What’s next for Sweden’s FinTech ecosystem?

After years of record growth and it briefly being home to Europe’s most valuable FinTech, how will Sweden’s emerging FinTech ecosystem come out of the Covid-19 pandemic?

Sweden’s FinTech ecosystem has gone from strength to strength over the years. Even in the face of a global pandemic, the nation’s FinTechs successfully raised massive funding rounds in 2020. Klarna, Lendify and Tink all secured cash injections worth hundreds of millions of dollars last year.

However, as the sector continues to expand and new companies burst onto the scene, the question is where the nation’s industry will go to next.

For Armando Coppola, partner and head of FinTech at Nordic startup investor Wellstreet, the answer to that question is that the nation’s FinTechs will continue to go international.

“FinTech is one of the industries that has become self-evident for Sweden to export over the past 20 years and has managed to do so very successfully,” says Coppola.

Part of the reason behind the inclination to look beyond the country’s borders is the fact the domestic market is limited. “What we must not forget, however, is that Sweden is a small country with only ten million inhabitants,” Coppola says.

In other words, it’s hardly surprising that Klarna has embarked on a massive international expansion drive, launching in both the US and in Australia.

Another reason behind Swedish FinTech companies’ ambitions to go international is because they must have a high standard from the get-go.

“In addition to export DNA, Swedish financial companies are very tightly regulated to protect consumers, which means that when you build a Swedish FinTech, it also maintains a very high standard internationally,” argues Coppola.

The success of the Swedish FinTech community has been years in the making. The ecosystem’s origins can be tracked back to the launch of niche banks such as Nordnet, Avanza, Collector and Resurs in the early noughties.

The entrepreneurs behind these companies managed to tap into the IT infrastructure the Swedish government introduced in the 1990s, enabling them to launch the first wave of the nation’s FinTechs. The same tech infrastructure and the national programmes to boost computer literacy also contributed to the launch of Swedish tech unicorns like Spotify, Skype and Candy Crush-developer King.

However, innovative as these early FinTech initiatives may have been, it wasn’t until after the global financial meltdown of 2008 that the Swedish FinTech companies really burst onto the international scene.

Since then, high-profile FinTech companies like Klarna, iZettle, Bambora Connect and Trustly have helped put the Scandinavian nation on the map, ensuring Sweden stands out from its Nordic neighbours.

That is no easy feat. The entire region’s FinTech industry has ballooned over the years. In 2016, Nordic FinTech companies attracted $253.2m in funding in total, according to FinTech Global’s research. By 2020, that figure had skyrocketed to $1.58bn, despite the coronavirus crisis making some investors hesitant to invest.

Nevertheless, even in this highly active investment landscape, Sweden has stood out from the crowd. Despite companies in the neighbouring countries having reaped plenty of success stories of late, it is telling that six out of the ten biggest funding deals raised in 2020 were raised by Swedish companies.

Two of those deals were raised by Klarna, the buy now pay later venture that for a few months held the title of being Europe’s most valuable FinTech after having raised $650m and $200m in September and January, respectively. The final cash injection saw Klarna achieve a valuation close to $11bn.

British FinTech unicorn Checkout.com claimed the title in January after a new funding round saw it achieve a $15bn valuation.

Still, Klarna’s success is not to be underestimated. “I think what Klarna has done is absolutely fantastic,” says Coppola. “It is many years of sharp focus in B2C that have led to enormous successes and made it possible to further develop in more verticals.”

A common refrain is that Klarna’s success will trickle down into new Scandinavian startups, much in the same way that Skype’s success in the first decade of the 21st century led to its founders investing into the nation’s startups. Klarna, for instance, is backed by Atomico, the investment firm launched by Skype co-founder Niklas Zennström.

“[Klarna’s] success will be invaluable for the development of the Nordic startup community, leading to capital and skills being recycled into new ventures, fuelling ambition among the next generation of entrepreneurs, and becoming a buyer of other tools and services that stimulate the local ecosystem,” Kjartan Rist, partner at European venture capital firm Concentric, told FinTech Global at the time of Klarna’s $650m funding round.

Klarna’s success may also encourage entrepreneurs to explore other FinTech avenues to innovate in. “What I see as the most interesting thing going forward is the segment that Klarna is not in,” says Coppola.

For instance, while he believes that the earlier waves of Swedish FinTech innovation happened in parallel with incumbent financial institutions’ technology developments, Coppola argues that it is time for the different players of the industry to start working together more. That includes FinTech startups and traditional financial firms as well as regulators.

“There will be many new company-built investments and many new implementations in the financial industry in the next few years where finance and tech benefit from each other to get better adapted platforms to work on to meet both government requirements, be able to launch new products to maintain a relevant offer and at the end of the day offer the best customer experience,” he says.

Anna Blyablina, co-founder of Sthlm Fintech Week, echoes that sentiment. “Partnerships between different actors in the financial ecosystem, mergers and acquisitions within the community itself, new players entering the Nordics with innovative solutions and unique approaches would ensure the continued boast of Swedish FinTech ecosystem,” she says.

Jens Frid, blockchain lead at Sthlm Fintech Week, argues that the next wave of Swedish FinTech will dare to go beyond the traditional banking and payments industries.

“There are a whole suite of other types of financial services that could be optimised with better UX and tailored solutions,” he says. “In a larger perspective, in a global economy with over 60% of the world’s population online but without a shared financial services system built for the modern age is one of the greater issues that I’m hoping FinTech can solve.”

Unsurprisingly, given he is the lead for the decentralised finance (DeFi) track of Sthlm Fintech Week, Frid is bullish about the segment’s ability to become “the next frontier in FinTech.”

“DeFI offers a new infrastructure based on blockchain technology that enables new possibilities impossible or hard to solve for in traditional finance,” he argues.

“The experimentation happening now in DeFi is incredibly impressive and happening at the speed of light. One could compare to the early days of the internet. I’m sure that over the next decade it will have matured and have become a backbone of the internet.”

The Swedish FinTech ecosystem has clearly become a tour de force on an international stage. With the end of the Covid-19 crisis hopefully being in sight, it seems as if the nation’s innovative entrepreneurs are getting ready to take their developments to the next level.

If you want to find out more about where the Swedish ecosystem is going, make sure you swing by Sthlm Fintech Week on February 9 and 10. FinTech Global is a media partner of Sthlm Fintech Week.

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