It is a new dawn for treasury and cash management banks in the Nordic region, thanks to disruption caused by financial technology start-ups and broader market changes.
One of the key trends changing the treasury and cash management landscape in the Nordic region is the swift rise of fintechs, which are entering a space that was previously dominated by the banks. Those banks that want to survive, and indeed thrive, have embraced this trend and are partnering with their fintech peers to provide best-of-breed solutions to clients.
“Fintech disruption, digitization, the blockchain, payment systems—these developments are certain to affect corporates and the role played by treasury,” notes Erik Zingmark, co-head of transaction banking at Nordea. “Three of the main disruptive factors we see are technology and digitally-driven future payments, the morphing of treasury ecosystems—including skills development and new solutions—and connectivity within organizations across different banking partners and borders.”
As with the rest of Europe, countries in the Nordic region see the Payment Services Directive 2 (PSD2) as a game changer for their payments business models. The new directive applies to countries in the EU (Denmark, Finland and Sweden) and in the European Economic Area (Norway and Iceland). “Banks are under attack due to changes driven by PSD2,” says Zingmark. “In short, banks and banking will change fundamentally. Fintechs won’t take over, but this is the starting point of new ways of working and new ways of collaborating with partners.”
Treasury needs to drive this change, alongside banks and third parties, says Zingmark, by creating and pushing their own digital agenda and forming a solid strategy for all commercial, financial and intercompany flows. Another key area of focus for corporate treasurers in the Nordics is the efficient handling and easy access to cash and liquidity. Zingmark says centralization goes hand in hand with treasurers’ desire to better manage their working capital. “[Centralization] is particularly appealing to corporations that have expanded quickly and found their finance arrangements have become more complex and fragmented,” he explains. “It can offer greater transparency for regulatory purposes, as well as cost efficiencies through simplifying banking relationships and reducing the cost of previously idle cash.”
Broader market and geopolitical trends are also of prime importance to Nordic companies, especially as they look to grow globally. Zingmark notes, “We will see Nordic companies continue to expand overseas, especially in Asia and other emerging markets, as they search for higher growth markets.”
Zingmark says we are entering a major turning point in payments and how banking fundamentally functions. “A new landscape is taking form and we need to reshape our business.” He says banks need to ask themselves how they need to respond to this new environment. “If they want to survive, they need to deliver the benefits of these developments to their customers,” says Zingmark.
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Nordic region |
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Best Overall Bank for Cash Management |
Nordea |
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Best Bank for Liquidity Management |
Danske Bank |
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Best Provider of Short-Term Investments/Money Market Funds |
Nordea |
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Best Bank for Payments and Collections |
DNB |
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Best Bank for Working Capital Optimization |
SEB |
NORDIC REGION
Best Overall Bank for Cash Management
Nordea
Banks and their corporate clients in the region are focused on the impact of new regulations, such as the recent revision of the Payment Service Directive (PSD2) and the General Data Protection Regulation (GDPR). For corporates, the biggest impact will likely come from PSD2, which notes Erik Zingmark, co-head of transaction banking and head of cash management at Nordea, “will increase competition by integrating the role of new and emerging payment services into the regulation, promoting innovation and creating a more level playing field for payment service providers (PSPs) or third party payment service providers (TPPs).”
Nordea is the leading cash management bank in the Nordic region, and is the fifth-largest bank in Western Europe by market cap, according to data from Thomson Reuters Datastream. The bank processes around two billion transactions a year. Since early 2016, the bank’s cash management operations have been fully integrated into its transaction banking unit, and the bank is in the midst of a €1 billion “simplification” project to transform its core banking, payments and data warehousing platforms. The goal is to create a streamlined global payments infrastructure, allowing Nordea to be more agile in embracing new technology and initiatives. On the innovation front, the bank’s Innovation Lab leads partnerships with global fintechs.
The bank reported net profit on €2.7 billion in the first nine months of fiscal 2016, and a very strong, CET1 ratio of 18.4% at year-end fiscal 2016.
Best Bank for Liquidity Management
Danske Bank
Banks in the Nordic region have begun to emerge from the shadow of negative interest rates, adapting their business models to deal with the rate regime themselves. At the same time, they successfully help their corporate clients manage liquidity in this ongoing challenging rate environment. Danske offers real-time visibility and control of enterprise-wide liquidity through its Business Systems banking portal. It provides overlay and pooling structures, as well as support for intercompany limits and interest. Danske enables easy outsourcing of internal risk and centralized liquidity management. Via its group cash pool structure, companies can set unique interest rates for different subsidiaries and allocate internal credit limits to subsidiary accounts. Danske’s Corporate & Institutions segment brought in pretax profits of DKK3.5 billion in the first nine months of their fiscal 2016, down slightly from the same period a year earlier. The decline in profits is partly due to rising operating expenses and to increased regulatory costs, along with impairment charges relating to facilities for oil sector clients.
Best Bank for Payments and Collections
DNB
Each Nordic market is starting to specialize in specific areas of financial technology development, according to a recent report sponsored by DNB. In Norway, the focus is on authentication and security; Sweden is recognized for e-payments; in Denmark it is the blockchain; and in Finland, the focus is e invoicing and electronic banking for SMEs. Nordic banks partner with fintechs to provide market-changing solutions to clients. DNB, long an innovator in its own right, is ahead of the curve. On the consumer payments front, for example, the bank is the brain behind Norway’s leading e-payments app, Vipps, which it recently spun off, though it maintains a controlling interest. DNB offers corporate clients a broad range of payments and receivables management solutions. Its’ DB Connect corporate banking portal provides a multicurrency, multibank view of global accounts with self-administration for quick authorization of new users. The bank’s DNB Bedrift app offers advanced corporate mobile functionality, including global accounts overview, payments and payments approval, transactions overview, equities trading, file approval and alert services.
Best Provider of Short-Term Investments/ Money Market Funds
Nordea
Nordea is the largest bank by market cap in the region. The bank’s liquidity solutions for corporates are accessible via the multibank, multicountry digital banking platform, Corporate Netbank. Its asset management arm has been one of the best-selling asset managers in Europe for a few years now, with total assets under management of €215 billion end of third quarter 2016. Nordea Asset Management covers a range of asset classes from fixed income and equity to multi-asset solutions and manages regional and European products, along with US, global and emerging market products.
Given the low-yield environment that the region and Europe more generally has been dealing with for quite some time now, Nordea Asset Management has created solutions tailored to provide the best return in that climate, offering “unconstrained products catering for the current low yield environment with either global or regional focus.” Nordea has a CET1 ratio of 18.4% and reported operating profits of €4.6 billion at year-end 2016.
Best Bank for Working Capital Optimization
SEB
SEB offers clients a wide range of solutions to help with working capital optimization. It all starts with benchmarking and analysis in order to determine not only where and how to make processes more efficient, but also to determine if needed investment is ultimately worthwhile with business case calculations of release potential. SEB’s Financial Strategy offering, of which working capital optimization is a key component, is focused on analytics and strategy for its corporate clients. The team helps companies to enhance capital structure, provides corporate ratings advisory, working capital management and treasury best practice. Via the working capital offering, the bank provides clients with “financial engineering alternatives through a range of process improvements, business model adjustments and product usage,” according to the bank. In addition, the bank’s financial supply chain solutions help both clients and their suppliers to make their payables and/or receivables cycles more efficient, providing working capital financing at various points throughout said cycles.
