We sat down with Jesper Nielsen, Head of Personal Banking at Danske Bank to hear his views on how the personal banking market is developing and what he forsees will be happening over the next few years.
PA: To start with the personal banking market: Banking has historically been a traditional industry, but many believe that fundamental changes will happen in the years to come. How do you see the market and the customers, their needs and behaviours? How do you see that changing?
Jesper Nielsen: I don't know if there's going to be more change than before, but there will be lots of change. We recently found a statement made by the CEO of the bank in 1971. I think the headline was: 'We live in a time of big changes'. Change has been a topic for many years.
We usually look at the market through five lenses – the five forces of change. If you look at these forces, the market and the economy set certain boundaries. We live in a low interest rate environment so it's hard to increase profitability, and it's difficult to increase your top line because you're constrained in how much margin you can get. On the other hand, that also leaves a very benign credit environment so losses are at an all time low. As interest rates rise, loss rates may change, and have to be watched.
I think the markets we're in may be benign for some years. Growth rates seem to be converging, with Sweden a little down, Norway and Denmark getting there and the Finnish market appears to be starting to grow.
One thing that we particularly watch out for is the risk of bubbles, especially in Norway and Sweden. There's a lot of political attention on this as well, also in Denmark. The trick for us now is to make sure we watch the areas where bubbles may be latent, and make sure the tail risk in our portfolio is limited. When things are changing, that's always where you get the big losses. Otherwise it's a pretty stable environment with low interest rates and a benign credit market. And we'll probably see interest rates starting to trend upwards in a year or two. We hope this will happen fairly slowly. There are many imbalances in the economy now, and as the price of money rises, it will need time to settle. So for the next couple of years, we don't see any alarm bells going off anywhere.
PA: How is the personal banking customer changing, with respect to banking needs, actions and behaviour?
Jesper Nielsen: When we look at the five forces of change, one of these is that customers are becoming much more digital. They are becoming much less dependent on an advisor, and they are becoming much less dependent on a bank branch.
Physical transactions, giro payments and so on have dropped 30 per cent per year for the last four or five years. In Sweden, 65 per cent of our advisory contact is non-physical. You may want to meet face to face for a mortgage, but the advice on the small stuff is by phone, e-meetings, chats and so on. And for travel currency, you use your credit cards or pick up cash at the airport. Customers are changing rapidly and their expectations are changing as to what the bank can do to meet them where they want to meet, know their requirements, know what they've done and know their transactions.
PA: Some think that organisations like Amazon, Google or Apple may become significant players in the financial services industry. Do you think so?
Jesper Nielsen: They, at least have the potential to do so, and if banks don't watch out, they'll enter their markets. If you look at the competitive picture, all banks are ramping up in this space. They understand that the banks cannot just lay down in the face of new competitors. So there are a lot of digital initiatives and not least a will to partner up with new digital players.
PA: Such as your MobilePay?
Jesper Nielsen: MobilePay is one example. We have just launched our robo advisor, which is an online investment tool, and in Denmark we've introduced a digital mortgage experience. We are also constantly improving our mobile bank, adding both basic banking functionality, wow-features and catering to customers' increased desire to interact with us via mobile devices. Public sector initiatives on digitalisation have been good for us, paving the way for broad digitalisation of society. I think the Nordics may be a bit ahead on digitalisation. Blockchain is also a very exciting technology.
PA: Do you think the major banks in Scandinavia today will all remain strong in the customer interface, or will there be changes in the role they play?
Jesper Nielsen: I think everybody's trying to win the battle for the digital customer. Whether they'll be successful remains to be seen. But, if I look at the Nordic banking landscape, competition is very strong. For instance, DNB has made fantastic progress with Vipps, and just launched a new savings app.
The question of whether everyone will succeed will only be answered in a few years' time.
PA: What do you think of the challenger banks, the small ones being set up by other organisations?
Jesper Nielsen: Like Bank Norwegian?
PA: Yes, Bank Norwegian is an example. It's now more valuable than the airline, and it's grown very fast over a very short time. Do you believe organisations like this are likely to be significant players in the financial services market?
Jesper Nielsen: I think Bank Norwegian is a significant player already, at least in part of the banking market. They're 'in there' and they've done very well. I obviously don't like anybody to take business from Danske Bank, but I think overall that competition is good – bringing new angles, new ways of doing parts of the banking industry. That sharpens the banks up as well, and I think you can see much more customer-oriented, agile banks now than we did just five years ago. And part of that is because competition isn't just from someone in the same sector, with the same challenges, and is part of the same infrastructure. There are new players trying to get a share of the market, and for different reasons and with a different logic.
PA: It's like what you said with Apple: the objective of having that financial services business, isn't the same as for a bank. It may be a way to achieve total ownership of the customer interface, or it could be a way of getting funding at a lower cost.
Jesper Nielsen: Yes, you compete with somebody who has a different logic, and that means that you have to be much more adaptable – you have to change faster. It's like when you go to the gym. It's annoying when you need to get there, but you have to, and you feel better afterwards because you're progressing.
PA: What about the power and impact of regulation? There seems to be more and more regulation, and it's getting more and more difficult for the players to comply. What's your view of the future, will the regulatory forces become even more important than today?
Jesper Nielsen: Yes. There's no way around it. I think it's also a matter of honour for us as a sector to have very high standards around these things, and I think we should see it as an opportunity.
If you look at the push for transparency, that's great. What's important for us is that there's a level playing field here. But I think it will improve as things mature, and initiatives like regulatory sandboxing are excellent ideas for how to move on.
Do we need more transparency for our consumers? Definitely. I think moves in this area will continue. We'd obviously like a pace of regulation that makes it possible to meet the requirements. Instead of everybody scrambling to get to the finish line, you should have a chance to do it properly.
Is there anything in Mifid2 we don't understand? Anything in new consumer regulation that we think is wildly unfair? No. Do we need transparency? Yes. Is that good for competition? Yes
PA: So even though it creates a challenge for the players, it's something that we need for the good of the system?
Jesper Nielsen: Yes, we need to think differently about regulation and it needs to be in our business model. It forces us to think differently. GDPR is a good example. We need transparency in terms of what data we have. It forces us to create a logic in how we treat customers so they get transparency from us. Why shouldn't you know what the bank knows about you?
Obviously, there are difficulties in some regulations. GDPR brings more of those, such as the right to be forgotten. But there are certain things that a bank has an obligation to remember. Some things are tricky, but all in all, I think we get it. We need a much more transparent system – we need to play a bigger and more transparent part in society. I think we're all for that.
PA: You're probably familiar with the statement made by the CEO of DNB, Rune Bjerke, where he said that banks are becoming IT companies. It sounds like you're not entirely in agreement with that.
Jesper Nielsen: No, not at all. There's much more to it. I think part of the bank should be run like an IT company, but I think if we behave like an IT company, then we're doomed. We'd become a commodity provider – like many IT companies, by the way. That's exactly the position I do not want to be in. A commodity provider is all about efficiency and low prices and nothing about the customer interface or relationship.
It's fair to say that a bigger and bigger part of our relationship is dictated by our ability to create digital solutions that give a great customer experience. IT definitely plays a bigger and bigger role. Being good at IT means things keep on working but if we lose out on the interface with our customers, that's going to be a different problem for us than for an IT company.
PA: Will you be able to accomplish that through organic growth or do you see that you might need to make acquisitions to grow enough?
Jesper Nielsen: We're open to some sort of bolt- on, if it makes sense. But if you look at Sweden and Norway, our growth has been two-digit on the personal banking side over the last few years, and we've managed to keep the cost base roughly stable. That's pretty hard to compete with if you look at the complexity and the price of an acquisition.
PA: MobilePay has been a fantastic success. You've developed from being one of the innovators in launching new payment solutions for Danske Bank, to becoming a player who provides a service to a large number of other banks as well. How do you see this in the future? What's your thinking on MobilePay and related payment solutions?
Jesper Nielsen: First of all, innovation hasn't stopped. We're still launching a new product per month, and this isn't going to stop. And MobilePay is a fully-owned Danske Bank company. Let me put the Danish perspective: it's hard to grow much more in Denmark. Our question was should we develop more services on MobilePay on the consumer side, or should we broaden the ecosystem around MobilePay and get more distribution on the merchant side? That's why we chose to open up MobilePay for distribution partners such as other banks.
Our logic was it was probably better for us. It's probably more disruptive to actually move in that direction. If you look at building an account to account infrastructure, we think that's a big proposition. I think that's probably also our biggest advantage, both as a bank and for the financial sector, in terms of competing with Big Tech and Fintech.
“Actually, one of the first business solutions for mobile pay was made with a small coffee operator.”
That also means you get an infrastructure you can commercialise in an open banking environment. That's why we did it. MobilePay needs to develop and needs to be top notch on innovation. That also means that the governance around this will need to stay agile and that's also the message from us to the partners and from the partners to us. MobilePay needs to be able to move more freely than sector companies have done previously. It's not a sector company. It's a commercial company.
PA: You've talked about new delivery models. What will your customer interface be for you in the future? What are the main changes you'll see happen? You've said that more and more will be digital and some will be robotized, but person to person interaction won't cease to exist. What else? What are you going to do which is unique, different from the others?
Jesper Nielsen: Where we're trying to be unique is in the level of execution. I think that's our competitive advantage. All our competitors read the same reports. They talk to the same consultants and they probably reach many of the same conclusions that we reach.
Many of the themes are similar, and the logic is the same on where we need to go as banks and where the sector will go. Our focus isn't to be completely different from other banks, but being a better bank, and executing faster. We saw that with mobile pay. The one who gets it right first, wins the market.
For me, this is all about execution and how we create an organisation that creates great customer experiences, that develops new and innovative solutions, and that has a culture where this is embedded. We need to work on having an operational framework that can deliver. And we need to have a right 'hammer for the nail' approach.
PA: New ideas, innovation and Fintech is important. What I hear you say is that to achieve your ambition for personal banking in Danske Bank, it's really about how you manage to take those inputs from the outside and do something about it and do it fast and right, with the right people, small teams and make it happen in the marketplace.
Jesper Nielsen: Sometimes we do that together with a Fintech partner. Sometimes we're co-locating with the Fintech partner. Sometimes we do it together with a merchant. Actually, one of the first business solutions for mobile pay was made with a small coffee operator – a simple business with a simple payment interface, but one that needed a mobile interface. Partnerships like that are getting more and more valuable for us.
PA: Thank you very much for being so candid, and sharing your thoughts with us.