UPDATE: The bumpy year started off with yet another surprise, when Klarna successfully concluded its acquisition of German payments provider BillPay. After originally withdrawing its offer, as I wrote below, Klarna returned to the table and was able to close the deal. Interesting. – Jan Altersten
2017 is shaping up to be a dramatic year in many ways: the continuing story of Brexit, important elections in Europe, and Donald Trump in the White House are just some of the ongoing themes that will ensure we live in interesting times.
Closer to home, some big changes will affect business particularly across the Nordic region.
Looking at our local financial services market, Klarna’s withdrawal of its bid for German payments player BillPay is interesting from a couple of perspectives. British owners Wonga were not right for BillPay, which in turn was undoubtedly tired of being constantly up for sale. The exclusive deal with Klarna announced last November would have given BillPay new ownership and Klarna a significant footprint in the German market where they still struggle. Then Klarna backed out. There are several rumours as to why: the most credible is that Klarna couldn’t afford to proceed due to financial pressure stemming either from increasing credit losses in the US or, as another rumour suggests, tax issues somewhere which could impact their 2016 results heavily. We shall see, but the withdrawal may also affect Klarna’s ability to demand exclusive rights for future acquisitions. Combined with the never-ending series of management changes at Klarna over the past few years, the company might be growing up.
Intrum Justitia’s merger with Lindorff, which I predicted last year, makes perfect sense. They also have a good geographical fit, even though it might bring challenges in some countries in terms of market dominance and could therefore lead to divestments. But although the deal makes sense, the huge post-merger integration will cause some pain. We’ve seen it before, even among such large, successful, well-managed companies. Will they be able to keep the focus on their clients during this process? I expect some aggressive moves in the market from both Lindorff and Intrum to show they are still in the game. Watch this one.
For Sergel, meanwhile, roughly 70% of its revenues come from former owner TeliaSonera. For a limited period, Sergel under new owner Marginalen Bank is guaranteed a certain flow from TeliaSonera, but 70% creates a huge reliance. How will Sergel adapt to competition for this income? Even though Marginalen has done M&A before, it is hard to see a lot of synergies in this deal. There is a lot of pressure on Sergel and the management at Marginalen to prove the strategic value of this transaction.
Expect movement elsewhere in the market too. Germany’s GFKL is obviously aiming for the stock market, so some M&A action to boost value and increase reach would not be a surprise. Something will happen with BillPay. I think we have seen the biggest changes in the Nordic region for now – you can for sure expect Svea and Alektum to be sold, but probably not until next year. We will not be sold.
Debt is not a dirty word
Turning to B2C finance, I can see new verticals striving to become new solutions. One driver has been the emergence of start-ups with new billing models such as subscriptions, which investors love: they create a recurring customer base and reduce churn. But selling a service one or two years in advance and then getting paid every month drains your liquidity. So expect to see business models that pay earlier.
New verticals are also arising in segments such as travel, digital services and insurance that historically have not been keen on B2C finance, relying more on payment cards. But they see a need for something else, for customers who don’t have or choose not to use cards.
To compete, products and services need to keep pace with consumers’ lives, to allow the consumer to choose how and when to pay. Expect this trend to grow, with B2C finance becoming a natural component of so many industries that we will take it for granted.
Non-residential consumer lending is growing rapidly. This is not just among people without capital, as many suspect, but among “solid” borrowers as well. Yes, problem debt needs to be addressed by legislators and the industry, but a growing share of the population doesn’t see it as problem to use credit to get something now rather than waiting and saving. This is a generational shift.
One of the biggest sources of disruption in the years ahead will come from an unlikely corner: legislators. Technology and innovation have been the biggest disrupters recently, but now the legal landscape is shaking things up. The coming implementations of the PSD2 banking regime and the GDPR privacy reforms, together with local interest rate caps and other measures, will have a huge impact.
I can see problems in the tension between PSD2 and GDPR. PSD2 will force banks to share their data with third parties, while the increased data protection of GDPR works against that very idea.
PSD2 in itself will rock the banking industry, by opening up their information and services to third-party providers. If banks don’t adapt quickly, they risk being turned into commodities, with third-party services taking over their customer relationships.
The strict data protection rules of GDPR will also have a major impact, but it is still unclear what that will be. Legislators are pushing hard for restrictions on companies dealing with data, but it is not certain that these will benefit the consumer. Even if we don’t want Big Brother, we like the convenience of not having to fill in our data for every transaction. How many of us accept the apps in our phones tracking everything without a second thought, for example?
Look at the increasing use of surveillance cameras. They may be intrusive, but we are often prepared to trade our privacy for greater security. The same applies to life online. There is a trade-off, giving up privacy in return for convenience. We get provoked when our data is misused, but appreciate the convenience when it’s done right.
We’ll be taking a closer look at these issues and more over the coming months, and keeping a close eye on developments.
All in all, there could be some big bumps on the road ahead. Drive safely.
– Jan Altersten
Chief Executive Officer, B2C Finance | Nordic DC