flights.
Towards the crownless kingdom Ulrik Nødgaard, CEO of the Danish Bankers’ Association Words: Norfico
Payment in Danish kroner in the form of coins and notes is becoming a bit of a rarity. Already today, less than one-fourth of payments in Danish retail stores is made in cash, and a large and growing number of Danes have, in practice, said their final goodbyes to cash and only use a mix of digital payment methods. Ulrik Nødgaard, CEO of the Danish Bankers’ Association, approves of this development and points to the fact that fewer cash payments reduce costs, not only for the banks, but to a great extent also for the retail industry and the Danish society as a whole. The development is a direct result of more than three decades of Danish digitisation and of a productive collaboration across the Danish banks and between the banking sector and the public sector. The development will continue in the coming years where the Danish financial sector plans to invest massively in digitisation. And this will further boost the movement away from cash. Denmark is without a doubt one of the most digitised countries in the world and when it comes to the financial infrastructure, Denmark is also known as a frontrunner with a highly advanced infrastructure. One example is the introduction of real-time payments last year, another is the digital e-registration/ land registration solution, “NemID”. This position is based on quite a long history of developing digitised infrastructure based on a close collaboration between the banks. One of the milestones in this development was achieved on 1 September 1983, when the CEO of the then Financial
Institutions’ Debit and Credit Card Company (Pengeinstitutternes Købe og Kreditkort A/S) made the first transaction – the purchase of a pair of black leather shoes – with the national debit card, the Dankort. This was the beginning of what, within a few years, turned out to become the without a doubt most popular payment means in Denmark. Admittedly, the remainder of 1983 only saw another 78,552 Dankort transactions, but if we fast-forward time to 2015, the picture has changed radically: Today, no less than 5.8 million Dankort and Visa/ Dankort cards have been issued to a population of 4.5 million citizens over the
TOWARDS THE CROWNLESS KINGDOM
age of 18. In 2015, 1.2 billion payments were made using the Dankort; in average, each cardholder used their payment card 209 times, and last year, the average consumption per Dankort was no less than DKK 63,072. Collaboration rocks The Dankort is one of the earliest and most successful examples of a broad collaboration within the banking sector, which has had an influence on development of the Danish core infrastructure as well as associated solutions. Ulrik Nødgaard, CEO of the Danish Bankers’ Association, talks about the tradition for broad collaboration, which in several cases has included the public sector: ”The longstanding tradition for collaboration within the financial sector has been very important for the digital journey in Denmark, but you also have to give a lot of credit to the public sector. During the past decades, the public sector has – in a positive way – pushed Danish digitisation, and several smart digital solutions have been developed by the public sector in close collaboration with the banks. Within recent years, the broad collaboration has included solutions such as the national e-identity, NemID, the digital e-registration/land registration solution, Digitale Tinglysning, and NemKonto.1 All three solutions are unique and are found nowhere else in the world.” Thanks to this long tradition for collaboration combined with the Danish public sector and banking sector’s early, persistent focus on digitisation, today, Denmark is one of the countries in the world closest to becoming a cashless society. Cash is no longer cool This means that today, less than onefourth of all payments is made in cash. Since mobile payments in the retail industry is still at its humble beginning there is every reason to believe that the movement away from cash payments will
accelerate further in the time to come. In terms of person to person payments (p2p) the two solutions, MobilePay and Swipp, developed by Danske Bank and a broad alliance of banks in the course of less than three years, are widely used throughout Denmark. Ulrik Nødgaard is pleased with the movement away from cash and in the direction of an increase in digitisatised solutions. He believes that over the years, the Danes have generally gained more trust in the broad national digital initiatives that enable them to use new digital solutions faster. “It seems as if the Danes have developed a kind of digital mindset, which means that they are not scared of new digital solutions or the idea of a cashless society for that matter. So, I think that the banks in Denmark together with the public sector have really made it possible for us to realistically discuss a cashless society. We’re on a digital journey, and in a positive way it cannot be stopped, and there’s no need to stop it.” Digital payments are cheaper Ulrik Nødgaard and the Danish Bankers’ Association’s satisfaction with the development is not least due to the very simple reason that payments with coins and notes are more expensive than digital payments. More expensive for the banks as well as for the stores and the Danish society as a whole. An extensive survey conducted by the central bank of Denmark (Danmarks Nationalbank) already in 2011 revealed that the cost for society of a cash payment was DKK 7.36 per payment, whereas the cost of the cheapest digital payment, i.e. a payment made with the Dankort, was only DKK 3.15.2 The same survey estimated the total costs for society at a little over DKK 9.1 billion, of which cash amounted to no less than DKK 5.8 billion and the Dankort only DKK 2.5 billion (international debit and
credit cards accounted for the remainder). If we look specifically at the retail stores’ payment costs according to Danmarks Nationalbank’s survey, they amount to approx. DKK 4 billion, of which the main part comprised costs for cash payments though the total value of cash payments was around DKK 120 billion lower than the value of payments made with payment cards. Ulrik Nødgaard points out that considering the significant financial advantages of digital payments compared with cash it’s a bit of a paradox that Denmark, as the only country in Europe or the world for that matter, is subject to an act (section 56 of the Danish Payment Services Act) stipulating that all physical stores in Denmark are required to accept cash. In the past years, the Danish Bankers’ Association as well as the retail stores’ trade unions have worked to gain political support for liberalisation – preferably a removal – of this section so the stores themselves can decide whether they wish to accept cash or digital payments only. Ulrik Nødgaard senses a certain change and political will which he hopes will soon lead to the desired liberalisation: “We do see some political awareness of the fact that this piece of legislation should be changed so that the shop owners are given the freedom to say no to cash if they want to. If we look at countries that we can easily compare Denmark with they don’t have that rule and it works fine without it.” Cashless society should benefit all In addition to the economic arguments for actively pushing development forward towards a cashless society, Ulrik Nødgaard points out that abolition of cash, in whole or in part, is likely to result in a number of other advantages such as a reduction in certain kinds of crimes and better options in terms of combatting underground economy. In 2011, the Economic Council in Denmark estimated that undeclared employment (which
does not include criminal activity such as drug traffic or trafficking) accounts for an annual loss of tax revenue to the tune of DKK 29 billion.3 Also, a shift to entirely digital payments is likely to reduce the environmental impact and possibly also the risk of transmitting diseases, since cash are known to be contaminated with a large number of bacteria. In 2013, a survey concluded that, in average, Danish notes were carriers of 40,000 bacteria (including E. Coli) and supposedly, this is sufficient to cause infections.4 While a cashless society involves many advantages, it also poses some challenges that should not be neglected. One very important issue that requires attention according to Ulrik Nødgaard is the need for sufficient means of payment methods for challenged groups in the society: “One issue I would like to emphasize is that a transformation towards a cashless society requires that the banks – and society as a whole – when developing digitised solutions also need to focus on how to make these solutions as user-friendly and useful as possible for challenged groups, for example elderly people and disabled or homeless people. In that context one should not forget that the digitised solutions can actually support these challenged groups in their everyday life. It’s a challenge, but one that can be overcome” concludes Ulrik Nødgaard.◼
1. nemkonto.dk/Servicemenu/Engelsk 2. Danmarks Nationalbank: Cost of payments in Denmark, 2011, p. 8. 3. ROCKWOOL Foundation’s Research Unit: Danes and undeclared employment. The financial advice: Dansk Økonomi, forår 2011 (Danish economy, spring 2011); dors.dk/sw8402.asp 4. ing.dk/artikel/40000-bakterier-paa-danskepengesedler-157438
TOWARDS THE CROWNLESS KINGDOM
We do see some political awareness of the fact that this piece of legislation should be changed so that the shop owners are given the freedom to say no to cash if they want to.
The Danish Bankers’ Association welcomes the fintech wave According to Ulrik Nødgaard the fact that Denmark has been on its digital journey for so many years already is a very important help for the Danish banks in the current situation where they have to be able to deal with the massive wave of new digital and disruptive solutions entering the market both from huge global companies such as Google, Facebook, and Apple and from a huge number of fintech startups. Although some of these companies are attacking the banks directly, Ulrik Nødgaard claims that the Danish banking sector has decided to first of all look at the fintech development as a new set of opportunities for the banks. And that is the reason why the Danish Bankers’ Association has chosen to actively support the development of Copenhagen as a future fintech hub in collaboration with the Financial Services Union Denmark (Finansforbundet) and the Copenhagen Municipality (Københavns Kommune), among others. “There are definitely some Danish banks that will be challenged, but you should also start thinking of it as possibilities for the banks. Sometimes people say, okay, then there will be no banks tomorrow! I think they’re underestimating the banks and the Danish banking sector as such, which is quite well equipped to meet these challenges,” says Ulrik Nødgaard.
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The digital revolution has just begun Lars Frelle-Pedersen, Director-General at the Danish Agency for Digitisation Words: Norfico
In 2001, Denmark adopted its first common public digitisation strategy, and in a few months, the 5th version of the strategy will be launched. The strategy will run until 2020. This continuous focus on digitisation has secured Denmark’s position as one of the most digitised countries in the world. Still, according to Director-General Lars Frelle-Petersen, the Danish Agency for Digitisation, Denmark has only seen the beginning of the digital revolution, and Danish citizens and companies will witness massive digital changes in the years to come. Denmark is well known for its high level of digitisation, and one may think that the director of the Danish Agency for Digitisation, after serving four years in his position as director, and having achieved many remarkable results, would be tempted to sit back and rest on the laurels. But this is by no means what he’s planning to do. He doesn’t mind making it clear that his own country ranks in the global top, however, at the same time, he stresses that Denmark has by no means reached its goal of digitising the society. In fact, Lars Frelle-Petersen believes that we are still only at the beginning, looking into the digital future, and we can hardly imagine what the future can and will bring. Lars Frelle-Petersen about the current status of digitisation in Denmark just before the political adoption of the 5th Danish common public digitisation strategy:
”When we compare Denmark internationally, we’re typically in the top three or four, and there are several reasons for that: First of all, we have a very digitised population that frequently uses IT in its everyday life – for example, last year, more than 88 per cent of citizens at the age of between 16-74 were in contact with the public sector via the Internet. Furthermore, we have a long tradition of close collaboration in the public sector, with whom we have built several advanced digital infrastructures within the last few years. But the collaboration also spans across sectors, and when it comes to digitisation, particularly the public sector’s collaboration with the Danish financial sector has been successful for a number of years. For example, we have collaborated on the development of the Danish digital signature, NemID, and thus we have a common security
infrastructure across the public and private sector, which is something pretty unique.” Massive changes ahead Lars Frelle-Petersen concludes that the Danish digitisation is moving in a positive direction, but he also points to the fact that there is a lot of work ahead improving and developing what we have achieved so far. ”Yes, we have achieved quite a lot in Denmark. Nonetheless, I believe that we’re still only at the beginning, looking into a future where digitisation will become even more widespread. I’m convinced that we’ll experience a massive digital change in the coming years, and in the public sector, we see it as our task to pave and lead the way,” says Lars Frelle-Petersen, and continues: ”One of the things we need to look at is how the public sector can work more effectively in future. We need to spur more innovation in the public sector, and we would very much like for private companies to help us raise the innovation bar in different areas so as to ensure that the services we provide to the citizens and companies become better and smarter in future. We have come a long way, amongst others due to the fact that we have made digital self-service mandatory, and we have implemented a number of important infrastructure solutions such as NemKonto, NemID, NemLog-in, and Digital Post.” NemKonto1 is an account assigned to all Danish citizens and used by the public sector to make payments, e.g.
educational grant, holiday pay or tax refunds. NemID is the Danish digital signature or key used for public as well as private services on the Internet, for example when accessing personal tax information on the Danish tax authorities’ website or the online banking systems of financial institutions.
We would very much like to invite private companies – foreign companies included – to submit creative proposals on how to design the NemID of the future. Citizens and companies use NemID when using self-service systems in service areas that have been subject to mandatory digital self-service by statute since 2012, for example, when moving to a new address, signing up for a school or a day-care institution, or applying for a building permit. Whereas NemID is described as a digital key, NemLog-in is often described as the door or the keyhole to digital self-service solutions in the public sector. Digital Post is a solution enabling the public sector to send mail that has previously been sent by ordinary mail to the citizens’ personal mailboxes, e.g. on the citizen portal, Borger.dk, in encrypted form .
Welcome to private players A common feature of these infrastructure solutions is that they have been developed in Denmark and that there are only a limited number of similar solutions elsewhere in the world. The development of these infrastructure solutions is one of the focus areas of the digitisation strategy in the coming four years, and one of the things that occupy Lars FrellePetersen is for the Danish Agency for Digitisation and the public sector to open up and allow more private companies to contribute to the development of the digital infrastructure and to push for more competition in the area to create the best and most innovative solutions. Lars Frelle-Petersen explains: ”Currently, we’re working on a collaboration with the Danish banks on offering the next generation of NemID to the entire society. And we would very much like to invite private companies – foreign companies included – to submit creative proposals on how to design the NemID of the future.”
”We believe that many will be interested in contributing, because, as a supplier, you can partake in building the next generation of a secure ID solution for interaction on the Internet, and not only for interaction with the public sector, but also on a business to business basis. We need a solution that can be customised to the Danish society in future, but which must also be capable of working across borders, because we already know that the EU will soon introduce a directive on e-ID enabling us to determine each other’s identity transnationally, and it’s an interesting challenge to find out how this can be implemented in the best possible way.” Automation and direct interaction It’s expected that one of the central themes in the new digitisation strategy will be increased automation of digital services. Lars Frelle-Petersen explains that in this regard, the purpose of the strategy is to prepare the public sector for a far more automated future. ”We need to be able to automate far
more services, and citizens as well as companies need to have better access to high-quality data, self-service and better options in terms of interacting directly and intelligently with the public sector. Today, 89 per cent of citizens have a digital mailbox used to receive mail from the public sector, and also from the private sector,” says Lars Frelle-Petersen, and continues: ”But the mail we send is still just an ordinary letter that has been converted to a PDF file, so it’s a ‘dead’ letter that we need to transform to a much more intelligent solution. In future, digital mail needs to become interactive, for example to enable citizens to resolve matters between themselves and the public sector directly via the digital letter, and also to reply directly via the letter without having to create an entirely new e-mail.” As an example, Lars Frelle-Petersen mentions a notice of hospitalisation that includes, say, an interactive calendar with video information or messages in different formats, enabling the recipient to interact directly and instantly with the sender regarding the event referred to in the letter. Digitisation attracts companies Asking Lars Frelle-Petersen whether he considers Denmark’s level of digitisation attractive for companies considering where in the Nordic region to establish their Nordic branch, he answered that he has no doubt that there is a direct link between a high level of digitisation and the ability of countries to attract foreign investments.
I’m convinced that we’ll experience a massive digital change in the coming years, and in the public sector, we see it as our task to pave and lead the way. ”In Denmark, we’re preoccupied with making our digital services smarter and making it more attractive for foreign companies to establish their businesses in Denmark. Over a number of years, we have, to the extent possible, continuously worked to reduce the administrative burdens for companies and make it easy to establish a business. Our politicians focus on offering a good and safe business environment with a skilled, well-educated workforce, green, effective cities and a public sector which pays attention to and understands the needs of the private companies. And, as a public sector, we need to increasingly use the innovation power of the private companies to create an even more modern society in future,” concludes Lars Frelle-Petersen.◼ 1. nemkonto.dk/Servicemenu/Engelsk
The Unique Solutions As highlighted throughout the magazine, Denmark has a number of unique solutions that drive self-service and digitisation for both citizens and businesses. Below you can find a list of some of the most widely used. Scan the QR codes for more information in English about each of these.
NemID The national ID and digital signature solution.
e-lĂĽnesag Real estate information across all sources to support mortgage lending.
e-boks The digital mailbox and secure vault.
e-bolighandel Common platform for banks and estate agents to process property sales.
e-engagement Allowing bank customers to change banks seamlessly.
PensionsInfo Aggregated overview and calculations across all pension schemes.
Digital tinglysning Electronic registration to the land registry.
e-SKATdata Allowing citizens to share their tax information with financial institutions.
THE UNIQUE SOLUTION
Cykelslangen in Copenhagen
EDI Digital transfer of pension schemes between providers.
Dankort - national debitcard The national debit card scheme.
Prompting services Data driven and proactive communication from pension providers.
Betalingsservice Direct debit solution servicing most households.
Fakta om Pension Objective comparison of pension schemes.
The clearing system Shared core payment infrastructure.
FundCollect Complete and updated information on all mutual funds in Denmark. DELIVERED BY CFIR
COPENHAGEN FINTECH INNOVATION AND RESEARCH
I feel that mainly the large, established companies that Iâ€™ve discussed this with, have shown great tactfulness and understanding that we need to stand together and help each other succeed.
Anna Mee Allerslev
INTERVIEW ANNA MEE ALLERSLEV
One for all, all for one Collaboration is one of the keys to realising the vision of Copenhagen as the leading Nordic fintech hub. Public and private organisations, small start-ups and major established companies must stand together on a ”one for all, all for one” basis, says Anna Mee Allerslev, Mayor of Employment and Integration at the Municipality of Copenhagen.
Interview with the Mayor of Employment and Integration at the Municipality of Copenhagen Words: Norfico
Michael Juul Rugaard (MJR): Can you tell us about your vision for Copenhagen?
MJR: So, what do we need to do to make it happen?
Anna Mee Allerslev (AMA): Together with a cluster of public and private partners, the Municipality of Copenhagen and I have a vision and ambition to make Copenhagen the leading fintech hub in the Nordic region. Furthermore, our ambition is for Copenhagen to become one of the natural fintech centres in Europe. We’re well aware that we compete with others and that London is, of course, a ”first tier”. However, it would be immensely valuable if we could become a second or third tier fintech hub.
AMA: Well, several things. First and foremost, it’s important that we are taken seriously as a cluster. This requires us to bring all public and private resources into play, in terms of entrepreneurs as well as small, medium-sized and large companies dealing with fintech. And then, of course, the public sector, which includes municipalities as well as the state. I would especially like for the state to become more actively involved, as this has proven to be very effective in London.
And, of course, it’s not only a matter of boasting about being a fintech centre. The main reason is that we believe that it will contribute to creating a large number of jobs in future, which not least the financial sector needs, considering the significant changes the sector has experienced following the financial crisis. We want to be the city that creates 20,000 jobs by 2020, we want to increase growth by 5 %. And I believe that fintech can become one of the most significant factors contributing to the overall growth strategy of Copenhagen.
Also, it’s important to get the educational institutions on board, this has been shown in Silicon Valley which is now reaping the benefits of a collaboration between public and private companies and Stanford and Berkeley. And when looking at the Greater Copenhagen area as a whole, we have DTU, KU, CBS 1 and the IT University here in Copenhagen and the University of Lund in southern Sweden. The universities play an important role, because they continually generate and collect new knowledge.
Additionally, it’s important that we have many different start-up environments. Again, we’re very inspired by what’s happening in London, but also in Paris and, of course, Silicon Valley that boast a variety of start-up environments and natural hubs – physically as well as digitally. Also, it’s necessary that we as a hub - private as well as public players – make sure to facilitate the environments and meeting places, in order to simply just get it started as soon as possible.
AMA: That’s exactly what we’re hoping for, and for that particular reason we invited the Danish Financial Supervisory Authority, and thus the state, to become part of the cluster from day one. We hope that the government will take that initiative.
Further, it’s essential that we make it easier to raise risk capital. For this particular reason, the state and major players must be actively involved. The two tasks ahead of us are to find new investors, and to look at the risk capital that already exists in Denmark. One of the things we need to make sure is that investors actually understand the fintech companies as well as the potential of fintech.
AMA: Well, what you have asked me about just now: Will he take an initiative similar to the one introduced in London? I think that would be a giant step. We have already done everything we could to draw his attention to exactly that.
Last, but not least, financial regulation is an extremely important area. It’s important that the state advices the companies on how to comply with the rules, so that it does not end up becoming a straitjacket for the companies – it is actually possible to help without compromising the regulatory requirements. MJR: London’s equivalent to the Danish Financial Supervisory Authority (Finanstilsynet) has established a branch that assists fintech companies with regulatory issues. Should the Danish Financial Supervisory Authority establish a similar authority?
Anna Mee Allerslev
MJR: In a couple of days, we have an interview with Troels Lund Poulsen, Minister for Business and Growth. What should we ask him, in your opinion?
If Copenhagen is to become a Nordic fintech centre, the initiatives mentioned above are crucial. But it’s also important to build Copenhagen as a brand and continually attract attention from abroad, and for that same reason conferences such as Money20/20 play an important role. MJR: If, as a foreign company, you choose to place your Nordic headquarters in Copenhagen, it’s not entirely irrelevant that Copenhagen is, to a large extent, a smart and livable city. Don’t you agree? AMA: I do. And that’s the feedback we got from the Money20/20 organisers. That’s actually one of the reasons why they’ve chosen Copenhagen. Because we’re the most livable and green city and the happiest nation. With that said and done, Denmark has always been at the forefront when it comes to digitisation and financial solutions, and we have a very digitised and flexible population with high trust in financial institutions and the state - and that is pretty unique. We must cultivate this characteristic so as to become a laboratory for innovative ideas and products, which can subsequently be rolled out in other countries around the world. Copenhagen must demonstrate that it’s possible to be green, livable and
INTERVIEW ANNA MEE ALLERSLEV
happy, while at the same time having a strong and efficient financial sector. MJR: One of the perhaps most important skills we have in Denmark is the ability to work together. Both within sectors, across sectors and across public and private sectors - especially the financial sector and the public sector. Do you consider this unique? AMA: Yes, I do. And it’s important that the cluster utilises this tradition of collaboration, for example by using the purchasing power and services of the municipality to boost innovation within fintech. If we use our purchasing power to promote fintech solutions, we contribute to setting an agenda, in the same way that, say, Danske Bank or Nets or other players use their purchasing power or their development of services to promote fintech within small companies, to mention an example. MJR: Do you see any obstacles for this to happen? AMA: There are four major obstacles: Firstly, competition from other cities. But there’s no way around that since, of course, many cities have an ambition to develop within the field of fintech. The other obstacle is that the state needs to focus attention on the issue. Then there’s the risk capital and the regulative challenges. And last, but not least, the financial sector itself. It’s crucial that the sector maintains focus and that the players see each other as a prerequisite to succeeding and developing instead of making it a battle between small and large, or start-ups and established players. Or even start-ups against startups. I feel that mainly the large, established companies that I’ve discussed this with, have shown great tactfulness and understanding that we need to stand together and help each other succeed. It’s of crucial importance that we remain focused on dealing with this on a “one for all, all for one” basis rather than a battle of “all against all”.◼ 1. DTU: dtu.dk, KU: ku.dk, CBS: cbs.dk
Financial regulation is an extremely important area. It’s important that the state advices the companies on how to comply with the rules, so that it does not end up becoming a straitjacket for the companies.
Troels Lund Poulsen
INTERVIEW TROELS LUND POULSEN
What the Danish government will do for fintech Several sides of the industry are calling for greater political attention and concrete political initiatives that will strengthen the development of fintech in Copenhagen and Denmark in the coming years. We asked Troels Lund Poulsen, the minister in charge of the area, a number of questions about his view on how the government can support this development. What role should Copenhagen play in the future international fintech space? The growth potential in digitisation is a high priority of the Danish government, and I’m very much aware of the development underway in the fintech sector. Many of the key elements to support this development already exist in Denmark. I agree that Copenhagen has the potential to develop an international hub for fintech and, of course, we must support this politically. Several of the large players in the Danish fintech space have demanded more action from the government in terms of concrete initiatives to support Copenhagen’s fintech vision. In fact, that was one of the things concluded by the report published by Oxford Research in December 2015. Which concrete initiatives will you be able to introduce to those demanding more support?
To me as Minister for Business and Growth, it’s about having a good foundation for conducting business, no matter which industry you operate in. Of course, we need to monitor any regulations etc. that cause special difficulties for certain industries. In those cases I’m willing to listen. But this will need to go hand in hand with a general effort to ensure continual improvement of the regulatory framework for all Danish companies. In London, the equivalent to the Danish Financial Supervisory Authority has established a special branch that assists fintech companies with regulatory issues. In Denmark, several of the important players in the fintech space - including the Municipality of Copenhagen, the Financial Services Union Denmark and the Danish Bankers’ Association - have an urgent desire for the Danish Financial Supervisory Authority to establish a similar service for fintech companies. Will you and the government work to fulfil this desire?
Interview with the Danish Minister for Business and Growth, Troels Lund Poulsen Words: Norfico
In the past number of years, the Danish Financial Supervisory Authority has worked hard to facilitate the application processes and ensure better information about rules and procedures. We will, of course, continue that work, for example in connection with the implementation of the new Payment Services Directive. However, at the present time, the government has no plan to introduce the British model. If Denmark is to play a role as a fintech nation, and if Copenhagen is to establish a position as a leading fintech hub, it requires access to risk capital, amongst others. What will the government and the state do to attract more risk capital? If we are to encourage more companies to become new growth companies, they need to be able to find capital in the entire chain of financing options, from establishment to listing. This requires the Danish market for capital to support the early stages following companies’ setup, which we support with the Danish Growth Capital II and the new Business Angel Matching facility in the Danish Growth Fund, amongst others.
When increasing the number of talented foreign entrepreneurs, we increase the pool of innovative businesses in our country - this will benefit our economy. Furthermore, with the availability of a package for growth and development across the whole of Denmark, we have expanded the Growth Fund’s framework for loans, guarantees and sureties, so that more entrepreneurs and smaller
companies can find financing for profitable investments. Last, but not least, I will investigate possible ways of speeding up the stock market for SMEs on the domestic front. If, as a society, we want to help new companies get started and at the same time ensure that we invest in the companies that will later become successful, joint ownership (equity) at an early stage is a possibility. What is the best way to do this? We want to build the risk capital market in a professional way and, where possible, within the frameworks of ordinary market terms. Therefore, from my point of view, it’s not an aim in itself that the state takes a share of ownership in potential growth companies. But we need to support the companies’ access to financing, including equity capital, if the market is inadequate. For the same reason the government has decided to establish “Danish Growth Capital II”, following the same principles as “Danish Growth Capital I”, where the fund is established in a collaboration between the government investment fund and private investors. Furthermore, in recent years, the Growth Fund has extended its direct investments in order to increase its contribution to building the market for risk capital. In the new ”Danish Growth Capital II” the government together with Danish pension providers and the Growth Fund provide a risk capital of approx. DKK 3 billion for new and small businesses with growth potential. Is it possible that part of this money will be earmarked for fintech companies?
INTERVIEW TROELS LUND POULSEN
The purpose is to ensure capital for the companies with the largest growth potential, companies capable of providing a competitive return for their investors – regardless of which industry they operate in. For the same reason the investment focus of the “Danish Growth Capital II” will be broadened. We are not supposed to control which industries or regions will or will not receive these investments. The funds operate on market terms and it goes without saying that they must invest in the areas that have the most viable projects. What is most important for Denmark – to create new fintech companies or attract foreign companies? As far as I can see, it’s not an either or, but both. I would prefer us to get a healthy mixture of Danish and foreign entrepreneurs. When increasing the number of talented foreign entrepreneurs, we increase the pool of innovative businesses in our country this will benefit our economy. Also, the presence of foreign entrepreneurs in the Danish entrepreneurial environment is contributing to internationalising and professionalising the Danish entrepreneurs. For example, meeting international entrepreneurs can contribute to our Danish entrepreneurs, as a rule, adopting a more global mindset regarding, for example, markets and partners. This magazine will be read by leading fintech people from all over the world when they attend Money20/20 in Copenhagen. Do you have a message for them – especially those that consider building their business in Denmark?
IT University of Copenhagen
To talented international entrepreneurs I would like to say that in Denmark, we have many things to offer. Denmark is one of the countries in the world where it’s easiest to conduct business. We have a market with efficient competition, and we have a strongly supportive culture. That in itself contributes to making it attractive for entrepreneurs to establish themselves in Denmark. In terms of attracting promising entrepreneurs I would like to encourage talented international entrepreneurs to take a closer look at the programme, Startup Denmark, which we launched in 2015. The purpose of the schedule is to attract international entrepreneurs with innovative business ideas who can create new successful companies and contribute to growth and new jobs in Denmark. ◼
Compliant disruption Michael Grønager Founder and CEO Chainalysis Words: Norfico
As the blockchain technology is finding itself to be increasingly welcomed into the established financial services sector, the demand for traditional financial areas such as compliance and risk management rises. One of Denmark’s bitcoin and blockchain pioneers has turned this into a business by establishing Chainalysis, which over the course of a few years has positioned itself and its founders in the international blockchain elite. We caught up with Chainalysis’ founder and CEO, Michael Grønager, in Copenhagen Airport, where he was in transit between the company’s office in Copenhagen and its New York HQ, to ask him about how he came across bitcoins and blockchains in the first place, about building Chainalysis as well as his view on the Danish fintech scene. When Michael Grønager heard about bitcoin back in 2010, it did not catch his interest at first, but when he came across it again a year later, he concluded that this new technology was “too much fun to disregard”, so he started to look into bitcoin and the underlying technology – blockchain. This turned into a career and a few years later, he found himself working for Kraken, the largest bitcoin/ euro exchange based in San Francisco. From Bitcoin to blockchain In fintech today, there seems to be a tendency to accentuate the differences between bitcoin and blockchain – where blockchain experiences a rise in popularity while bitcoin struggles with a more tainted reputation. Chainalysis is part of this as there is no mention of bitcoin on the company’s website. However, Michael Grønager does not disavow bitcoin: “If you accept blockchain as the technology, you also have to accept that the largest and oldest blockchain is the bitcoin blockchain. Saying no to bitcoin and yes to blockchain is disregarding the history and knowledge of this technology.
So regardless of how you feel about bitcoin, the fact is that the project has existed for seven years and everything that could happen has happened. You have seen theft, fraud and abuse in a thousand ways – huge businesses have risen only to collapse – so if you disregard this and do not learn from it, you make a huge mistake.” Asked if he sees a future for bitcoin, Michael Grønager responds: “As there currently is no real alternative to bitcoin, it’s difficult to point out what should come instead. Bitcoin is the largest public – or permissionless – ledger, meaning that everybody can transact on it. So if you believe in a future for permissionless ledgers – and I believe this is where the biggest opportunities lie – there are no serious contenders to the bitcoin blockchain.” Bitcoin or not, Michael Grønager predicts a great future for blockchain technologies and sees them as something that has the potential to radically change the financial services industry:
“I believe that everybody wins with this technology. Unlike the way that the financial system has worked for the past many years, where players with monopoly-like positions have prevented the growth and innovation we might otherwise have had. With the new technology it’s not a zero-sum game and everybody has the opportunity of winning. Unless you cling to old technology and refuse to take the next step... It’s Blockbuster and Kodak all over again.”
“That was our baptism of fire to show that our tool could actually be of use,” says Michael Grønager.
Chainalysis While working at Kraken, Michael Grønager got the idea to establish Chainalysis, when he found himself being turned down by many US banks, because he wanted to set up a bank account for bitcoin trading. Often he did not receive any real answer other than the banks considered bitcoin-related business to be of high risk.
Disruption or revolution? While bitcoin and blockchain are considered by many as revolutionary, Michael Grønager would rather see himself as a disruptor than a revolutionary. He explains:
“So, after having heard that story many times, I thought to myself, there must be something to it and also something we could do about it,” says Michael Grønager, and continues: “Luckily my good friend Jan Møller, who worked for Mycelium at that time, was also interested, so we joined forces and said: ‘Let’s make a company focused on risk scoring transactions on a blockchain.” The first steps were to develop a risk management concept for blockchain transactions and build a set of compliance rules and tools around this. This lead to a prototype that was quickly put to its first serious tests as Chainalysis received its first assignment for the US Department of Justice. This was the Force/Bridges case – where a Secret Service agent and a DEA agent had stolen bitcoins from a Silk Road investigation. Helping the Department of Justice with this case also got Michael Grønager called to court as an expert witness in the trial.
After this case and the publicity that followed, more and more bitcoin exchanges and other blockchain-focused companies started to sign up and today, using compliance and risk management tools like the ones from Chainalysis, have gone from something no one had heard of to being the de-facto standard in the industry.
“The bitcoin community started out by saying ‘we don’t care about governments, police or financial legislation, etc. – now we have made a system where everybody is anonymous and everything will work this way, and in ten years, even governments will use this system, that is if we have governments at all…’ That was the basic idea.” And he continues: “You can try to apply the same principles in all sorts of different scenarios: Uber could have said: ‘We don’t care about regulations – we want people to drive pirate taxis’; YouTube could have said: ‘We don’t care about copyrights – we will share your material anyway’ - that product actually existed – it was called Napster.” So instead of defining themselves as being an alternative or even in opposition to existing solutions and technologies, Michael Grønager and the Chainalysis team have focused on driving their success through understanding how it fits into the existing technology and provides a solution to a concrete problem through a holistic approach. This also involves questioning some of the basic assumptions in the established systems:
“We ask the regulators, why think in KYC [Know Your Customer] first and then AML [Anti Money Laundering] second? Why not do it the other way around?” By changing the traditional flow, you also focus efforts on where it’s needed, rather than applying a one-size-fits-all approach to risk management. Michael Grønager explains:
Denmark can easily compete with the salary levels in the US – especially among the highly educated populations on the coasts. “First, we find out whether this is a highrisk customer – and if it is, then we can start gathering more information for further analysis, but if it’s not a highrisk customer, then there is no need to identify them as Mr. or Mrs. Andersen.” Based on networking From the very beginning, Chainalysis decided that the company should be based in the US with New York as the ‘epicentre’, and ensure that their customers were there. “We knew that if we wanted to make it big, we needed the right people and the right customers from the beginning,” says Michael Grønager, and continues: “I had a network in the industry already, and so did all of our co-founders. We are deeply embedded in this world around blockchain and through our network, we also got in contact with both law enforcement and the banks at an early stage.”
Michael Grønager underlines the huge value of networking and, as a Dane working in the US, he cannot help but notice how networking is done differently in the US compared with Europe: “They’re very good at networking in the US – much better than we are here in Europe, where there’s often a tendency towards reluctance to share your network – you might be willing to ‘lend it’ to someone, but then they owe you. In New York, the idea is to ‘give first’, so if someone asks you if you know someone somewhere, then you introduce them right away. And if you do that often enough, then everyone else will do the same for you.” Gaining perspective Michael Grønager typically spends half his time in Copenhagen and the other half in New York. He hopes that this will change at some point: “It would be cool if I didn’t have to fly to New York – if Copenhagen provided the same opportunities. For this to happen, many things need to fall into place before it would be a realistic option to only operate out of Copenhagen.” In Michael Grønager’s view, Denmark does have a lot of advantages when it comes to setting up and running a company. He highlights the low level of bureaucracy, the reasonable tax levels for companies and not least the flexible labour laws, which sets Denmark apart from most of the rest of Europe. As to the question of salary levels, Michael Grønager responds: “Denmark can easily compete with the salary levels in the US – especially among the highly educated populations on the coasts. We would have to pay double for people with the same level
of qualifications in San Francisco or New York, as we do in Copenhagen.” Fintech hub for Northern Europe With the generally good conditions for companies in Copenhagen, what else would it take to make Copenhagen the number one fintech hub in the Nordics? Michael Grønager responds: “Well frankly, if you say ‘Nordic fintech hub’, you only compare Copenhagen to Oslo, Stockholm and Helsinki, and while we ought to beat them, if that was the ambition, that would not even be fun – and it wouldn’t be enough. I’d rather say that Copenhagen should be the fintech hub for Northern Europe or number two in all of Europe after London, then you’d set a real goal. Everything else might be nice, but not very ambitious.” So raising the bar – what would this goal require? The first and easy answer would be money, but not just any kind of money, smart money, which in Michael Grønager’s book is “money from someone understanding and sharing the same vision and who will be able to push you forward.” He expects to see more smart money in the Danish fintech market as more startups become successful or if some of the big institutional players with money and knowledge enter more actively into to venture capital space:
“We see Citi, BBVA and AIG investing heavily in the fintech space, and we could expect the big banks in Denmark to do the same. They could enter the space and drive some of the initiatives. This would drive a more ambitious agenda – they could find themselves creating their own competitors, but it would be preferable to compete with yourself than lose out entirely.” The Danish Chainalysis employees are located in Copenhagen as part of Copenhagen Fintech Hub, which is the new fintech environment started by the Financial Services Union in Denmark. Michael Grønager is very supportive and positive towards this new location for fintech companies: “It’s really a fantastic initiative – I think that it’s super cool that a union takes this initiative, and very well planned to create a startup environment united under the same theme – I have been in various shared office spaces, where you work next to people with very different backgrounds and different start-ups. And the problem is that you cannot use your network much if the people you work with are not working in the same space. The fintech theme of Copenhagen Fintech Hub means that it’s the same customers and connections that you need in the industry, the same investors that will look at you and this creates a massive synergy.”◼
Perfect test lab Because of the size and the affluence of Denmark, Michael Grønager encourages big international companies to use the small Nordic country as a living test lab: “Denmark is a good market for experimentation. It’s manageable, people are very affluent and it’s practically a cashless society, so if you aim for this kind of segment in e.g. the US, then Denmark is the perfect test lab. Denmark is such a small country that you can afford to fail here, as it would never be the most important market for an international player. This makes it a ‘safe’ – a playground, where you can experiment before you deploy in the ‘real world’.”
good reasons to invest in Greater Copenhagen
Europe’s easiest place for doing business The World Bank ranked Denmark the easiest place to do business in Europe in 2012-2016.
Low company tax Denmark’s company tax rate is 22%, which is below the average OECD and European level.
Europe’s most flexible labour market Greater Copenhagen offers the most flexible hiring and firing legislation in Europe, providing ideal conditions for up-scaling and downscaling. Competitive business costs Danish social security rates and employer costs are the lowest in Europe. Copenhagen is 15-20% cheaper than Stockholm in terms of salary, social security costs and office rent when comparing the total costs of a business operation such as a Scandinavian headquarters or shared services center.
Scandinavia’s talent hub Greater Copenhagen has Scandinavia’s largest recruitment base of highlyskilled employees, as well as Scandinavia’s biggest pool of private and public sector researchers.
The logistics capital of Scandinavia Copenhagen links continental Europe, Scandinavia and the Baltic countries, providing access to a market of 100 million consumers, as well as Scandinavia’s highest density
of businesses and population. The Copenhagen Airport was declared the best airport in Northern Europe at the World Airport Awards 2015 and has the most intercontinental, European, Scandinavian and Baltic connections of all the Scandinavian airports.
Easy interaction with public authorities Denmark consistently achieves top rankings in Transparency International’s study of perceived corruption in public sectors worldwide. The Danish public sector is known for its low level of bureaucracy and red tape, as well as for easy interaction with public authorities.
The world’s most liveable city Copenhagen was awarded the World’s Most Liveable City Award 2013 and 2014 by the international magazine Monocle. Highest concentrations of knowledge With 12,000 researchers, 15 science parks and 14 universities and other colleges of higher education with top rankings for university-industry cooperation, Greater Copenhagen offers Scandinavia’s most knowledge-rich research and business environment.
Best for tests and demonstrations Denmark is known worldwide for its high-quality, groundbreaking research and development, and is valued as a leading test market for ICT, cleantech, smart grid and smart city solutions. ◼
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www.temenos.com Temenos Denmark ApS, Langebrogade 5 1411 Copenhagen K Denmark 61
Nets opens up to new partnerships within digital payments Bo Nilsson CEO Nets Words: Norfico
With 6.5 billion transactions a year, Nets plays an important role in the Nordic payment ecosystem, connecting banks, businesses, the public sector, and consumers via a longestablished and deeply entrenched international network. The Nordic fintech company, which recently launched its new strategy, welcomes the idea of strategic partnerships, all in the name of enhancing customer experience and empowering the adoption of new solutions across a heavily digitised Nordic society. The pace of change within digital payments is set to continue, and combined with the ongoing early adoption of technology evident in the Nordic markets, it will remain a key driver of market growth for Copenhagenbased Nets, situated as it is as a centre for the payments ecosystem, and will allow the company to continue to deliver successful and innovative solutions to its customers. Early this year, the Nordic fintech company launched its new strategy which places payments at the core of everything it does as a company. Guided
by a vision of powering digital payments, the new strategy builds on a customer promise of great payments, a great network and great ideas, all executed by great people. According to Nets CEO Bo Nilsson, great payments are simple yet efficient without compromising on security or reliability, and can be executed at low cost in multiple different forms â€“ be they card or account-based. The payments are based on a network of frictionless entry points providing universal access in the Nordics for all consumers, corporates, merchants and financial institutions. This network is
NETS OPENS UP TO NEW PARTNERSHIPS
a centre for the payments ecosystem in the Nordics, providing a set of services which are important to daily life in the company’s core markets. The network is also a backbone of its business upon which everything else is built. “We want people to have universal access to our networks in the Nordics and to be able to easily connect with our platforms, and we want it to be the case for all our customers,” says Nets CEO Bo Nilsson, stressing the importance of innovation: “If I had to highlight one thing in our customer promise, it would be great ideas. We want to be an innovation leader working together with our customers to co-create solutions that can be seamlessly integrated with third parties,” says Bo Nilsson and points out how the focus on innovation will secure the long-term future for the company and help drive the realisation of a truly digital society. Opening up to partnerships Nets welcomes the idea of working in strategic partnerships with someone who shares the vision of delivering digital payment services that are widely adaptable and will add value to its many customers across the Nordics, including more than 200 banks and 240,000 corporates. “The Nordic fintech scene is an exciting place to be right now, and we keep an open mind in terms of working together with start-ups or established players. What matters is finding solutions that enhance the customer experience and play into our vision of powering digital payments,” says Bo Nilsson who took over the corner office in 2014. The power of the network Combined, Nets’ three business segments cover the entire value chain across all types of payments serving hundreds of thousands of merchants & corporates, hundreds of banks and
millions of consumers. The company is able to leverage this unique network to provide benefits to the wider ecosystem and, in an industry where product innovation is critical, thus able to empower adoption of new solutions rapidly across society. Adding to the customer experience Catering to the needs of presently 300,000 merchants and 30,000 online merchants, Nets’ Merchant Services business is well on its way to fulfilling its ambitions of being a one-stop shop payments services provider for all Nordic merchants.
We want people to have universal access to our networks in the Nordics and to be able to easily connect with our platforms, and we want it to be the case for all our customers. In 2015, the company’s e-commerce volumes saw double-digit percent growth in the Nordic region, while the unit’s overall transaction value grew 2% over the year. Merchants increasingly demand valueadded services connected to digitisation of processes (online receipts, loyalty, business intelligence) that will increase their effectiveness and allow them to improve the customer experience. The company’s acquisition of Storebox late last year ties in well with its ambition to help merchant customers strengthen their relations with their end-customers. Storebox provides e-receipts, and the acquisition allows Nets to enhance its offerings within loyalty and information value-added solutions to its existing merchant customer base: “By enabling merchants to give consumers easier access to loyalty schemes and an overview of sales information, they will be able to tailor
products to customer preferences, offer a better service and target their digital customer dialogue, thus increasing customer loyalty. We want to deliver these services and increase the digitisation of payments-related processes,” says Bo Nilsson. The consumer choses the winner The business unit is actively involved in enabling its merchant customers to accept various mobile-based payments, as well as supporting acceptance of bank and merchant-driven mobile payment solutions based on both cards, invoices and account-based payments: “Our mobile strategy is an example of how we are able to adapt to the market developments. We focus on international standards to ensure scalability and
therefore rapid adoption by all market participants,” says Bo Nilsson and points to the company’s ambition to be a partner to leading mobile payment solutions across the Nordics: “At the end of the day, the consumer will decide which solution will win the battle of the till and set the standards. One thing is sure: Both the consumer and the merchants want it to be quick, convenient and secure,” says Bo Nilsson and explains how Nets’ “white label” wallet solution meets those demands: “I think a wallet solution powered by Nets will prove to be the strongest mobile payment alternative at the point-of-sale in the long run,” he concludes.◼
About Nets: For more than four decades, Nets has been instrumental in developing a modern payment infrastructure, with the introduction of a number of payment solutions to Nordic societies, including Dankort, Betalingsservice, NemID, BankID, Avtalegiro and BankAxept. The Nordic company services more than 300,000 merchants, 250,000+ corporates and 200 banks, with 6.5 billion transactions a year within issuing and acquiring, 33 million cards and 8.1 million digital identities issued.
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Attention from the top
of financial services CEOs support the integration of fintech at the top levels of management
Source: PwC Global Fintech Report 2016
LESS CASH = fewer reasons to rob a bank
BLOCKCHAIN When asking the financial services industry about blockchain technology 56% recognise its importance… and 57% say that they are unsure about or unlikely to respond to this trend.
Bank Robberies in Denmark
135 116 71
Source: PwC Global Fintech Survey 2016
Source: Danish Bankers Association
EUROPEAN LEADER IN CREATIVITY COUNTRY Top 10 Europe
The Top 10 European Digital Economy and Society Index 2016
8 7 8
Use of Internet
Integration of Digital Technology
7 9 7
Digital Public Services
Finland Top 10 Countries 18
Global Creativity Index score
Source: European Commission
THE WORLD’S HAPPIEST COUNTRY (again)
Source: Gobal Creativity Index 2015. Martin Prosperity Institute, University of Toronto
According to the 2016 World Happiness Report
FINTECH FUNDING Fintech total funding by year
of the banking and payments business is expected to have shifted from the incumbents to fintechs by 2020
10 Total Funding ($B)
of the Insurance, Asset Management and Wealth Management business is expected to have shifted from the incumbents to fintechs by 2020 Source: PwC Global Fintech Report 2016
Source: Venture Scanner
TOP 5 FINTECH CATEGORIES – BY NUMBER OF COMPANIES
Source: Venture Scanner
1. Lending – Consumer 2. Personal Finance 3. Lending – Business 4. Payments – Consumer 5. Equity Financing
The World’s Best Business Environment
FINTECH CATEGORIES – BY FUNDING RAISED
Denmark is among the world’s best locations for doing business. The World Bank ranks Denmark as the easiest place in Europe to do business and according to Forbes Magazine, Denmark is even the “Best Country for Business” Worldwide. Scan the QR codes to see more about Denmark.
1. Lending – Consumer 2. Lending – Business 3. Payments – Business 4. SMB tools 5. Payments – Consumer
Source: Venture Scanner
Copenhagen Opera House
Copenhagen - probably the smartest city in the world In the last few years, Copenhagen has repeatedly won awards and recognitions as one of the world’s leading smart cities. The reason is that Copenhagen has been capable of combining elements that are normally opposites: In addition to being one of the greenest and most livable cities in the world, Copenhagen is an efficient and highly productive business hub in areas such as life science, cleantech and IT. The ambition of Copenhagen’s recent focus on fintech is, of course, to further strengthen the city’s ‘smart’ development. Words: Norfico
One of the leading experts in city development, urban strategy and smart cities, Chilean Dr Boyd Cohen, stated that the concept of smart cities fundamentally is that ”smart cities are innovative cities.” Smart in more than one way But cities can be innovative in different ways. That is why Cohen has developed a model – the so-called Smart City Wheel – which, based on six parameters, makes it possible to assess to what extent a city can be described as a smart city. The six parameters covered by the Smart City Wheel are: Smart Governance, Smart Economy, Smart Mobility, Smart Environment, Smart People, and Smart Living. Even though Copenhagen is, as previously mentioned, characterised in that it combines what often looks like opposites, and even though Dr Cohen is one of the persons who has in the past years assessed Copenhagen and awarded the city a European first place and a global fourth place, Copenhagen has up to now gained recognition in the areas Environment, People and Living, and has a strong though not leading position in Mobility. In the areas of Governance and Economy there are room for improvements. Discussing Copenhagen’s strengths, Dr Cohen says: “[Copenhagen] is widely considered the greenest capital city in the world 68
and aims to be the first capital city to become carbon neutral by 2025. […] But Copenhagen is more than just a green city. In fact, it scored highest amongst all cities in our ’smart people’ category which measures things such as social inclusion, education and creativity. […] Copenhagen has continued to invest in smart technologies in their transportation system.” Room for improvements Relating to the areas in which Copenhagen should improve in the coming years, in a fintech context it’s particularly interesting to note the category Smart Economy covering Entrepreneurship & Innovation, Productivity and Local & Global Interconnectedness. Dr Cohen describes Copenhagen’s challenge as follows: ”Challenge: Copenhagen is clearly a pioneer in green city initiatives. But to attract and retain the best and brightest young minds, which is a clear goal of most smart cities initiatives, it needs to grow its reputation as an innovation and creative hub.”1 Dr Cohen’s assessment was made at the end of 2014. In other words, it does not take the latest development in financial technology and Copenhagen’s new ambition to brand itself as a Nordic fintech hub in the coming years into account.
COPENHAGEN - SMART CITY
One of several preconditions for this to happen is, however, that Copenhagen - as Dr Cohen mentions - is capable of maintaining and attracting the best and most creative people. Another important precondition is that foreign fintech companies and venture capitalists with an interest in fintech discover Copenhagen. In this regard the fact that Copenhagen already has a high rating as a smart city on most parameters, not least the soft ones, is without a doubt a significant advantage. The reason for this correlation is that foreign companies and investors are increasingly taking a holistic view when selecting a location for a new local or regional headquarter.
”They also thought of Copenhagen as a place where people are highly productive. […] When you do business in Copenhagen you can be at once humane and tech-driven, green and profitable, soft and hard — and […] this particular mix boosts productivity. We realized, too, that Copenhagen has a better chance of competing in specialised and niche projects than in selling itself as a mass-market location with a welleducated workforce. […] The big sell is a combination of efficiency and creativity.”2 Whether Copenhagen is, in fact, able to rise in the fintech area, as it has previously done in the areas of cleantech and medico, remains to be seen in the
A smart mixture of values and skills In an analysis prepared for Copenhagen Capacity, the consulting services agency, ReD Associates, has recently demonstrated that companies today, when deciding whether or not to invest in a country and a city, consider a number of parameters: “The new trend is to sell a city on its people and their lifestyle. […] Local design culture, the regulatory environment, specialised knowledge, and an advanced and sophisticated lifestyle are all important factors for companies. […] We discovered that Copenhagen is a place that trumps many others when it comes to quality of life. […] The focus on people and lifestyle gives the Scandinavian country a clear advantage. People thought of Copenhagen as a city with a “consensus culture” that is good at teamwork and as a sophisticated, democratic, compassionate, and designoriented place.” ReD Associates’ survey also points to the fact that Copenhagen’s strengths and characteristics consist in a mixture of skills and qualities that unite human values with a high efficiency and production level. Furthermore, ReD Associates writes:
The Smart City Wheel Dr Boyd Cohen
coming years. Currently, Stockholm has a leading position in the Nordic fintech scene, and Copenhagen must without a doubt make a special effort to take over that position, at least if that is the goal. It would also be very valuable to reach the same level as the Swedish capital in the same way that a closer future cooperation between the two Nordic cities in the fintech area could contribute to lifting the entire Nordic region. In any case, Copenhagen’s status as smart city also gives it a “serving advantage” in the new fintech area. Now, Copenhagen must demonstrate that it is capable of exploiting its advantage.◼
1. bit.ly/21GRuD2 2. bit.ly/1MBTju2
WATSON ENSURES COMPLIANCE
See you in Copenhagen!
Copenhagen Capacity would like to thank the main sponsors: KĂ¸benhavns Kommune, Invest in Denmark, FinansrĂĽdet, Finansforbundet, Nets, IBM, as well as the advertisers for making this publication possible.
A fintech magazine created for Money20/20 Europe 2016 held in Copenhagen.