It's been well established for a number of years that Danish banks continue to lag behind their US and EU-based peers on a wide range of metrics, beyond just profitability and growth.
Despite being known for their fiscal health, stability, and reliability, the country’s financial giants are far behind peers when it comes to digitalization, and have a lot of catching up to do on numerous other fronts in the coming years.
Whether you are a Danish banking customer, or an investor looking for opportunities in banking and finance, scroll below for a comprehensive coverage of Danish banks, and what the future holds for them.
Understanding Banking & Finance In Denmark
A brief glance through the Danish banking sector, and one thing that meets the eye is the high levels of consolidation and concentration of assets within just a few major players.
Even though there are 108 total players in the industry, just three major banks, Danske Bank, Nykredit Realkredit, and Realkredit Danmark own 50% of the total banking assets in the country. Apart from posing a systemic risk, such levels of concentration are bad for innovation and market dynamics, and this is precisely what’s caused the industry to slip behind its peers in other countries.
To make matters worse, the country’s small population, and largely unfavorable demographic trends make it less likely for foreign banking giants to enter into the country by investing billions of dollars. The only hope is the entry of new age app-based banks, the likes of the SoFi all-in-one investing app.
Less Competitive Forces
Banks in Denmark are quite conservative, and see no reason to spend money on technology and digital transformation, largely due to the lack of competition.
The country’s banking sector has grown complacent over the years, and as a result, consumers and small businesses are being forced to put up with lower levels of efficiency, as compared to its peers in the EU. This is precisely what's at stake for any country or industry that tries to do away with competition.
What the Danish banking sector needs most is a trailblazing disruptor to shake things up and force incumbents from their existing comfort zones, but as discussed above, that is less likely given the broader macro headwinds.
Lack of Consumer Awareness
Denmark has one of the most literate and aware populations in the world, who do just as well in-terms of financial literacy.
Yet, these figures mean little if consumers have no idea what to expect, and what they want. The rise of disruptive technologies over the past few decades have made it perfectly clear that most consumers have no idea what they want.
It is the job of the disruptor to launch new products and services that consumers had no idea they needed. This is precisely the problem with aging countries such as Denmark, where the median age of the population is already at 42 years and increasing.
What this means is that banks have no incentive to spend heavily on a digital transformation, given that a majority of their customers don’t require it, and may not be that accommodative to changes in technology as they age.
Banks in the country have been on the receiving end of substantial regulatory headwinds ever since the financial crisis in 2008. They’ve been slow to adapt to new regulations as well, particularly when it comes to the implementation of the Basel III agreement, and its accompanying capital requirements.
The banks have also been laggards when it comes to the new stricter anti-money laundering rules that were introduced in the wake of the Panama Papers Scandal. As a result, most Danish banks are at risk of facing stiff fines and penalties by the European Central Bank (ECB).
Such factors, while not directly holding banks back on the digital transformation front, do weigh on them heavily, often leaving them unable to strategize and move forward in-line with peers. It is expected that the banks will take a couple of more years to come out from under these issues, before they can start taking on foreign peers head-on.
What Lies Ahead?
Danish bank customers today still have to put up with long queues at bank branches for routine tasks, and a shoddy online and mobile banking experience.
That being said, the Danish banking industry has some of the best fundamentals in Europe, and quite possibly the rest of the world, so things aren’t too bad, and with the right effort, they should very well be able to pull themselves up in the years ahead.
As the cost of digital transformation continues to drop, and the efficiency gains can no longer be ignored, banks in the country will catch up with peers on this front fairly quick enough. Things are already changing for the better, and the banking sector is expected to witness monumental transformation over the course of this decade.