An Introduction to the Norwegian FinTech Sector
Norway is a technologically advanced society fuelled by the oil industry. Due to the annual contributions from the oil industry, Norway has one of the world's largest sovereign wealth funds and no national debt.
Politically, Norway is a stable country where the two biggest parties, the Labour Party and the Conservative Party, are both centrist. Currently, Norway has a centre-right government.
Being a small country with a relatively homogenous population and a high degree of trust in public institutions, Norway has been able develop national technologies that ensure an efficient digital infrastructure. This is particularly true as pertains to the financial infrastructure.
Over the last few years, Norway has seen a steep rise in digital payments accompanied by a corresponding decrease in the use of physical cash. One might argue that the well-functioning, efficient and modern Norwegian payment infrastructure has been an integral factor in underpinning these developments.
A number of market participants in Norway are eager to completely remove cash from the economy. Several industry organisations have come out in favour of the proposition, including Finance Norway (FinansNorge), The Finance Sector Union of Norway and the Enterprise Federation of Norway (Virke). The Norwegian Tax Administration and the Norwegian Consumer Council also support removing cash from the economy.
A committee appointed by the Norwegian Conservative party stated in an interview in 2017 that Norway should aim to become a cashless society by 2030. The committee proposes that the current right to pay with central bank notes and coins (legal tender) be abolished by 2020, followed by further steps to complete the transition and make Norway a cashless society by 2030.
The Norwegian legislative body, the "Storting" (the Norwegian parliament), on the other hand, has expressed a desire to strengthen the framework for cash payments.
The philosophy of the Norwegian authorities has been to leave it to the banks to develop and regulate systems for the transfer of funds among themselves. Consequently, Norwegian banks have co-developed a national electronic payment system that carries out the transfer of commercial bank money between deposit accounts. The banks co-own and maintain this electronic payment system, called "BankAxept". BankAxept competes with other payment systems such as Visa, Mastercard and American Express.
Continuing the tradition of creating and developing their own payment infrastructure, a number of Norwegian banks have developed and today co-own Vipps, a digital payment solution/application for mobile devices that enables end-users to make payments electronically via their mobile devices by accessing various payment systems (basically, Vipps makes an electronic copy of your payment card). Vipps has no payment infrastructure of its own that can carry out the payment transactions, and thus users of Vipps currently either have to use the Visa or Mastercard payment systems.
However, Vipps has announced that end-users soon will be able to use Vipps to make payments by accessing the BankAxept payment system. Currently, Vipps is by far the most widely used digital payment solution/application on Norwegian mobile devices. Vipps already has a user penetration of more than 75 per cent of the Norwegian population. Apple Pay was introduced in Norway in June 2018, and Google Pay was launched in November 2018. Both are direct competitors to Vipps.
Additionally, Norwegian banks have co-developed an electronic authentication solution, BankID, which has become widely used in Norway, both in relation to electronic banking and in relation to services provided by various public institutions and private companies.
Norwegian banks have thus, with the blessing of the authorities, created, and continue to develop, a self-regulated and privately owned financial eco-system that constitutes a central part of the Norwegian financial infrastructure. BankAxept and BankID are so central to the Norwegian financial market that they may be deemed to form part of the backbone of the Norwegian financial infrastructure.
In July 2018 Vipps, BankAxept and BankID merged into one company. It is open to debate how this merger will impact the Norwegian payment services market and its users, but it is clear that the merger was a strategic response to the challenges posed by PSD2.
Thus, potential entrants to the Norwegian market, in particular as relates to payment services, should be cognizant of the dominant position that these few commercial and privately owned actors, i.e. the commercial banks, hold over the Norwegian financial infrastructure; a position they can use as leverage when competing in the fast evolving payment services market.
Norway is not part of the EU, but as a member of the EEA (European Economic Area) it has agreed to implement most EU legislation. PSD1 has been part of Norwegian law for almost a decade, but PSD2 has not yet been transposed into Norwegian law. A white paper for the transposition of the public law part of the PSD2 (i.e. introducing to concepts of AISP and PISP) into Norwegian law was published in June 2018, and was approved by the parliament on 8 November, 2018. The new legislation will probably become current law in early 2019.
In addition, a white paper pertaining to the transposition into Norwegian law of the private law part of PSD2 was published in July 2018. It is expected that the private law part of PSD2 will be transposed into Norwegian law sometime during the first half of 2019. At the time of writing it is not clear when the various Regulatory Technical Standards will be implemented in Norwegian law. Of particular interest is the SCA (Strong Customer Authentication) and the CSC (Secure Open Standards of Communication) (the EU implementation dates of 14 March and 14 September, respectively, do not apply for Norway.)
This means that currently, until PSD2 has been transposed into Norwegian law, the third party services AIS and PIS are not regulated under Norwegian law, meaning that the Norwegian FSA is not able to license such activities or handle notifications about the cross-border rendering of such services. Since these services are currently not regulated in Norway, both Norwegian and foreign actors will be able to render these services in Norway without a licence. However, they will only be able to do so to the extent the banks agree to provide access and information.
There is currently great local interest in developing standard APIs for AISPs and PISPs, for onward connection to the various financial institutions.
Also, it should be noted that several major Nordic banks have agreed to investigate the possibility of establishing, within the Nordics, the world’s first integrated region for domestic and cross-border payments in multiple currencies through an open-access, common infrastructure that will deliver state-of-the-art payment experiences to customers across the Nordics. This project is called "P27". They aim to process the first transactions through the P27 service in 2020. The Norwegian Central Bank is still undecided as to whether it would support the transition from a national payment infrastructure to a pan-Nordic payment infrastructure, as one could argue that to some extent Norway would cede national control of the payment infrastructure by implementing a pan-Nordic payment infrastructure. This, in turn, raises questions relating to disaster planning and cybersecurity.
The Norwegian Central Bank is also currently analysing whether issuing digital central bank money to the public would be beneficial to Norwegian society. A Phase 1 report on the subject was published in May 2018. Phase 2 of the work is currently ongoing and a report will be published in spring 2019.
On a final note, it should be mentioned that cryptocurrency miners have been moving into Norway over the last year or so to take advantage of cheap hydro-electric power (the mining centres are eligible for tax breaks given to power intensive industries) and low temperatures, which both help to power and cool their servers. In March 2018, the industry giant BitFury opened a bitcoin mining data centre in Mo i Rana in Northern Norway, investing USD35 million. A number of politicians on the left have criticised giving tax breaks to data centres mining cryptocurrencies, asserting that these tax breaks were not meant to apply to this kind of activity. However, there seem to be little interest among the governing political parties to change this regime.
As a leading legal service provider within the Fintech space, Simonsen Vogt Wiig offers a wide range of services combining our expertise within the financial regulatory sector with our longstanding tier 1 expertise within the tech space (TMT). We serve a range of bluechip clients, Norwegians as well as international players. Our services have covered amongst others the following areas:
- payment services
- lending activity
- card schemes
- issuance of cryptocurrency/ICOs
- technological infrastructure (amongst others biometrical payment cards)
- mining of cryptocurrency
- operational issues such as: consumer protection, data privacy, cyber risk
- intellectual property
- general contractual negotiations