Haukur Skúlason was there when trust in the Icelandic banking system got badly burned during the financial crash. He stuck around to clear up the mess, but it gave him a very different perspective on what a bank should be. It should be more like Indó…
If asked to name one country where trust in banking reached rock bottom, Iceland during the 2008 global economic crash would surely top most lists.
Reykjavík was rocked by unprecedented scenes as people took to the streets in protest at a triple whammy of a collapsing currency, soaring unemployment and the country’s stock market being more or less wiped out. And who was to blame?
You’ve guessed it: the banks that had spectacularly and ruinously overreached themselves. But rather than use huge taxpayer-funded bailouts, as happened in many countries around the world, the Icelandic government went for the jugular. The country’s three major banks – Kaupthing, Glitnir and Landsbankinn – were allowed to fail as prosecutors were let off the leash to go after reckless bankers.
The result? Many senior banking executives were jailed and the country’s former prime minister Geir Haarde was also put on trial, although he was subsequently cleared of criminal negligence. Fast-forward more than a decade and two bankers who lived through those bitter days, Haukur Skúlason and Tryggvi Björn Davidsson, are launching another bank. Only this time, they’re determined to do things differently. Iceland’s first Cloud-native digital bank, Indó, has ambitions (if that’s the right word) to become ‘the world’s least powerful bank‘.
This antithetical concept means it’s strong on trust, simplicity and transparency. But, more than that, given the horlicks that banks the world over made of things before, it’s giving its depositors a veto over the investment decisions it makes.
Explaining why he and his partner Davidsson decided, in 2018, that the time was ripe to set up their own neobank bank, Skúlason says customers were then, as they are now, being failed by complacency among the incumbents.
“Basically, we’ve had the same kind of banking system for 30 years, three large incumbent, universal banks, pretty much all doing the same thing,” he argues.
“You get the same kind of services, rates and products from every one of them. They themselves grew from mergers and acquisitions within the old savings bank system, going back 50 or 60 years, and we basically had the same type of bank in 2018 that we’d had in 2010: banks that are big by Icelandic standards bogged down by IT legacy problems, probably overstaffed, and focussed on being reactive to what happens, instead of proactive in developing new things.
“So, we saw an opportunity to introduce the solutions and the technology that are emerging in Europe and the US, into Iceland, and offer better products and better services, at a much lower cost – then transferring the savings to our customers.”
As former employees of Íslandsbanki, Skúlason and Davidsson have firsthand experience of what they say is a post-crash malaise in Iceland, while the digital banking revolution started around the world.
Skúlason says: “I went through pretty much every single department within the bank. I was there in its heyday of 2006 and 2007, and then, when the party was over, I was also there to clean up. So I got to know the way banks work pretty well.
“Then, in 2014, I realised that the bank was in reactive mode. It was not really interested in developing new business; it was more interested in just defending what it had. And I thought ‘well, this change is going to come’. I’d realised it was happening in Europe and, eventually, would appear here.”
Anticipating the drive to digitisation would be led by the fintech sector, Skúlason left the bank and became chief financial officer for a fintech company in Iceland. There he had another realisation: that many fintechs were unwilling to enter the regulatory fray of banking, believing it was both too complicated and too expensive to do so.
“I realised pretty early on that, in order to really get to the heart of the matter and change things the way they really need to change, you have to have the fintech mentality, but you also have to have this willingness to embrace the regulatory environment,” he says. “At that point, something just clicked in my head and I said ‘well, why not set up a new bank?’.
“I sat down with Tryggvi, my co-founder – he had just left Íslandsbanki – and we said ‘let’s give it a couple of months. Let’s create a business plan and see if anybody will invest in it’. It’s taken a combination of undying optimism, massive stubbornness and a healthy dose of naivety!”
Two years later, though, Indó, which now has a staff of six, has secured €1million in seed funding as it progresses with its application for a banking licence from the country’s financial regulator. And things are also moving fast in the background.
In June this year, Indó announced Enfuce – Finland’s biggest fintech startup – as its partner for payments, open banking and sustainability services. Using Enfuce’s payments platform, Indó can monitor card payments and control in-app features.
The open banking solution allows Indó to build smarter money management services using a single, PSD2-compliant access point to Europe’s financial data. And Enfuce’s plug-and-play carbon footprint tracker, My Carbon Action, will show Indó users the CO2 emissions of their individual spending in categories like food and transportation, and provide actionable insights on sustainable lifestyles.
Skúlason says the choice of technology – it is using Amazon Web Services as its Cloud host – was again governed by one of Indó’s key tenets: simplicity.
“We know from bitter experience that the problems Icelandic banks face are primarily rising from their desire to build stuff themselves,” he continues. “You have dozens or even hundreds of IT systems that are, to various degrees, outdated but all interconnected, and it’s extremely expensive to keep them all running.
“We’re not going to do that. We are going to build as little as possible. We’re going to look at companies to partner with, who can provide us with specific solutions. That means that we are always looking to partner with those that are best in class and make sure the integrations work. Enfuce, for example, a terrific company from Helsinki, is our processor for our debit cards. We are using ComplyAdvantage for our sanctions screening and an Icelandic startup called Lucinity to carry out transaction monitoring for our bank accounts. We will be in charge of connecting all that to our offering, instead of trying to build it all ourselves, which, if we could do it, would cost us way more, and it would be arrogant of us to think we could do it better than people who actually specialise in it.
“From that particular IT standpoint, we’re keeping things as simple and as minimalistic as possible, and then we can focus all our magic on the creation of the app, because that is where the cool stuff happens – the customer facing services. The app is going to be a real head turner when it comes out.”
The business model for Indó will shake up the status quo in Icelandic banking. It will never directly manage user funds. Instead, it will use a ‘narrow banking’ system whereby deposits are put with the central bank, ensuring a completely safe and transparent banking service.
And, by operating as efficiently as possible, it promises to offer a current account with market-beating interest rates.
Explaining the rationale behind Indó, Skúlason says: “We want to be the least powerful bank in the world… with the most powerful customers.
“We are just going to facilitate the transfer of money, so we will be taking care of people’s savings and deposits, and we will keep them safe and deploy them so that people know where they are. And we will not try to leverage our position as a bank to gain more power, or to watch over whole markets and try to make mountains of money.
“That’s not the way things work. We want, in essence, to try to push away as much power as possible to people.”
And that philosophy will surely be music to the ears of the protesters who crowded the streets of Reykjavík back in 2008.