Ensuring trust in an age of digital banking
Sweden has a history of financial firsts. In 1661, it was the first country to introduce banknotes. And in 2023, coming full circle, it may be the first country to do away with them (and coins, too). Today, less than 1 percent of the total value of transactions in this tech-savvy Nordic country of 10 million people are in cash. And Sweden is also testing one of the first state-backed digital currencies, the e-krona.
This legacy of financial innovation, coupled with the country’s high-speed broadband network and high levels of trust in institutions, creates the ideal situation for Sweden’s banking sector as it aims to promote new technologies and services. This analysis is according to Johan Torgeby, CEO of Skandinaviska Enskilda Banken AB (SEB), who at age 44 is one of the few bank CEOs who just might pass for a millennial.
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SEB was the first business founded by A.O. Wallenberg, patriarch of one of Sweden’s most prominent families, and is still at the heart of the Wallenberg family’s multibillion-dollar investment portfolio. It is one of the largest banks in Sweden, with 4.4 million customers, 15,000 employees, and revenues in 2018 of SEK 45.9 billion, up slightly over 2017. Torgeby, an economist by training, took over as CEO in 2017 to lead SEB’s digital transformation. These plans are progressing — focusing on new advisory services, operational efficiency, and fintech cooperation — but given the region’s recent money-laundering scandals emanating from Russia and the Baltics, Torgeby’s strategic plan has also focused on strengthening business basics: proving the bank is resilient in an age of technological change. “In order to protect trust, you have to have your house in order,” he says.
Recently, strategy+business sat down with Torgeby in SEB’s Stockholm headquarters to discuss trust in institutions, the future of banking in a cashless society, fintechs, and the challenge of delivering growth in a slowing economy.
S+B: Trust is at the heart of banking, yet research shows a global decline in trust in institutions. How will people in the future know that their money and their savings are safe in banks?
TORGEBY: That’s something very topical at the moment. The real hard currency an institution like SEB has, compared to fintechs or other newly established players, is the historical trust that our clients put in us. They trust that we can keep their money safe, that we give sound advice, and that we keep their information secure and protected. That’s our core business.
TORGEBY: That’s something very topical at the moment. The real hard currency an institution like SEB has, compared to fintechs or other newly established players, is the historical trust that our clients put in us. They trust that we can keep their money safe, that we give sound advice, and that we keep their information secure and protected. That’s our core business.
At the same time, there’s another type of trust, which is more related to public opinion. Banks have been challenged since the financial crisis. This is not the same thing as “I don’t trust putting my money or my salary in the bank.” That trust is sky-high. But we are still being challenged as an industry on anti–money laundering and the future state of banking. In order to protect trust, you have to have your house in order. The way we do business needs to be open and it needs to be transparent, and you need to meet your clients’ needs in a way that shows a genuine interest in what they do. And then you get their trust. But it is a very precious thing that is also easy to lose.
We’ve seen bank runs 100 years ago, so we know what happens to a financial institution when trust goes away. Of course, here we pride ourselves on being well capitalized, and we cherish our history of more than 160 years. Trust is the most important asset we have.
S+B: Sweden has been quick to adopt technology, including going cashless and initiating the idea of launching a digital currency, the e-krona. Is this something a country should be striving for, and how will it affect a business such as yours?
TORGEBY: In a way, you don’t really dictate these things as a business leader or as a bank. It’s where the world is moving, and we are all for it. Sweden is probably the most cashless society in the world. Right now, we have just around 1 percent of Swedish GDP [circulating] in cash. I think the average in Europe is above 10 [percent], so we are 10 times ahead of the average in Europe. To put this in perspective, Japan is at around 20 [percent], which makes it one of the most cash-dependent economies of the OECD [Organisation for Economic Co-operation and Development].
TORGEBY: In a way, you don’t really dictate these things as a business leader or as a bank. It’s where the world is moving, and we are all for it. Sweden is probably the most cashless society in the world. Right now, we have just around 1 percent of Swedish GDP [circulating] in cash. I think the average in Europe is above 10 [percent], so we are 10 times ahead of the average in Europe. To put this in perspective, Japan is at around 20 [percent], which makes it one of the most cash-dependent economies of the OECD [Organisation for Economic Co-operation and Development].
In the last two years, more and more Swedish retailers have stopped accepting cash as a means of settling debts or paying for goods. There is a debate about whether it’s possible to continue with a central bank as the only institution that has a monopoly of the legal means of tender. This has nothing to do with trust for the currency; it’s about digital solutions and monopolizing the way we exchange value.
In this area, it is natural for the Swedish central bank to be quite progressive, and I take my hat off to it. It’s good to speak openly about the concept of replacing cash as we know it with an e-krona, which is still a central bank–governed digital currency. Let’s be clear, though, that this has nothing to do with cryptocurrencies [such as bitcoin].
S+B: Some big players have vacillated between supporting cryptocurrencies and being skeptical about them. Has your view changed?
TORGEBY: No. We are, as an institution, very optimistic and supportive of technologies to make digital value transfers secure, fast, and real-time. Blockchain is the leading technology right now. There might be others in the future. Essentially, this is a very interesting technology to make a digital transfer of value, in whatever shape — money, contracts, sensitive information — as it moves from A to B.
TORGEBY: No. We are, as an institution, very optimistic and supportive of technologies to make digital value transfers secure, fast, and real-time. Blockchain is the leading technology right now. There might be others in the future. Essentially, this is a very interesting technology to make a digital transfer of value, in whatever shape — money, contracts, sensitive information — as it moves from A to B.
The new private cryptocurrencies are a completely different phenomenon, although they build on the same type of technology. We’ve decided to take a very cautious approach to private cryptocurrencies, and a healthy skepticism toward where they will end up. I believe in a monetary system where you have a central bank controlling the [public] goods of a nation.
S+B: Aside from cryptocurrencies, there has been a surge of development in fintechs globally. What parts of it are you most excited about now, and where do you think this will go by the end of this year?
TORGEBY: The surge of fintechs in the whole payment space is good news for a bank like SEB. We are the smallest of the big banks in the retail space in Sweden, so for us this has an enormous benefit. By cooperating with fintechs and using new technology, we can now get on par with banks that have a larger retail presence. The other sphere where fintechs help is in the corporate world. Technology helps us compete. For example, we’ve made two investments [involving] supply chain financing. And looking further out, there’s artificial intelligence, which is not so much fintech, but it offers more capabilities that we can use for the benefit of our clients.
TORGEBY: The surge of fintechs in the whole payment space is good news for a bank like SEB. We are the smallest of the big banks in the retail space in Sweden, so for us this has an enormous benefit. By cooperating with fintechs and using new technology, we can now get on par with banks that have a larger retail presence. The other sphere where fintechs help is in the corporate world. Technology helps us compete. For example, we’ve made two investments [involving] supply chain financing. And looking further out, there’s artificial intelligence, which is not so much fintech, but it offers more capabilities that we can use for the benefit of our clients.
S+B: In PwC’s 22nd Annual Global CEO Survey, we ask about the key threats facing business. Swedish CEOs cite protectionism, climate change, and political instability as threats. Globally, CEOs in banking and capital markets name cyber-threats, overregulation, and speed of technological change as the top threats. What do you think?
TORGEBY: Broadly, I agree. For global industrial companies, protectionism, trade wars, and other geopolitical risks would be a higher risk. Indirectly those affect us too when they affect our clients. Tariffs and other trade-disruptive policies hurt the free flow of capital, labor, and global international business, but that also means that companies get challenged to redesign their supply chains. They may need to revisit a decision about what to produce and where to produce it because of changes in tariffs and taxes. And for that they may need advice and more capital to invest in new production facilities. All of this keeps us quite busy, actually. For now, the key threats for a bank are the ones identified by the global CEOs: cyber-threats, overregulation, and the speed of technological change. I agree with all three.
TORGEBY: Broadly, I agree. For global industrial companies, protectionism, trade wars, and other geopolitical risks would be a higher risk. Indirectly those affect us too when they affect our clients. Tariffs and other trade-disruptive policies hurt the free flow of capital, labor, and global international business, but that also means that companies get challenged to redesign their supply chains. They may need to revisit a decision about what to produce and where to produce it because of changes in tariffs and taxes. And for that they may need advice and more capital to invest in new production facilities. All of this keeps us quite busy, actually. For now, the key threats for a bank are the ones identified by the global CEOs: cyber-threats, overregulation, and the speed of technological change. I agree with all three.
Operational risks are also high on the agenda. For a banker, you look at credit risk, and financial risks, and trading risks, and so on. But operational risks are really the ones that are growing in importance. When we digitize our business model, the bank needs to be open and accessible 24/7. The slightest glitch in the IT department now may have significant negative consequences, and those things are probably the ones that we are more preoccupied with on a daily basis.
S+B: Are there specific actions that you as a CEO can take? Where are you investing?
TORGEBY: We’ve decided to put more capital and emphasis in three areas. One is to have operational excellence, which has a lot to do with being robust. IT systems need to be upgraded and new ones need to be introduced because we are open 24/7. It’s about cost control in this aspect, and being very efficient, with increased productivity.
TORGEBY: We’ve decided to put more capital and emphasis in three areas. One is to have operational excellence, which has a lot to do with being robust. IT systems need to be upgraded and new ones need to be introduced because we are open 24/7. It’s about cost control in this aspect, and being very efficient, with increased productivity.
The second is to understand where value is being created. For us, value is created through advisory leadership. Building on SEB’s history of being a long-term partner to customers, we focus on advisory and add value through proactive and personalized advice to our customers.
Third is an extended presence through new digital capabilities that allow us to reach more clients. We can reach a lot more new customers via technology, rather than opening up branches.
S+B: Last year we saw a record jump in pessimism among CEOs. What is your view on SEB’s growth prospects?
TORGEBY: The assessment of growth for a bank like SEB is very similar to the global growth assessment: Growth is declining but we have a cautious, yet optimistic, view. Growth has gone from a super cycle to a moderately strong cycle; you need to differentiate between a slowdown in growth, outright recession, and absolute crises. What we’re talking about here is moderate growth, but still growth.
TORGEBY: The assessment of growth for a bank like SEB is very similar to the global growth assessment: Growth is declining but we have a cautious, yet optimistic, view. Growth has gone from a super cycle to a moderately strong cycle; you need to differentiate between a slowdown in growth, outright recession, and absolute crises. What we’re talking about here is moderate growth, but still growth.
S+B: Climate change and sustainability are other top threats mentioned, particularly by Nordic CEOs. What role do you see SEB playing in this debate?
TORGEBY: We divide sustainability into two parts. First, the bank needs to be sustainable. That includes following a code of conduct: integrating sustainability risk in processes and strengthening policies and enabling transparent reporting, as well as conducting the work that prevents the bank from being used for different types of financial crime. This is our license to operate.
TORGEBY: We divide sustainability into two parts. First, the bank needs to be sustainable. That includes following a code of conduct: integrating sustainability risk in processes and strengthening policies and enabling transparent reporting, as well as conducting the work that prevents the bank from being used for different types of financial crime. This is our license to operate.
Second, we develop financial services with positive climate impact as a response to our customers’ needs. We have a very proud 10-year history of offering green bonds. Last year we launched green mortgages. In January, we launched our first blue bond [for investing in marine conservation projects], and we also offer green car leasing. We are trying to cater to customer demand. We understand that people care about what they do with their money. We have a very ambitious plan to introduce more financial solutions that capture what every single individual cares about. Today there is a good array of different products and services with positive climate impact, but it is still too little to meet the growing demand. This is ongoing work.
S+B: Compared to maybe only five or 10 years ago, are there new types of data that help you better understand the customer need?
TORGEBY: The financial-services industry has always been data intense. What has increased exponentially has been the data that goes through the system: how you store it and collect it, and how you analyze and categorize it so you can use it.
TORGEBY: The financial-services industry has always been data intense. What has increased exponentially has been the data that goes through the system: how you store it and collect it, and how you analyze and categorize it so you can use it.
That’s where the revolution is. One of our big strategic initiatives in our current business plan is to become an even more data-driven company. That means transformation. All the hardware, all the software, our mind-set, and our way of working need to change in order to use the data in the best possible way. In order to do this, we also engage in new partnerships.
We’re not trying to solve everything ourselves. We work with tech companies, software companies, and fintech companies to create an ecosystem where we are part of a larger environment.
S+B: Where does artificial intelligence fit into your plans?
TORGEBY: I don’t think it will revolutionize anything overnight, or even next year. It’s one of those things where you tend to overestimate the impact in the short run and underestimate it in the long run. We are trying not to do that.
TORGEBY: I don’t think it will revolutionize anything overnight, or even next year. It’s one of those things where you tend to overestimate the impact in the short run and underestimate it in the long run. We are trying not to do that.
For example, we use robotics to give customers personalized advice automatically. It would not be possible to do that for our 4 million clients individually. Then we have the advanced analytics for our wholesale business. AI will increase transparency in the sense that we will get smarter results and better data, and in the end, this will help us make wiser, smarter decisions. However, the nature of big data analytics is that it is very difficult to explain the results. And then, there are the unintended negative consequences that can happen, such as potentially discrimination. For example, simply relying on data to decide whether someone should get a loan or not. You need to understand that the data is completely agnostic. It doesn’t care. When you start becoming too data dependent, you may get consequences out of those decisions that you didn’t want, and that present a moral and ethical dilemma.
S+B: Are there specific actions that you are taking to address this?
TORGEBY: Yes, to allow human common sense to be part of the equation, and to never take it out.
TORGEBY: Yes, to allow human common sense to be part of the equation, and to never take it out.
Author Profiles:
- Peter Nyllinge is territory senior partner and CEO of PwC Sweden. He is based in Stockholm.
- Henrik Olsson is a banking strategy and blockchain lead based in Stockholm. He is a director with PwC Sweden.
