NORWAY: An Introduction

Introduction

Norway is a technologically advanced society with a developed digital infrastructure for the establishment and growth of new fintech companies. Despite not being a member of the European Union (EU), Norway’s affiliation with the European Economic Area (EEA) aligns it closely with EU regulations, albeit with often significant delays in implementation. This article provides an overview of the economic, legal, and political trends in Norway that are shaping the fintech sector, highlighting both the opportunities and the unique challenges faced by Norwegian fintech companies.

Economic Conditions

Norway’s economy is characterised by its resilience and stability, supported by a solid sovereign wealth fund and a robust financial framework. The economy is largely dependent on oil and gas production and exportation. Although Norway’s currency has depreciated compared to major currencies such as the US dollar, the euro and the British pound, the financial climate in Norway remains relatively stable. The interest rate remains high as the central bank is still fighting high inflation. As a country largely dependent on importing consumer goods, inflation is negatively affected by the weak currency as prices for imported consumer goods continue increasing.

The fintech sector faces specific challenges, notably with respect to obtaining financing and complying with a fragmented regulatory framework. Unlike its neighbour Sweden, Norway’s investment market for fintech and venture capital is less developed, posing difficulties for start-ups and other fintech companies in securing necessary capital to grow and expand their business. High operational costs further compound these challenges, impacting scalability and profitability for emerging fintech enterprises.

Legal and Regulatory Framework

Although not part of the EU, Norway is part of the EEA and required to implement relevant EU regulations. PSD1 has been part of Norwegian law for almost a decade, and PSD2 has also been integrated. A new Financial Agreement Act, which includes the remaining provisions of PSD2, came into effect on 1 January 2023. Several local businesses are in the process of developing standard APIs to facilitate connections between AISPs and PISPs and various financial entities. The effects of PSD2 are already evident in the Norwegian banking market, and most banks already offer access to third-party bank accounts.

General Norwegian law, such as contract law, tax law, and tort law, also applies to fintech companies operating in Norway (unless contracts are legally structured otherwise). General principles in Norwegian law are often deduced from a mix of legislation and case law. Hence, alongside the fintech-specific regulation, compliance with general applicable law can be challenging for new fintech companies as they typically have few employees.

Moreover, the regulatory environment, while complex, is gradually adapting to supporting fintech companies and innovations. Initiatives such as the regulatory sandbox proposed by the Norwegian FSA aim to provide guidance and a safer environment for fintech start-ups to test new technologies and business models.

Political Climate

Politically, Norway is a stable society where the two biggest parties, the Labour Party and the Conservative Party, both are centrist parties. Currently, Norway has a centre-left government. Being a small country with a relatively homogeneous population and a high degree of trust in public institutions, Norway has been able develop a national digital infrastructure matched by few countries. This is particularly true for financial infrastructure.

Current Trends and Developments

Despite certain hurdles, Norway’s fintech sector continues to grow, with significant growth in digital payment solutions, blockchain technology, and AI-driven financial services. Norway has seen a sharp increase in digital payments over the past years, accompanied by a notable decline in cash use. Advanced and efficient payment systems such as BankAxept are key factors supporting this trend. BankAxept enables money transfers between deposit accounts and serves as an alternative to international payment companies like Visa, Mastercard and American Express.

Payment systems such as Apple Pay, Google Pay and others are also frequently used by Norwegian consumers and accepted by almost all Norwegian businesses, enabling many customers to use their smartphones as digital wallets. This has paved the way for foreign digital banks like Lunar and Revolut to offer their banking services in the Norwegian market through apps and digital cards, challenging traditional banks and established fintech companies like Vipps as providers of payment and banking solutions. These platforms also allow their users to invest in various crypto-assets in a centralised manner, typically with automatic reporting to Norwegian tax authorities. Some platforms, like the Danish digital bank Lunar, also integrate with Vipps, evidencing that Norwegian fintech companies have proven willing to welcome international fintech solutions in the Norwegian fintech market.

Additionally, Norway has attracted crypto currency miners due to its low-cost hydro-electric power, tax incentives, stable political conditions and favourable climate for server cooling. Yet, the spike in electricity prices in 2022 and 2023, especially in southern Norway, has cast doubt over the long-term viability of such ventures.

Challenges and Solutions

Norwegian fintech companies face several challenges, including stringent data protection regulations and the complexities of GDPR compliance and Norwegian tax law. The slower pace of regulatory updates due to Norway’s EEA status requires firms to be particularly proactive in regulatory monitoring and compliance. Fintech companies operating in several jurisdictions may need to adhere to two sets of regulatory frameworks. This drives costs as well as increases complexity and the risk of non-compliance with mandatory legislation. Norway also has strict licence requirements for lending activities, making it difficult for fintech companies to provide credit to companies and consumers.

Financing remains a critical issue, with limited local funding opportunities compared to other Scandinavian countries. Fintech start-ups are encouraged to explore diverse funding sources, including international venture capital, government grants, and partnerships with established financial institutions.

The Norwegian tax system also presents obstacles for start-ups due to relatively high taxation levels and complex tax regulations. Advocacy for more favourable tax policies for start-ups and increased governmental support for innovation could help alleviate these burdens.

Despite certain challenges, the Norwegian fintech landscape continues to evolve, driven by a collaborative financial sector that has a tradition for innovation and adaptation. This collaborative spirit is exemplified by initiatives like Fintech Norway, a fintech industry association with over 35 members varying from well-established companies like Vipps, to up-and-coming crypto platforms like Firi and digital accounting companies like Fiken, working together for enhanced clarity regarding fintech regulation in Norway, and focusing on challenges and solutions for the fintech industry.

End Note

Looking ahead, the Norwegian fintech sector, while facing distinct challenges, holds substantial potential for growth and innovation. Understanding the intricate interplay of economic conditions, regulatory frameworks, and political stability is crucial for fintech firms aiming to thrive in this landscape. Although challenging, by engaging actively with the ecosystem, staying updated on legislative changes, and leveraging collaborative and funding opportunities, fintech companies can navigate the complexities of the Norwegian market and emerge successful and gain access to a customer base accustomed to using digital payment solutions.