Sweden’s fintech scene is arguably one of the best
Israel’s startup scene has been thriving, and in particular, the fintech sector. Just this year, several Israeli fintech firms secured significant funding: Insurtech company Next Insurance raised $29 million from a Series A round after already securing $13 million from their seed round last year. Predictive analytics fintech solution Earnix also raised $13.5 million earlier this year. YL Ventures even put up an additional $75 million to fund fintech ventures targeting the US market.
While these developments should seek to inspire the rest of the scene to continue innovating, entrepreneurs should also look outward and observe how other countries approach fintech. Sweden’s fintech scene, for instance, is arguably one of the leading ones right now.
The Nordic country is the paragon for a cashless society. Over the years, Sweden has eased off cash. Many banks don’t carry cash and its churches have shifted to accepting cards. Last year, its central bank also announced that is considering offering its own digital currency.
So, it doesn’t come as much of a surprise that its fintech unicorns are payment services. Klarna and iZettle, as well as upcoming unicorn Trustly, headline Sweden’s payments segment.
Israel may already have the likes of Payoneer and Zooz, but there is still plenty of room for other players to participate in the payments services sector. Here are some lessons Israeli fintech can learn from Sweden’s experience.
Address market preferences
One key to Sweden’s fintech success is how its companies cater to market preferences. The bank account has been central to Swedish people’s finances. They receive salaries directly to their accounts. Most banks also offer comprehensive online banking services allowing them to use their bank accounts for payments and even loan applications.
This attitude has prompted services like Trustly to focus on the bank account to drive its payments services. Unlike other popular payments services that require credit cards as primary funding sources, Trustly allows merchants to accept payments directly from customers’ bank accounts. This market preference is shared by other European countries including the Netherlands, Finland, and Poland, allowing Trustly to expand coverage to these territories and enable cross-border commerce for merchants in the region.
Israel’s fintech companies may do well exploring similar trends. Fintech ventures could see how other markets prefer to handle money find opportunities to offer valuable services to under serviced markets. More Israeli businesses are also looking into cross-border business: A payments service that enables diverse payment methods would be valuable for such enterprises.
Don’t compete. Cooperate
A key factor to Swedish fintech’s growth is the cooperation among its players. Even before the emergence of fintech, its traditional institutions were open to collaboration. Its banks have the RIX payment system, which handles real-time payment settlements across institutions.
Having such an integrated payments system in place allows fintech services to use it as a capable backend for their services. They can then focus on creating engaging user experiences for end users rather than spend a lot of time worrying about how to integrate to the respective systems of individual banks.
European legislation also encourages this collaboration. The Revised Payments Services Directive (PSD2) is set to take effect by 2018, which allows customers to give access to third-party entities like fintech companies to access their account directly. Moving towards implementation has been easier for companies with such systems in place.
Israel has a similar mechanism in the Zahav System. Aside from banks, companies and institutional investors can use the system. However, there still isn’t much development in bank and fintech collaboration similar to what PSD2 would allow European fintech to be able to do in their region.
Explore new ways of doing things
Sweden has also been keen on trying new applications of technologies. Blockchain is proving to be more than just buzz. The technology shows much promise beyond its initial use in cryptocurrencies. For example, the country is progressing in its effort to use blockchain in recording land registry.
Despite boasting of government systems empowered by tech, the country still moved forward with testing an emerging technology to handle something with the gravity of real property.
Several Israel companies are pursuing a similar strategy. Blockchain startup Wave focuses on the ledger aspect of blockchain and aims to digitize trade documents such as bills of lading. The company has already gained support from Barclays. Synereo takes the idea even further by taking a shot at social sites like Facebook by using cryptocurrency to place value on content.
Blockchain’s applications appear to be limitless. New platforms like Ethereum also allow for the implementation of smart contracts, which further extends the capacity of blockchain beyond just record keeping. These create more opportunities for Israel’s ventures to explore.
Israel doesn’t get called “Startup Nation” for nothing. No country with the exception of the US and China has more companies listed on NASDAQ, and this is despite having a population of 8.5 million people.
Sweden’s local market is just a tad bigger, but it has the advantage of sharing borders with other members of the European Union. Israel’s limited market means it has to look at a grander scale of doing business and focus on going cross-border and global to maximize their businesses’ potential.
Israeli fintech is in quite an excellent spot, but looking at how other leading fintech hubs like Sweden are progressing should help provide more perspective on how to go about creating new and more business.
The views expressed are of the author.
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