A new bank is about to start operations in Iceland and intends to compete directly with the country’s large banks for customers. It will be run entirely in electronic form, will not maintain a single branch but believes it will change the Icelandic banking market in the future.
The bank is called Indo and will be the first so-called challenger bank in Iceland. It is a new word for financial technology banks that focus on e-commerce, perhaps preferably through smart applications.
“The bank will be simple and convenient, which we think is a key factor,” says Haukur Skulason, one of the bank’s founders. With him in the project is Tryggvi Bjorn Davidsson and they both have a lot of experience from the banking sector; worked for a long time at Íslandsbanki and Tryggvi Bjorn also at banks in the UK.
“We saw an opportunity in the market here for such a challenging bank that has been popping up abroad with good results,” says Haukur. The project has been in the pipeline for over two years and is now all taking shape – the goal is to start operations for a pilot group in the second half of the year and hopefully open the business to anyone who wants to next year.
Haukur says that about 180 million has been raised for the project in these two years. Of these, the vast majority have gone to all kinds of licensing and other basic issues. The project is backed by various investors, including Kevin Laws, one of the founders and CEO of the largest American angel investor association, Angel Art.
David and Goliath
There is rarely much news of competition in the banking market. The banking sector is rather stable and exclusive; There are three large banks in Iceland, Islandsbanki, Landsbankinn, and Arion Bank, which were established after the collapse of a much older bank. To this is added one smaller but much more specialized investment bank, Kvika, which is also established on the basis of various older financial institutions.
And with the flowering, Indo will be added in the near future. It must be classified as a smaller bank like Kvika, but unlike it, Indo will not specialize in investments or asset management but will be in direct competition with the big banks for card accounts, payroll accounts, and savings accounts for the public.
It is, however, a steep climb for Indo, because according to research, Icelanders, for example, are three times more likely to divorce their spouse than to change banks. Icelanders seem exceptionally conservative when it comes to this, but in comparison, Swedes are four times more likely to change banks than Icelanders.
Despite this, Haukur is very optimistic: “Various surveys have been conducted recently and there are all indications that consumers are very positive and open to new entrants to the banking market.”
He believes that Indo then has various advantages over the big banks in both internal operations and customer service.
In recent years, there has been a very clear development among the large banks in the direction of transferring their operations to electronic form. The number of branches, cashiers, and other employees of the banks is declining rapidly, and apps and online banks are taking over their role. However, this seems to be a development that the banks are taking in a few steps and is even only halfway there.
Indo takes this all the way through and will be entirely electronic. It is the weapon that the small bank thinks it can compete with the giants (along with a few others though).
Always know what to do with your money
It is obvious that the cost of the operation will be many times lower when it is not necessary to run a branch and pay a large number of employees to serve customers.
“We have had five employees with us as well as some consultants. This is a very strong team that has been involved in developing this model with us, “says Haukur.
The electronic form of operation is also convenient for customers; it becomes more efficient and accessible with a convenient in-app interface.
Haukur mentions another option that Indo will have over the other commercial banks: “You know what we do with your money.”
He explains this in more detail; Indo will not dispose of the funds that its customers deposit into the Bank’s accounts through investments, transactions or loans to other customers, but will keep all the money with the Central Bank of Iceland.
“We feel that people have a right to know what is being done with the money they deposit into their account. With us, it will be possible to keep a close eye on where the money goes and what is done with it. It will also be fully state-guaranteed, regardless of the amount, which is different from the other banks, “says Haukur.
Indo also intends to offer better interest rates and more favorable service fees than the other banks.
Twelve to fourteen hundred have registered in India
Indo will start operations at the end of the summer or the beginning of the autumn for a limited trial group. Haukur says that people have registered on a list with the bank and will be allowed in several halls to test drive the business model.
About twelve to fourteen hundred people have signed up for that group and Haukur hopes that the bank will have received them all this winter and will hopefully open to the public as soon as next year.
This could mean that the landscape in the Icelandic banking system will change significantly because Indo could of course push the big banks if it goes well.
Major changes ahead in the banking system
Vísir spoke with Eva Bjork Gudmundsdottir, chairman of the Association of Financial Technology Companies in Iceland, last year about financial technology banks. She discussed the development of the banking market abroad, where financial technology companies were making a strong presence with digital banks.
There she said, among other things:
“We are already seeing across Europe financial technology companies or challenging banks such as Monzo and Revolut are making inroads and tech giants like Apple and Google are fast approaching the banking sector that will completely change the landscape. If the banks do not move with the changes, staff will even eventually turn to those who intend to become a leading force in the financial sector of the future. It is therefore as important for the bank as it is for the people who work in this sector to meet technological change with a positive and open mind. ”
It can only be seen that this development has begun in Iceland with the digital bank Indo.