Finland Blazes an E-Trail in Online Banking
With a population smaller than Greater Los Angeles, Finland leads the world in electronic banking, surpassing such financial powerhouses as the United States, Germany and Japan.
But by embracing technology to bridge the vast distances across which Finland’s 5.4 million residents are scattered, a Nordic banking consortium has sprinted ahead of the big players and set a standard for service and security that more weighty competitors will need years to match.
“We are like a world laboratory for electronic banking because we have a population that has always welcomed technological innovation, and we are small enough to integrate change without huge investments,” said Riitta Pennanen, first vice president of MeritaNordbanken, which combines the merged market leaders from Finland and Sweden.
Under its parent company, Nordic Baltic Holding, which also recently acquired Copenhagen’s Unidanmark, the Helsinki-based bank boasts 9 million customers and claims the world’s biggest Internet banking network with 1.5 million active customers online.
The emergence of this small country as the e-banking bastion may be short-lived. The giants of the financial world will inevitably expand wireless applications and lure their customers away from paper checks and local branches to the ease of integrated online banking and shopping.
Citibank has an estimated 1.1 million online customers worldwide and Wells Fargo has about 810,000, said Chris Musto of Gomez Advisors in Lincoln, Mass. Bank of America claims 2 million online customers, according to Peter Magnani, a BofA spokesman in San Francisco. But Musto contends the number of active users among BofA customers--those making a payment or other Web transaction at least once a month--is closer to 600,000.
Deutsche Bank, the German giant with 750,000 Internet customers, said this month that it would be enhancing online services as it creates a Pan-European retail banking network to link its 10.5 million customers in seven countries.
For the time being, however, MeritaNordbanken commands the e-empire, allowing customers to pay bills, buy and sell stocks, make purchases, consult investment advisors and even get a mortgage online via their personal computers or mobile phones.
In one telling example of the bank’s trailblazing methods, MeritaNordbanken ceased processing paper checks four years ago, and most of its Scandinavian competitors have followed. Those who insist on paper can use transaction forms known as giros, which are still available at bank branches. But with an estimated 60% of Finnish households banking exclusively online--and most of the rest doing it by phone--the paper trail is fast being abandoned.
Though traditional payment instruments may be disappearing, few expect the bank’s physical branches to close--at least not for another generation.
“There are still a lot of customers who need to know they have a bank branch to feel secure about where their money is,” Pennanen said. “We still have a lot of older people who visit the branch each week, for whom it is as much a social activity as an errand. Of course, we can’t keep branches open just for social reasons, but I think it will be a while before we can be exclusively electronic.”
The Helsinki bank’s advance to center stage for electronic banking was actually born of adversity. Finland was hit by a financial crisis during the early 1990s, when its traditional markets in the former Soviet Union disappeared. Banks were forced to cut costs drastically, which meant closing rural branches and reducing personnel.
That pressure for streamlining inspired new applications of technology to replace traditional teller transactions, prompting banks to offer more services--first by touch-tone phone, then via PC and more recently over mobile telephones. Not coincidentally, Finland has the world’s highest cellular phone penetration, with more than 70% of the population wireless.
“If it had been business as usual, the banks wouldn’t have had the incentive to reduce costs,” noted Ari Jarvinen, an investment analyst at Conventum Securities here.
Such economies met a surprisingly positive response from retail customers, who are thinly spread across this country of lakes and forests. If the electronic options hadn’t been available after the smallest branches closed, they would have had to travel to regional centers to do their banking.
“I personally haven’t been in a branch for years,” Jarvinen noted. “There are plenty of branches here in Helsinki, but the lines are irritating and it’s so much easier to bank by mobile phone.”
MeritaNordbanken has also linked its banking customers to an electronic marketplace, which it administers through its portal, Solo.
Online banking customers can click on a link to thousands of merchants to buy everything from flowers to fashion to travel. Payment is debited directly from the customers’ bank accounts, which is far cheaper for merchants than processing credit card transactions.
Finns, like most Europeans, put more faith in bank-managed debit accounts than in use of credit cards.
Each Solo customer has a password or personal identification number for all services--cash machines, checking balances or accessing the Web--as well as a printed list of one-time codes mailed to their homes for using with each transaction. That means electronic snoops and hackers, should they be able to intercept the data in the first place, can’t use the combination to gain illegal access.
Pennanen acknowledged that Finland is unlikely to remain the e-banking leader for long, having already captured much of the limited market potential in the Nordic countries, which together have a population of only 24 million--less than one-tenth that of the United States.
But the bank can market its expertise in developing online services and has been consulting with some bigger players such as Deutsche Bank, she said.
