Insights from digitally advanced Nordic countries: The potential of integrating digital finance and government
The global COVID-19 pandemic has reinforced the need to digitalize social infrastructure. Against this backdrop, collaboration between Banqsoft, a leading provider of banking as a service primarily in the Nordic countries, and NEC Corporation, which has been promoting digital finance and digital government, offers huge potential. Terje Kjøs, CEO of Banqsoft, and Daichi Iwata, Senior Director of NEC, discussed the possibilities, examining the state of digital transformation (DX) in Nordic countries and how the Nordic model can be applied worldwide.
The power of digital IDs
Daichi Iwata (DI): The COVID-19 pandemic has forced the Japanese public to face reality. We have had to accept that we are far behind in terms of digitalization. Modern Japanese systems are very well developed, but the digitalization of our social infrastructure is far from complete.
Meanwhile, I believe the Nordic countries have been a paragon of DX. Terje, could you talk about the benefits of digital banking and digital government for ordinary citizens?
Terje Kjøs (TK): Sure. In Norway, we have a digital ID called a Bank ID. Citizens use it for banking, as well as many other services. We don’t necessarily use it every day, but still, we have to identify ourselves from time to time, and Bank ID has made this much more efficient. With Bank ID, Norwegians can essentially access banking or social services at any time, even outside of opening hours.
DI: What kinds of data can you access with digital IDs?
TK: In finance, if someone wants to take out a loan, the bank needs to know whether or not they can really pay it back. In many cases, the bank would check the person’s income and payment history. With a digital ID and also the consent of the user, this data could be made available to the bank online. The same is true of other services, such as insurance. Users can decide for themselves how to manage their own data, and allow a third party to see that data if they wish.
Users benefit tremendously. They can apply for a wide range of services, get approved, and receive payments, all from their own homes. They just need to use their ID on their smartphones and sign digitally. The banks and other companies benefit greatly as well, because they can collect the necessary user information straight from the tax authorities. They can receive accurate data in real time, which is much more efficient than conventional paper-based practices.
Simple UX for effective DX
DI: Unlike in Japan, it sounds like the user experience (UX) in Norway is really excellent. Norwegians can use a single digital ID to access both banks and government services, anywhere, anytime.
TK: For me, the key to DX is building a simple UX. People often talk about the design of the mobile app or website, but that is only a part of it. You also need to take into account the integration and sources behind it, such as the data management. It is very difficult to create a truly seamless UX without considering both the design and experience at the same time.
It’s a large job, but if you can integrate the data, the design and the experience, you can offer many different forms of value to users. With really great UX, the user only needs to complete the minimum number of steps and input as little data as possible.
DI: What role does Banqsoft play in this ecosystem?
TK: Banqsoft is kind of like the engine behind everything, supporting the interface between digital finance and digital banking. Using our solutions, banks are able to provide financial services in collaboration with government agencies.
So, really, what we do is tie together the different players with our applications. For instance, we might help a lender decide whether or not to extend a loan to someone. To do that, we work together with a company that has an algorithm for predicting the likelihood that someone will pay back the loan based on their payment history, and facilitate access to data held by tax authorities to prove a person’s annual income. Ultimately, we provide the platforms that enable the integration of all these types of data and empower businesses and government agencies to provide smoother services.
Empowering people with data-driven finance
DI: I believe people are looking for frictionless experiences, so to speak, meaning that they want to be able to use their money in real time, whenever they want. I think this is the most important factor when designing the UX in Japan, as well as other countries in the Asia-Pacific. We have taken a different path to digitalization compared to the Nordic countries. In Japan, we have many legacy systems that we have to update, while other Asia-Pacific countries are leap-frogging us in terms of applying new technologies. I think the importance Banqsoft places on UX, as well as your experience and software, has huge implications for countries like ours.
In that context, NEC has set up a digital business development team that operates out of Singapore and is scaling digital transformation efforts across the Asia-Pacific, including Japan. In addition, we are collaborating with data scientists and engineers at the NEC Central Research Laboratories and in India to try to create new business value through data analytics, using data provided by our customers.
In my view, it’s no longer possible to provide new financial services using the data from banks alone. I also think that we need to have broad data analytics capabilities, otherwise we will not be able to analyze the huge and varied data being generated by the very diverse countries of the Asia-Pacific.
TK: I believe governments have huge opportunities for utilizing data, if they have up-to-date knowledge of the capabilities. If possible, we want to be able to not only collect data provided by users, but also access data that is being collected by companies, direct from the source. That would give us more varied and higher-quality data, as well as a more reliable data collection process. Then, by analyzing such data, we can greatly improve service speed and quality.
Of course, data protection laws may restrict the kinds of data we can analyze. These vary by country, and, in some cases, the rules can be very strict. Nevertheless, as long as we follow these rules and analyze the data accurately, we can better understand individual preferences, and provide services that are more closely suited to users’ respective needs.
For example, if we discover a group of users behaving in a different way, we could propose new services geared to them. We should also be able to develop financial services apps with automated investment advisors that are faster and more precise than people. This would reduce the marginal cost of financial advisory services, which are traditionally very high, and make them more inclusive. Such use of artificial intelligence would enable the optimization or expansion of services that were otherwise becoming obsolete, and offer greater efficiency for both end users and also service providers.
DI: Many of the ideas you mentioned are very useful for us as we consider how to empower people through DX. DX should, first and foremost, give users more control over their choice of service and decision-making. People could then choose to give consent to companies and government agencies to directly access their data, and use this higher-quality data to provide better services. Integral to all this is a foundation of trust, both for digital government and digital finance. Data quality and trust will be extremely important for realizing a data-driven economy and the application of AI. This really drives home the importance of user-oriented innovation, not just enterprise or market-led innovation.
TK: Yes, innovation and new technologies have really made a difference. In the past, companies and government agencies tended to try to gather all the data and store them in different places. Now, we can keep the different data where they belong, and only access them when necessary for a set period of time. The current approach is also more secure. In any case, I think this is a very interesting track to explore.
DI: As you said, if individual companies or government agencies collect data only for their own purposes, users’ data would be scattered across many different places. Another problem is that no one would be actively managing the data and making sure it is up to date, resulting in lower data quality. Consent-based, direct access to the source of the data, as is possible in the Nordic countries, is a very interesting idea indeed.
NEC is developing software that underpins digital government and digital finance, and, if we could bring Banqsoft’s digital tools to countries in the Asia-Pacific, I believe we could really create the kind of user-centric economy needed for a truly digital society. Everything you’ve mentioned has really reinforced, for me, the importance of a simple UX.
A broader suite of services
DI: Lastly, I also wanted to ask you about the two companies that Banqsoft has recently acquired. Could you tell me more about that?
TK: Of course. One is a Norwegian company that develops debt collection software. Traditionally, specialized agencies carried out debt collection, but now, more and more banks are considering moving debt collection and credit management capabilities in-house. For that, they need specific kinds of software.
With this company’s software, we can offer our clients a wider range of services so that they can follow their own customers from the loan application through to debt collection. We are also aiming to launch this combination of services in many other countries as well.
The second is a Danish company that provides leasing and finance solutions. We strongly believe that leasing will be very important going forward in the global economy. We see a growing trend of people sharing rather owning assets, such as car sharing, for example. Instead of tying up a lot of capital in, say, purchasing a car, more people prefer and find value in pay-per-month models.
This is especially the case amid the COVID-19 pandemic. There is evidence that car leasing is increasing. The leasing model has existed for a very long time, but under the current circumstances, fewer people want to own large assets. Faced with uncertainty over their future, a lot of people find it difficult to make such significant investments. With challenging economic conditions around the world, I think it is likely that leasing will grow in importance, as a safer financing method.
DI: As you say, due to COVID-19, or perhaps because of the growth of the digital economy, demand is growing for companies that provide financing services for assets or expensive goods. I believe this is also true of the Asia-Pacific, where growth is anticipated and more and more people are looking to take out loans to grow their business. To provide them with higher-quality services, you need to improve the quality of the product, for which you need data.
At the same time, in finance, you always face the risk of people not paying back their loans, so you need to appropriately manage that risk. As an example, to set appropriate interest rates, you need to be able to determine who might not pay back their loan. Similarly, if you are better able to collect debt, then you can lower rates and offer users a fair price. I’m excited by the potential of integrating Banqsoft’s burgeoning knowhow in this field with NEC’s data analytics capabilities. Together, I am sure we can develop a new and optimized service for global markets.
Changing the world with digital finance
TK: My motivation has always been to improve and simplify complex solutions. For instance, banks may consist of large and complicated systems, but I think the key words for the end customers are convenience and simplicity. You want to be able to provide simple, convenient, reliable and secure services, and for that, you need to be efficient. I believe that ultimately, if you focus on maximizing the benefits for users, then you will be able to provide fair and flexible financing.
DI: In a way, this helps to simplify end customers’ lives and afford people more time, doesn’t it? One of the interesting roles of finance, I think, is unleashing people’s potential. If you want to try something new or take on a challenge, you need financing. I believe that DX will help to simplify the many services provided by government agencies and banks, make people’s lives more convenient, and free up time for them to take up new opportunities.
Aided by personal data, it may also be possible to provide financing to people without much business experience and who traditionally would not have a high creditworthiness. The potential for digital finance to empower is really very exciting. Combining data and DX in finance and business could have a huge impact on people who want to take on new challenges.
(October 30, 2020)