The rise of Nordic FinTech has produced a wide range of platforms providing an alternative to traditional banking, lending and investing; all fields traditionally in the conservative domain of banks and other financial institutions. Now, with FinTech playing such a dominant role in the region's investment scene, it’s no wonder that crowdfunding, P2P lending platforms and other financial innovations are rolling out of the many tech hubs in the Nordic region, and as a result, forcing local legislators to act and facilitate the flurry of tech-driven FinTech startups.
Fewer legal hurdles
In April 2015 the Finnish government announced plans to improve the regulatory environment for crowdfunding. The new Crowdfunding Act was ratified by the President of Finland on August 25th with the law going into force on September 1st.
“The new legislation offers a good opportunity to develop an alternative financing market for SMEs, which has already radically changed the financing of the entire SME sector in the United Kingdom and the United States,” said Jouni Hintikka, the CEO of Fellow Finance, Finland-based crowdfunding service for SME’s all and a P2P lending platform.
According to the country's Ministry of Finance, “The Crowdfunding Act will particularly ease the regulation of investment-based crowdfunding and correspondingly clarify the ground rules for loan-based crowdfunding. The objective of the Act is to clarify the responsibilities of various authorities in the supervision of crowdfunding, to improve investor protection and to diversify the financial markets,”
The old structures are shaking as technology is changing fields such as investment and banking, both traditionally areas in which conservative and risk-averse attitudes have prevailed.
Iceland, a country that came out on top after a financial meltdown, has also seen some movement in the investment scene with the government recently announcing an exploratory move to look into crowdfunding.
“The minister for industry and innovation announced last December a plan to help entrepreneurs, one of the things on the agenda was "looking into crowdfunding as a funding source for startups," said Kristinn Árni Lár Hróbjartsson from Northstack.
Finland, the cradle of crowdfunding?
Finland alone is home to several crowdfunding companies with Invesdor and Mesenaatti as the more prominent ones. Invesdor, a Helsinki-based equity-based crowdfunding platform, operates across the EEA and recently expanded to Norway and Denmark. According to the company’s CEO and founder Lasse Mäkelä, the key to the success of crowdfunding is diversification.
“For investors, equity and debt crowdfunding is a channel for finding diversification opportunities to complement traditional investments. Emphasis on the word diversification, because investments in unlisted growth companies are much riskier than investments in listed and more established companies, so one shouldn’t only invest through crowdfunding. It’s a channel that complements traditional investing channels by providing investors with opportunities they couldn’t previously access,” he told me in February.
For companies, crowdfunding is a new cost-efficient fundraising method with the perks of social and transparent elements of the 'sharing economy’, Mäkelä says.
For Invesdor, like most companies in burgeoning industries, scalability poses the primary challenge.
“Expansion into three new markets simultaneously is definitely number one challenge at the moment and for the near future. However, maintaining scalability in a highly regulated environment is also a seemingly perpetual challenge, and in my opinion the most fascinating one we face.”
In Sweden, FundedByMe has seen a number of successes with a campaign for electric car start-up Uniti Sweden AB exceeding its equity-crowdfunding campaign target after 36 hours by raising 500k euros from 196 crowd investors.
The company was launched in 2011 and has raised over 10 million euros competing for the top spot in the Nordic race for the crowdfunding title. Invesdor is currently at over 17 million euros raised.
Not just crowdfunding
In addition to crowdfunding, the rise of Nordic FinTech has produced other platforms that offer locals alternatives to traditional banking services. FellowFinance has seen a growth rate of 247% in the last 12 months. Finland’s P2P lending space is growing fast, with Fellow Finance and Fixura leading the field.
Possibly the most novel of all the Nordic alternative investors is Oslo-based Trigger, a PR agency that offers its services in exchange for equity. Another innovative company, Stockholm-based Aggregate Media, a venture capital company, invests with media as expansion capital. Aggregate’s media-for-equity model - selling unsold advertising space in publications is exchange for equity - is especially tempting for low-budget startups looking for media attention.
The changing financial landscape with EU’s new regulatory framework, meant to open the market to new FinTech players, is providing Nordic FinTech startups, especially in the investment and lending fields, an unprecedented opportunity to provide local and global audiences new ways to borrow, invest and spend.