Radical Innovations in the Norwegian Banking Industry

Radical Innovations in the Norwegian Banking Industry A historical study through 50 years Martha Gjessing Bakken Astri Agnalt Østmo Industrial Economics and Technology Management Submission date: June 2014 Supervisor: Arild Aspelund, IØT Co-supervisor: Rikke Platou, IØT Norwegian University of Science and Technology Department of Industrial Economics and Technology Management

NTNU Radical innovations in the Norwegian Banking Industry A historical study through 50 years Martha Gjessing Bakken Astri Agnalt Østmo

PREFACE This Master thesis was written during the spring semester 2014 and forms the final work of the five year Master program at Norwegian University of Science and Technology. The master thesis is a part of the program at Industrial Economics and Technology Management within the specialization Strategy and International Business Development. This master thesis studies the effect of radical technological innovations on an industry and builds upon our prediploma thesis written in 2013. The work has been both challenging and rewarding. It has given us the possibility to gain indepth insight into the theoretical perspectives Radical change theory and Population ecology of organizations theory. We have also accumulated knowledge about an industry that we knew little about before the research began. We would like to thank our academic supervisor Arild Aspelund at the Institute of Industrial Economics and Technology Management for his support and feedback in relation to our master thesis. We are also highly grateful for the guidance from PhD student Rikke Stoud Platou. Her open-office policy has been valuable to us. We would also like to thank our three interviewees; Hans Ildstad, Bjørn-Tore Brønlund and Geir Wist, for their expertise and knowledge which gave us an extensive contribution to our empirical findings. Trondheim, June 2014 Astri Agnalt Østmo Martha Gjessing Bakken i

SUMMARY In this thesis we look at radical changes and its effects in the banking sector in Norway. The objective is to study the outcome of radical technological change in a regulated-, compared to a non-regulated, industry which has been the topic of earlier research. The study embraces lies within the technological development from the 1960s up to the present date. The chosen research method in this paper is a combination of a historical study and a case study. An extensive literature search has been done to reveal relevant articles for our theory section. Our empirical findings stem from in-depth interviews with key persons within the banking industry, combined with investigations of documents, archival records and input from Betalingsformidlingskonferansen 2014. This has given us access to information about the technological development, the industry dynamics and the consequences of radical technological changes in the Norwegian banking industry. We have applied two theoretical perspectives; Radical change theory and Population ecology of organizations theory. Radical change theory states that radical change leads to a period of upheaval where incumbents often succumb to new entrants. Population ecology of organizations theory describes the dynamics in an industry and how the environmental factors dictate which firms that survives. These perspectives have been used to illuminate connections between the empirical findings and the theory. This study reveals three interesting contradictions to the well-established theory of Radical change and Population ecology of organizations. First, the effect of radical technological change on the industry density is highly modest compared to previous theoretical studies. This is a cause of elevated entry barriers due to governmental intervention and tight bonds between actors in the industry. Second, incumbent banks are highly capable of conducting radical innovation as well as incremental. This is explained by the clear incentives for the incumbents to adopt the change, namely to improve the service offering to the existing customers and to rationalize their operation. In addition, incumbent banks generally have more organizational slack which gives them more flexibility in conducting explorative research. They also achieve the opportunity to free themselves from the powerful system solution suppliers by conducting technology development in-house. Finally, the degree of innovation is compromised because of limited competition, short eras of ferment, and high pressures for standardization. The pressures are due to an informal agreement between the actors, resource constraints and governmental interaction. Extended to regulated industries in general, these findings suggest that incumbent firms should adopt a more risk prone innovation strategy because they are in a safer position due to its importance for society. Firms without sufficient resources to conduct explorative research should adopt the new technology when the dominant design is evident to reduce risk and cost levels. ii

SAMMENDRAG Denne masteroppgaven fokuserer på effekten radikale teknologiske innovasjoner har på dynamikken i den norske bankbransjen. Målet er å studere utfallet av disse forandringene i en regulert bransje, sammenlignet med tidligere studier av ikke-regulerte bransjer. Vi har studert den teknologiske utviklingen fra 1960 tallet og frem til nåtiden. Forskningsmetoden brukt i denne oppgaven er en kombinasjon av en historisk studie og en casestudie. Vi har foretatt et omfangsrikt litteratursøk for å finne relevante artikler til teorikapittelet. De empiriske funnene stammer fra dybdeintervjuer med nøkkelpersoner innen bankindustrien, kombinert med studier av dokumenter, arkivdokumenter og innspill fra Betalingsformidlingskonferansen 2014. Disse kildene har gitt oss tilgang på informasjon om den teknologiske utviklingen, bransjedynamikken og konsekvensene av radikale teknologiske forandringer i den norske bankindustrien. Vi har anvendt to teoretiske perspektiver i denne oppgaven; radikal forandringsteori og teori om populasjonsøkologi for organisasjoner. Radikal forandringsteori sier at radikal teknologisk forandring fører til en periode med kreativ destruksjon der markedsledere ofte går under som et resultat av inntrengere i markedet. Teorien om populasjonsøkologi for organisasjoner beskriver dynamikken i en industri og hvordan miljømessige faktorer dikterer hvilke firmaer som overlever. Disse to perspektivene blir brukt til å finne sammenhenger mellom empiriske funn og teori. Studien avdekker tre interessante motsetninger til den veletablerte teorien om radikal forandring og populasjonsøkologi for organisasjoner. Den første motsetningen er at radikal teknologisk forandring har en beskjeden effekt på dynamikken i bankbransjen. Dette er et resultat av hevede barrierer for å entre industrien på grunn av statlig inngrep i markedskreftene og tette bånd mellom aktører i bransjen. Den andre motsetningen er at markedsledende banker mestrer radikal innovasjon på i tillegg til inkrementell innovasjon. Dette kan forklares med de klare insentivene markedsledende banker har til å gjennomføre de radikale forandringene, nemlig å forbedre tjenestene til sine eksisterende kunder og å rasjonalisere driften. I tillegg har markedsledende banker generelt en større ressursbuffer som gir dem mer frihet til å utforske nye teknologier samt muligheten til å gjøre seg uavhengig av mektige systemleverandører ved å etablere en intern utviklingsenhet. Den tredje og siste motsetningen er at innovasjonsgraden er svekket på grunn av begrenset konkurranse, korte perioder med utvikling av alternative teknologiløsninger og sterkt standardiseringspress på grunn av uformell forståelse aktørene i mellom, ressursbegrensninger og statlige inngrep. Dersom man trekker sammenligninger til andre regulerte industrier, vil disse funnene insinuere at markedsledere burde tillegge seg en risikovillig innovasjonsstrategi fordi de er i en tryggere posisjon grunnet deres betydning for samfunnet. For å redusere risiko og kostnader burde banker uten tilstrekkelig ressurser til forskning og utvikling være mer risikoaverse og implementere den radikale teknologien først når standarden er satt. iii

TABLE OF CONTENTS Preface... i Summary...ii Sammendrag... iii List of abbreviations... vi 1 Introduction... 1 2 Theory... 2 2.1 Population ecology of organizations theory... 2 2.2 Radical change theory... 5 2.3 The two perspectives compared... 8 3 Method... 10 3.1 Plan & design... 10 3.2 Literature search... 13 3.3 Data collection... 14 3.4 Analysis... 17 3.5 Evaluation... 17 4 Empirical research... 20 4.1 Technological history... 20 4.2 Industry dynamics... 28 4.3 A presentation of the four innovations... 37 4.4 Summary... 46 5 Preliminary discussion... 47 Are the changes radical?... 47 6 Discussion... 49 6.1 Industry density... 49 6.2 Industry composition... 52 6.3 Degree of innovation... 59 6.4 Summary of findings... 64 7 Implications... 65 7.1 Insights extended to other industries... 65 7.2 Managerial implications... 65 7.3 Implications for policy makers... 67 iv

7.4 Implications for theory... 67 8 Conclusion... 68 9 Limitations and further research... 69 10 References... 70 11 Appendix... 74 Appendix 1: Complete overview of commercial banks... 74 Appendix 2: overview of system solution suppliers... 78 Appendix 3: Transcript of interviews... 79 v

LIST OF ABBREVIATIONS Abbreviation ATM BBS BSK CBK DNB DnC EDP EFTPOS FNO ICT ID IDA KID LO MICR NAF NBO NCR NCSA NTNU OCR PEOT RCT SMB SMS SWIFT UCLA WAP Full form Automated Teller Machine Bankenes Betalingssentral Bankenes Standardiseringskontor Christiania Bank og Kreditkasse Den Norske Bank Den norske Creditbank Electronic Data Processing Electronic Funds Transfer at Point of Sale Finans Norge Information and Communications Technology Identification Integrert Databehandling AS Kunde-ID Landsorganisasjonen i Norge Magnetic Ink Character Recognition Norsk Arbeidsgiverforening Norges Banks Oppgjørssystem National Cash Register National Centre for Supercomputing Applications Norsk Teknisk-Naturvitenskapelige Universitet Optical Character Recognition Population Ecology of Organizations Theory Radical Change Theory Small & Medium Banks Short Message Service Society for Worldwide Interbank Financial Telecommunications University of California, Los Angeles Wireless Application Protocol vi

1 INTRODUCTION This study concerns how industries are affected to various degrees by new technologies. As technology infiltrates all aspects of society, no sector is exempt from the effects of the technological changes. These technological changes will hit the relevant sectors periodically (Simons, 2009). When they do, it holds huge consequences for the existing firms in the banking sector. Firms that are not able to transform and adopt the new technology will succumb due to industry alterations. Population ecology of organizations theory is a perspective extensively applied to explain the dynamics on industry level. Another perspective, Radical change theory, has thoroughly documented the failure of incumbents in a various range of industries (Abernathy and Utterback, 1978, Christensen, 1997, Cooper and Schendel, 1976, Foster, 1988, Henderson and Clark, 1990, Christensen and Rosenbloom, 1993). As regulations interfere with the market powers in an industry, we have reason to believe that these might affect the outcome of the radical technological change. In order to shed light on this topic, we will use Population ecology of organizations theory and Radical change theory to analyze the effect of radical technological change in a regulated industry. This may hold strategic implications for companies in industries operating under similar conditions in other industries. For this purpose we have chosen the Norwegian banking industry as our subject of research. This is an industry with a long history, giving the possibility to look at changes over the past decades. There are plenty of actors in the industry which gives us the opportunity to investigate the industry dynamics. The industry is regulated by the government, and has been so for the decades we are researching. It has also been through an extensive technological development over the last fifty years. Since this development has brought radical innovations through several decades, we have the chance to extract knowledge from several radical innovations in the same industry at different decades and under different conditions. The emphasis in this paper has therefore been to collect the most relevant information from written sources and supplement it with expertise gotten from interviews with employees in the banking sector. By assembling this information about the conditions in the Norwegian banking industry and the effects of radical technological innovations on the market and the different actors, we lay the foundation for extracting knowledge about strategic decisions in the banking industry and other regulated industries in the future. Following, our research question is twofold, the first part concerns learning in the Norwegian banking industry in particular, while part two concerns the generalizability of the findings. 1. How does radical technological change affect the industry dynamics in the Norwegian banking sector? 2. What insights might be extended to other regulated industries? To help us shed light on this dual research question, a combination of a historical study and case study is used. NTNU 1 Introduction 1

2 THEORY In the following chapter we will present theory that describes the development of industries. We have chosen two streams of research that serve our purpose. The first is Population ecology of organizations theory (PEOT) which views organizations as unable to adapt to changes and environmental factors as decisive of variation within a population. The second stream of research, Radical change theory (RCT), is based on Kuhn s (1962) theory on paradigm shifts and Schumpeter s (1942) theory on creative destruction. Subsequent research has attempted to explain how technological progress affects industries and why some organizations survive technological shifts while others do not. We conclude the chapter with a comparison of the two streams of theory. 2.1 POPULATION ECOLOGY OF ORGANIZATIONS THEORY Population ecology relative to organization s theory became well established through Hannan and Freeman s work in 1977 and 1989. A major conclusion in their work was that a similar phenomenon to Darwin's natural selection occurs when organizations compete in an environment. Analysis of organizational founding and mortality, firm growth, and change constitute the foundation of PEOT (Hannan and Freeman, 1977). Hannan and Freeman (1977) stated that adaption and isomorphism are not enough to explain the dynamics of organizations in an environment. In contrast to adaption theories, PEOT considers organizations as unable to adapt to change. Therefore environmental factors are decisive of which organizations that survives. The organization survives or disperses depending on the environment s ability to select certain types of organizations and disregard others (Garcilazo, 2011). Because of the limited ability to adapt, change on industry level comes from new entrants in the industry or the dispersion of existing organizations (Hannan and Freeman, 1977). The following sections are divided into the central aspects of PEOT; variation, selection and retention. VARIATION The central question in PEOT is Why are there so many different types of organizations? (p.956, Hannan and Freeman, 1977). According to PEOT, organizations will transform slower than the environment, which imply that the variability in industries is mainly a result of creation of new organizations and organizational forms and the replacement of old ones (Hannan and Freeman, 1988). As the environment changes with time, the organizations match with the environment will be altered as well. Niche theory provides an explanation of how organizations may choose between two structures that will give them various starting points under different circumstances. According to Hannan and Freeman (1977), an organization can either be generalist or specialist. Specialist organizations exploit one single configuration within their current environment, while accepting the risk of a change in that environment. Generalist organizations, on the other hand, are more risk averse at the price of a lower profit. Instead of specializing in one narrow environmental niche, they will occupy a broader niche to 2

increase the chance of keeping some of its territory when the environment changes (Hannan and Freeman, 1977). Figure 1 shows the fitness graph of two different organizations. Organization A occupies a broad niche in the environment, while organization B has a narrow environmental span, but a concentrated fitness. FIGURE 1 FITNESS FUNCTIONS FOR SPECIALISTS AND GENERALISTS. VERTICAL AXIS REPRESENTS FITNESS. (HANNAN AND FREEMAN, 1977) Variations in the environment are often characterized as fine-grained or coarse-grained. Finegrained refers to the variations of short durations relative to the lifetime of the organization, such as demand for products and services. Course-grained refers to the variations of long duration relative to the lifetime, such as changes in regulations. This definition states that the environmental conditions decide if the organization should develop specialized isomorphic structural relations with one possible environmental state or generalized structural features (Hannan and Freeman, 1977). Theory suggests that specialism is always the best option in stable environments. However, generalist structures are not always optimal in uncertain environments. During fine-grained variations, organizations that attempt to adjust to every change will spend most of its time on changing instead of acting and will therefore be disfavored. SELECTION To each variety of environmental conditions, one organizational form will be optimally matched to the demands of the environment. Competition theory explains how the environment chooses the optimal combination of organizations. When the organization s and the environment's rationalities do not coincide, or when two organizations stay in the same niche, the weakest organizations from the environment's perspective are selected out. The deposed competitor needs to either vary its territory or its functionality to survive, which increase the diversity (Hannan and Freeman, 1977). 3

The selection process is a result of structural inertia. Inertia can come from both internal and external factors. Examples of internal factors are investment in plant and equipment, sunk cost or reduced information received by the managers. External factors can be legal or financial barriers, or external constraints on information (Hannan and Freeman, 1977). PEOT states that organizations have difficulties with change because of structural inertia, not because of a lack of reaction, but because they react slower than the environment (Hannan and Freeman, 1977). Therefore, structural inertia prevents organizations from undergoing radical strategic changes when faced with threats from the environment (Hannan and Freeman, 1977). The higher the inertial pressure, the less flexibility and the more likely the environment will discard the organizations. In addition to this, the process of change itself is so disruptive for organizations that the mortality rate increases (Hannan and Freeman, 1977). However, structural inertia does not have the same impact on all types of organizations. Larger companies often have a greater chance of altering the environment conditions because they have access to resources and expertise that smaller organizations do not (Daft, 2000). This may give them more freedom to choose which products and customer segments to focus on, thus which environment they participate in (Daft, 2000). Another way to modify the environment can be to gain control critical resources which reduces the dependencies on other organizations (Pfeffer and Salancik, 2003). In addition to the match between the organization and the environment, there are some phenomena often observed regarding selection of organizations. Regulations and the age and size of the organizations all affect the founding and the mortality rates. Regulations will add or remove constraints to the accepted scope of opportunities in the environment. This will select out the organizations that no longer meet the criteria of the environment or potentially open a new opportunity for organizations that now are within the borders of the environment. This will affect the diversity of organizations in the industry (Hannan and Freeman, 1977). Most often, regulations will pose tighter restrictions on the industry and select out the smaller organizations (Hannan and Freeman, 1977). The age of the organization also affects its risk of mortality. According to PEOT there are three liabilities that are related to age. The increased risk of mortality among newly founded firms is called liability of newness. New firms have a lower rate of reproducibility than older firms. When first founded, they have to co-operate, develop trust, and a working relationship with other parties, which takes time. Routines and processes also have to be developed from scratch and tested, instead of continuing existing ones. Newer firms also struggle with reliability and accountability because of their employees lack of dedication to gain organization-specific experience. According to Hannan and Freeman (1977), employees often delay investing in the development of organizational skills not easily transferred to others, until a firm has survived the initial period of testing. This valuable experience increases with the firm s age, which in turn increases the reliability and accountability and reduces the risk of mortality (Hannan and Freeman, 1977). In addition to liability of newness, we can find liability of adolescence which regards the increase in the mortality rate once a firm has survived its founding stage, after the resources and support from external sources have depleted. Liability of aging includes the risk an organization faces when it gets older for example due to an increasing mismatch with its environment. Older firms may have accumulated accountability 4

and reliability, but this again leads to higher levels of inertia and lower ability to adapt to changes in the environment (Hannan and Freeman, 1977). Finally, the size of the organization has implications for the organization s chances of failure. Common liabilities of smallness include resource restrictions, problems to recruit, train and retain the workforce, paying higher interest rates and handling costs of regulatory compliance (Aldrich and Auster, 1986). RETENTION When the weakest organizations are selected out, the organizations that have some beneficial features favored by the environment are retained. Retention is a term that in the PEOT literature regards the reproducibility of advantageous traits of organizations that have adopted a successful variation (Baum and Amburgey, 2000). Beneficial variations will be tried imitated by other organizations in the industry. However, how obvious these advantageous traits are, vary extensively. If environmental trends are clearly identifiable or when the variations clearly can be separated from other factors, it is easier to adopt the right successful variation across the industry. However, sometimes there might be ambiguity about the causes, or trends may be hard to identify due to uncertainties regarding customers, suppliers or competition (Baum and Amburgey, 2000). Regardless of the clearness of the variation, it will be retained because successful organizations that continue to exist will bear this characteristic (Baum and Amburgey, 2000). 2.2 RADICAL CHANGE THEORY RCT is roughly twofold. One part of the theory discusses the patterns of development in industries. The second part is of more practical and strategic nature and concerns the advantages and disadvantages of different types of organizations when faced with a radical technological change. Following, we will present a description of how technological paradigm shifts alter industry dynamics according to Kuhn and Schumpeter, and how the competition, as a result of a radical technological change, develops in technology cycles. Thereafter we will elaborate on the most prominent distinctions deciding what organizations which prosper when faced with a radical technological change. Finally we will present some well-established definitions of radical innovation. PARADIGM SHIFTS, CREATIVE DESTRUCTION AND TECHNOLOGY CYCLES Kuhn s (1962) highly influential article Structure of Scientific Revolutions explores the accumulation of knowledge and is closely connected to the phenomenon of radical change. He redesigned the foundation earlier scientists based their work on by stating that science does not advance linearly, but undergoes periodic revolutions, also called paradigm shifts. The older paradigm is replaced in whole or in part by an incompatible new one which means that one must choose between these two (Kuhn, 1962). Kuhn s contribution to the literature made it clear that technological innovation does not just happen incrementally, or by a linear accumulation of new knowledge, but revolutionary via paradigm shifts. 5

Schumpeter (1942) proposed a theory that concerned the industry dynamics surrounding the linear development of science and the periodic revolutions. He introduced two terms that described the alternating industry dynamics, namely creative accumulation and creative destruction. Creative accumulation is a technological regime that is characterized by high cumulativeness and low level of opportunities, which leads to more stable environments (Schumpeter, 1942). This period can be viewed as linear accumulation in Kuhn's model. Large and established firms carry out the bulk of innovation incrementally, which leads to an industry structure with high entry barriers and oligopolistic competition. Creative destruction, on the other hand, is characterized by low cumulativeness and high level of opportunities. This leads to an environment with lower barriers of industry entry and exit, as well as a major role played by entrepreneurs and fierce competition. The entry by innovative entrepreneurs is the driving force of the disruption (Schumpeter, 1942) and will introduce a paradigm shift. This disruption will be the initiation of yet another technology cycle. A technology cycle is a term that describes the evolution of the competitive forces when a new product or service is proposed to the market. Due to lower barriers of market entry when a disruption faces the industry, there are many new products or services that would compete to be the dominant design and need to gain acceptance in the industry. This is often called era of ferment. This follows with the era of ferment being ended when the dominant design is set. If the radical technological innovation builds on existing competences, the era of ferment is short (Tushman and Anderson, 1990). In the era of ferment, competition is mainly centered on product specifications when the dominant design is clear, and the focus shifts to process innovation, cutting costs and adding features, but in line with the standard that is established. This process continues until a new substitution event occurs and the cycle repeat itself (Tushman and Anderson, 1990). The technology cycles are shown in figure 2. FIGURE 2 RATE OF PRODUCT AND PROCESS INNOVATION DURING TECHNOLOGICAL CYCLES (P.16, TUSHMAN AND O'REILLY, 1996) 6

THE ATTACKER S ADVANTAGE Different skill sets are demanded to survive during a period of incremental change, than what are needed to adjust to a whole different environment after a radical change (Tushman and Anderson, 1990). Often, organizations that have been successful during a period of creative accumulation are likely to fail under the new environmental conditions because of the same reason they prospered earlier. The routines, procedures and human drive that made the organization able to maintain leadership under the previous conditions will be transformed into chaos and resistance to change. This lack of flexibility is normally referred to as inertia. Inertia is often divided into structural and cultural inertia. Structural inertia is described as a resistance to change and is a result of the size and complexity of the organization, in addition to the complexity of the organization s structures, procedures and processes (Tushman and Anderson, 1990). The structural inertia often increases as the company grows. Cultural inertia is not directly coupled to size, but rather to age and success. A strong culture will increase the organization's ability to pull in the same direction, by ensuring e.g. a common language, values, understanding of how things are done in the organization and a sense of belonging. However, when this strong culture is institutionalized over time, and strengthened by success, the cultural inertia increases and due to increased contentment and arrogance towards threats in the environment, becomes a danger to the organization's existence (Tushman and O'Reilly, 1996). In addition, the cognition of managers has been found to contribute significantly to determining where to search for new technological opportunities and what technologies to pursue. If these factors are not coherent with the current strategy, it may be a major source of inertia (Tripsas et al., 2000). Strong ties to stakeholders may also obstruct necessary responses to be able to implement the change (Sull, 1997). Due to these causes, the fierce competition in a period of creative destruction tend to favor smaller more agile organizations, rather than large market leading firms (Abernathy and Utterback, 1978, Christensen, 1997, Cooper and Schendel, 1976, Foster, 1988, Henderson and Clark, 1990, Christensen and Rosenbloom, 1993). This phenomenon is sometimes referred to as the standard model (Hill and Rothaermel, 2003). We will continue to refer to this phenomenon as the standard model in this paper. The factors deciding if the incumbent or the attacker is to prosper when faced with a radical technological change, are summarized by three factors printed by Christensen and Rosenbloom (1993). 1. The characteristics or magnitude of the technological change relative to the capabilities of the incumbent and entrant firms 2. The managerial processes and organizational dynamics through which entrant- and incumbent firms respond to such changes (p.234, Christensen and Rosenbloom, 1993). 3. The degree to which the innovation will be valued within the networks already served by the innovator, or whether the performance attributes implicit in the innovation will be valued within networks already served by the innovator, or whether other networks must be addressed or new ones created in order to realize value for the innovation (p.242, Christensen and Rosenbloom, 1993). 7

DEFINING RADICAL TECHNOLOGICAL CHANGE Radical technological change has been defined by several authors over the years using somewhat different terms. Henderson and Clark (1990) define radical technical innovation as an innovation based on a different set of engineering and scientific principles than before, which opens up for new markets. Utterback (1996) goes further by saying that radical change swipes away the firm's existing knowledge, technical skills and equipment. He states that a radical innovation renders one or more existing technologies obsolete. Another definition, coined by Leifner, McDermott et al. (2000), states that radical innovation is such a dramatic change of product or processes that it transforms existing markets or opens up for new ones. Tushman and Anderson (1986) take both the rendering of old competence obsolete and the opening of new markets into consideration when introducing the two terms, competencedestroying and competence-enhancing discontinuities. Competence-destroying discontinuities either create a new product class or substitute existing technologies. These require new skills and competences and will alter the industry structure as predicted by Schumpeter and the standard model. Competence-enhancing discontinuities excessively improve the price/performance ratio, by utilizing existing knowledge. This type of innovations will only reinforce the existing market structure (Tushman and Anderson, 1986). 2.3 THE TWO PERSPECTIVES COMPARED The two perspectives can both be used to analyze the dynamics on population level. The following is a comparison of similarities and differences between the two streams of theory. As RCT explicitly describes the development of the environment by using paradigm shifts and creative destruction, PEOT claims that the environment is decisive of which organizations that survive. However, by applying PEOT models to several industries, it has been found that populations of organizations develop through a certain pattern consistent with Kuhn's and Schumpeter's findings. The organizations develop incrementally and enhance their core competences during a period of gradual adaption to the environment, until it is punctuated by a discontinuity (Tushman and Anderson, 1990). SELECTION VS. ADAPTION INERTIA A similarity between the two perspectives is that both streams of theory view inertia as an interfering factor of organizational survival. Both theories dictate that structural inertia prevents organizations from undergoing radical changes. The higher the structural inertia, the more likely the environment will discard the firm. However, according to PEOT, natural selection favors reliable and resourceful firms. In addition, larger, resourceful firms are able to alter the environment conditions because of organizational slack. 8

STRATEGIES FOR DYNAMIC MARKETS According to PEOT, firms can choose to either be a generalist or a specialist, deciding their environmental span and concentration of fitness (Hannan and Freeman, 1977). Within RCT, Christensen and Rosenbloom (1993) list the capabilities of the firm relative to the radical change as decisive of the adoption to radical changes in the environment for firms. This means that both perspectives imply that organizations have the choice to specialize on one capability or safeguard themselves by develop a wide range of capabilities. INDIVIDUAL INFLUENCE The main difference between the two perspectives is their view on individual influence on the fate of organizations. While both perspectives recognize inertia as a threat, PEOT leaves little room for managers to compensate for this by making good decisions. Bounded rationality prevents individuals from understanding the full picture, thus they are not able to conceive and implement the changes that improve organizational success (Baum and Amburgey, 2000). In a world of high uncertainty, adaptive efforts turn out to be essentially random with the respect to future value (p.150, Hannan and Freeman, 1984). This means that individual efforts do matter, but that bounded rationality makes the attempts futile. In addition to constraints on information and conception, politics and other organizational forces or events external to the organization, may also work against implementation of measures (Garcilazo, 2011). Following, change in the industry is seen as a result of the dynamic selection of organizations in the environment. RCT on the other hand, is aimed at understanding the industry dynamics so that organizations may be able to conceive and implement changes. This implies that managers are expected to be able to contribute to the direction of the organizations, and be able to mitigate inertial forces, when faced with radical changes, if sufficient insight into the industry is gained. In addition RCT proposes that the organization may develop dynamic capabilities that make them more likely to succeed in changing in line with Christensen and Rosenbloom s (1993) second point. RETENTION Another connection between the two perspectives is the process of setting a dominant design. The dominant design is according to RCT the design which ultimately stands as the preferred alternative, selected by environmental factors like customers and market fit. This process can be viewed as a selection process which is also referred to in PEOT. The selection process in PEOT secures that the optimal variation is retained. However, in RCT there is no assurance that the dominant design is the alternative that is optimally matched to the demands of the environment. 9

3 METHOD The following section will present our research method. A research method is a tool used to examine empirical evidence by following a set of predetermined procedures (Yin, 2009). A suitable research method is essential for gathering, analyzing and presenting the empirical data. The structural layout for this chapter is as follows. Plan & design Literature search Data collection Analysis Evaluation A further presentation of our research question will be presented in the sub-chapter Plan and design. This is followed by a description of our literature search for relevant theory. The next part is a presentation of the means of data collection for the empirical data followed by a description of how we have conducted the analysis of the data collected. Finally, we present an evaluation and personal reflections concerning the research method. 3.1 PLAN & DESIGN "A research design is the logic that links the data to be collected (and the conclusions to be drawn) to the initial questions of study." (p.26, Yin, 2009)In his works, Yin (2009) states that a thorough research design secures a logical approach to answer the stated research question through systematic gathering of qualitative and quantitative data. This first section in the method chapter will present the purpose of this thesis paper, followed by our choice of research method, choice of our case and the scope of our research. PURPOSE The purpose of this thesis paper is twofold. First, we wish to provide an overview over the Norwegian banking industry's history with regard to radical change. As stated in the theory, a radical technological change will necessarily change the conditions the organizations operate under and the competitive advantages may shift. This phenomenon has been carefully investigated through numerous empirical studies. However, we wish to study the consequences of these exogenous shocks in the Norwegian banking industry to check if the same pattern emerges here. Valuable insight into important patterns found in this sector may be applied in future decision processes. Second, we find the fact that the Norwegian banking industry has been under some kind of state control for longer periods especially intriguing. This opens up to achieving insight into the dynamics of a regulated industry when faced with a radical technological change. This understanding might also be applied to other regulated industries. This purpose is condensed to two specific research questions: 10

1. How does radical technological change affect the industry dynamics in the Norwegian banking sector? 2. What insights might be extended to other regulated industries?" This dual research question fathoms our purpose with this paper and provides boundaries for our case study. A suitable research method needs to embrace the complexity of this problem statement which will be discussed in the next section. CHOICE OF RESEARCH METHOD The main part of the study concerning the first part of the research question is of explanatory character due to the causal relationship between the occurrence of a radical technological change and the effect on the industry dynamics (Yin, 2009). The second part is of a more open character and is therefore exploratory in nature. Exploratory research questions may be answered by conducting different research methods, while explanatory research questions ought to be answered by conducting either a case study or a historical study (Yin, 2009). Our research question concerns a complex phenomenon influenced by many different factors within its real-world context. In addition, the boundaries between the phenomena and the context is somewhat blurred. These traits are just as descriptive for case studies as for historical studies. However, while case studies concern contemporary phenomena (Yin, 2009); our master thesis concerns the Norwegian banking sector's development through fifty years. Still, some of the events concerned in our study are of quite recent character and we have therefore utilized interviews to get a more complete picture of the dynamics in the industry and the more recent innovations. This is normally not possible when conducting historical studies. Therefore our research method would be best described as an overlap between case study and history. CHOICE OF CASE When choosing a suiting case to study, one should consider two different steps, defining the case and bounding the case (Yin, 2009). In this section we will define our case and justify our choice, while the next section concerns the bounding of the case. Our unit of analysis is the Norwegian banking industry. It was chosen due to two selection criteria important to fulfil our purpose. The first is that the case industry should be able to provide answers to our research question and the second is that it must ensure valid conclusions. First, our research question concerns radical technological change on industry level. In addition, it was essential to investigate the implications of regulations on radical technological change. As the industry is characterized by a long history of technological change and regulations, it fulfilled our primary selection criteria. By having a long history of technological change, we mean that there has been a significant technological development in the banking industry as seen in the empirical evidence over the last fifty years. Through both incremental and radical technological innovations, the banking industry is fundamentally altered over this time-span. By having a long history of regulations, we mean that in being essential to society, the state have been active in controlling the Norwegian banking sector 11

aiming at ensuring stability and security for the people. Examples of interaction with the market powers are increased entry barriers and the rescue of the larger banks when they struggled under the bank crisis in the early 1990s. According to the Norwegian Financial Department, financial stability can only be safeguarded by supervision and regulation of each financial institution as well as the financial system as a whole, in addition to intervention when important financial services are endangered (Finansdepartementet, 2011). Further, the industry possesses some traits that simplify the analysis and improve the validity of the conclusions. The fact that the technological developments are scattered over the period, makes it possible to analyze several radical technological innovations in the same industry. If consistent patterns are revealed following all the radical innovations, the generalizability of the findings then will be improved. The fact that there is a large number of actors makes it easier to identify trends in the industry dynamics and will also improve the reliability of the conclusions. This fulfils the second criteria of good validity. Within our case, we have chosen to focus particularly on four different technological innovations which have had a large impact on the banking sector. These are the transformations to electronic data processing (EDP) systems, bank cards, internet banking and mobile banking. We see these innovations as radical. These four innovations are also quite evenly spread out through the time period we are looking at, which makes the research more interesting due to differences in the context. Before we made a final decision, we got several of the interviewees to approve of these as radical innovations. We will define these four as radical technological innovations from a theoretic point of view early in the discussion. BOUNDARIES AND SCOPE In this section we will bound our case and define the scope of our data collection before we provide our definition of the term radical technological change. Bounding the case means to clarify the boundaries between the case and its context and other boundaries needed such as the time frame of study. We chose to bound our case to the actors in the Norwegian banking industry and the establishment and liquidations of these. Our context embraces all environmental changes that affect this density and composition of the actors. Our main focus regarding the context will be on radical technological change. However, we have included the technological development and other environmental changes to be able to separate the effects of these on the industry density and composition, from those of radical technological change. The case is bounded in time to cover the period from 1960 until today. The difference between the private and commercial market is taken into consideration, and as a general rule separated. However, in order to capture the big picture of the industry trends, this separation is not always strict. Bounding the case aids in defining the scope of data collection (Yin, 2009). Our scope of data collection contains the case and the context. The data collected within this scope will aid us in studying the phenomenon of radical technological change in a regulated industry. According to Yin, Each case study and unit of analysis either should be similar to those previously studied by others or should innovate in clear operationally defined ways (p.34, Yin, 2009). Our case study, investigates a unit of analysis similar to those previously studied (e.g., Tripsas et al., 12

2000, Christensen, 1997). To provide an extra dimension which contributes to valuable insight to this topic, we investigate an industry constrained by regulations. This enables us to compare our results with previous research and thereby discover any potential deviations from the already established theories. OUR DEFINITION OF RADICAL CHANGE To perform a valid comparison, the definitions used must not be idiosyncratic (Yin, 2009). Therefore we have used a definition of radical change which is in line with definitions in earlier research. In our thesis an innovation is considered radical if it fulfils three requirements. First, it should be based on materials, technology or methods new to the organization, or a new combination of old elements. These components are derived from a completely new knowledgebase or a blend of new and old knowledge streams (Freeman and Soete, 1997). The latter is consistent with Henderson and Clark's (1990) idea of architectural change. The two remaining requirements concern the impact of the innovation. If old knowledge and competence is rendered obsolete in line with Tushman and Anderson (1986) competence-destroying discontinuities, it is considered radical. Further, the stream of RCT is based on Kuhn's notion of incompatibility between the new and the old technology. Therefore we require the innovation to replace a large proportion of the old products, services or processes within a set timeframe, to be considered radical in this thesis paper. 3.2 LITERATURE SEARCH To find the relevant literature used in our theory chapter, we conducted a literature search. RCT and PEOT are utilized to create a foundation for analyzing our empirical findings. The literature search was executed in the SCOPUS Elsevier database through the NTNU online library and the Google search database. SCOPUS was chosen due to its multi-industrial coverage, and because the articles already have gone through a screening process. For the SCOPUS database we used a keyword search. This keyword search functioned as a first screening to reveal the most relevant articles to our research question. Singular and plural forms of the keywords were used. In order to make our search more relevant, we limited our search to articles with the applicable keywords in the title or abstract. Since the two theoretical perspectives are well established, we sorted the articles by most cited to further optimize our search. Following is a list of the constraints we used: Constraints RCT PEOT Keyword Radical OR disruptive OR revolutionary OR technical OR technological Population ecology of organizations AND keyword Innovation Radical OR disruptive AND keyword Change OR innovation Change OR innovation Cited by Sort by most cited Sort by most cited In addition to the literature search in the SCOPUS database, we also used the Google search engine. This database was used for berry-picking articles. This means that the articles were 13

found by using a less systematic approach when we needed to elaborate the SCOPUS search. The main search method using the google search engine was snowballing which means pursuing references of already acquired articles references. The berry-picking search gave us the possibility to find articles that complimented the result we got from the stricter search in the SCOPUS database. Research question Scopus Elsevier (key words) Google (berry-picking) First selection step: Keywords Second selection step: Relevance Result: Theoretical background FIGURE 3 OUR LITERETURE SEARCH-PROCESS After an extensive search in the two databases, we sorted out the relevant articles. As seen in figure 3, our selection process consisted of two steps. The first step was to sort by keywords and citations. By sorting by citations, we ensured that the search revealed the most recognized authors in the field of study. The second step was to sort by relevance which was judged subjectively. By reading through the articles abstract, we gained a picture of the content. If the subject were not within the boundaries of how radical technological change affects actors in an industry or how PEOT views changes in an industry, the article was rejected. After the selection process the resulting articles were used to build the theoretical background for our study. 3.3 DATA COLLECTION According to Yin (2009) there are six different sources of evidence when working with a case study; documents, archival records, interviews, direct observation, participant-observation and physical artifacts. By using triangulation from multiple sources of evidence, we will be left with more precise and accurate conclusions if several sources of information converge (Yin, 2009). Working with our thesis, we have used several different types of data; documents, archival records, interviews and conference. The accumulated information from these sources is the empirical contribution to our research. 14

DOCUMENTATION Documentation is central in almost all case studies and should be the object of explicit data collection plans (Yin, 2009). According to our data collection plan, well-establish sources like governmental sites, academic work and sites of industry-specific information like FNO and BSK, were sought out first. This was later supplemented with other documentation like newspaper articles. To support our theoretical findings, various types of documents were used for instance news clippings, personal documents, scientific publications, news articles and lecture materials. The documentation was found through an extensive search on the internet by using standard search engines like Google and the national library s search engine. Some documents were also obtained from one of the interviewees. ARCHIVAL RECORDS Archival records can add quantitative data to the case study. According to Yin, a researcher must be careful, once archival data has been found, to ascertain its accuracy (Yin, 2009). Through our data collection, we have been careful to use sources created by serious bodies. In addition we have cross-checked numbers against other sources when possible. The archival records we used to gather information from this case study were annual reports and statistics. Our most important sources of annual reports about payment methods were found on NBO's web page (Norges-Bank, 2014) and included amongst others when different services were introduced in the Norwegian industry. In addition to annual reports, a lot of our quantitative data comes from Finance Norway web pages and Statistics Norway (Finans-Norge, 2014, Statistisk-sentralbyrå, 2014). INTERVIEWS According to Yin (2009), interviews are one of the most important sources of information when working with a case study. Because our thesis paper is so extensive in time, the interviews have functioned mainly to understand the big picture. Interview: The mode of data collection involving verbal information from a case study participant; the interview is usually conversational in nature and guided by the researcher's mental agenda, as the interview questions do not follow the exact same verbalization with every participant interviewed." (p.239, Yin, 2009) Interviews are advantageous because they provide insightful information and explanations and personal views in addition to expertise on the case study topics. Also, they can shed light on connections between the case and observed factors (Yin, 2009). These three interviews were in-depth and gave us valuable insights from different perspectives. Since we were two people doing the interviewing, we found it most natural to conduct semi-structured interviews. Some key questions were used as a guide to ensure that we kept to the overall theme, but allowed the interview to stray away from topic. Since this structure led to open discussions, we tape recorded the conversations. Following is an overview of our interviewees: 15

Interview subjects Evry AS Name Job title Date & location Initiation of contact Helgeland Sparebank Name Job title Date & location Initiation of contact Danske Bank Name Job title Date & location Initiation of contact Hans Ildstad Managing Director, Channels 30.01.14, Evry AS offices, Trondheim We introduced ourselves to Hans Ildstad after reading an online article he wrote for Computerworld (Ildstad, 2013). Since the topic of his article was highly relevant to our thesis, we contacted him by email and arranged an interview at Evry AS's offices in Trondheim. Bjørn-Tore Brønlund Chief of Business Marketing 11.03.14, NTNU, Trondheim Bjørn-Tore Brønlund was introduced to us through Arild Aspelund, our supervisor. He was by chance at NTNU the same day we contacted him by email and agreed to an interview on campus. Geir Wist Head of Business, Banking Business Development Norway 14.03.14, Danske Bank offices, Trondheim Geir Wist was also introduced to us through Arild Aspelund. After initiating contact though email, Wist agreed to an interview at Danske Bank's offices in Trondheim. Hans Ildstad works in the largest system solution suppliers and has been working in the industry since 1974. His expertise on the technical solutions behind the offered services and the interaction between the Norwegian banks and the system solution suppliers made him a great asset and an valuable interview object. Bjørn-Tore Brønlund works as Chief of Business Marketing in one of the small-medium saving banks (SMB). His insight into how the SMBs are affected by the industry dynamics gave us much needed input to our empirical data collection. Geir Wist is the Norwegian Head of Business Banking in a larger, international bank and his contribution regarding the interaction between customers and banks and the dynamics of customer demands made him a natural interviewee. The interviews were recorded for two main reasons; so that we could focus on the interview subject and not forget any crucial details. Permission was given orally from each interview subject before recording. In addition to obtaining permission to record the interview, we also asked for permission to use quotes from the interview in our thesis. This was given by all interview subjects. 16

CONFERENCE Hans Ildstad, one of our interview subjects, was supposed to speak about the history of Norwegian banking sector at a conference in March. Since he knew we were interested in the topic, he invited us to a whole day at Betalingsformidling 2014 (DND, 2014a) at Clarion Hotel & Congress Trondheim. The annual conference is organized by Den Norske Dataforening and is one of the largest gatherings for the banking and financial sector in Norway (DND, 2014b). During that day we got the chance to listen to three presentations; "Disruptive changes in the past and next 20 years for banking and payments" by Brett King, "Mastering a new reality - an outlook for 2014 and beyond" by Stephane Garelli and "The history of Norwegian banking industry" by Hans Ildstad. These presentations in addition to conversations with other conference participants provided valuable insight into how participants in the Norwegian financial industry view the technological development and future challenges in the industry. These presentations were recorded for the same reasons mentioned in the previous subsection. 3.4 ANALYSIS Data analysis consists of examining, categorizing and recombining the empirical findings, and is one of the least developed aspects of conducting a case study (Yin, 2009). We systemized the data to be able to analyze it and extract meaningful conclusions. The interviews where first recorded and later on transcribed. The transcription of the interviews was sorted categorically where the topics that were relevant to our research question were highlighted. After finishing all the interviews, the contents were compared and put into a system in order to cross-examine them and get an overview of the different topics. Our collected empirical data were sorted chronologically by decades. This information was later divided into technological background and conditions affecting the industry. When we found contradictions in two documents, the matter was further researched until we found other reliable sources that supported one of the views. Dubois & Gadde (2002) describes a research approach called systematic combining. In this approach they combine empirical studies with models and theory. Going back and forth between theory and empirical observations broadens the researcher's understanding of the theoretical and empirical phenomena. A systematic combination like this is beneficial for the development of new theories (Dubois and Gadde, 2002). We used two theoretical perspectives to obtain a systematic combination between theory and our empirical findings. RCT and PEOT have worked as a foundation and have been used throughout all stages of the research. Our empirical findings have been weighed against the expected outcome in the theory and vice versa. 3.5 EVALUATION When a suiting research design has been set, the quality of the design must also be ensured. According to Yin (2009), four tests can be used to measure the quality of empirical data; construct validity, internal validity, external validity and reliability. These tests can be dealt with using several tactics. The following section starts by describing the four tests and how we 17

have chosen to deal with them to ensure that our empirical data is up to par. This is followed by a subjective evaluation of the limitations of this study and what could have be done differently. VALIDITY Construct validity prevents subjective opinions by ensuring development of a sufficient set of measures that are used to collect the data needed for the study. Tactics to ensure construct validity are to use multiple sources of evidence, establish a chain of evidence and have key informants review draft and study report (Yin, 2009). In our research, documentation, archive records and interviews have been used to ensure different sources of evidence. The interviews were also recorded and transcribed in order to not lose any key points and maintain the chain of evidence. A threat to internal validity can be to fail to see or to misread a causal relationship. To ensure internal validity, pattern matching, explanation building, time series analysis or logical models can be made (Yin, 2009). In order to increase the internal validity we interviewed people within their field of expertise and conducted a broad study to not exclude influencing factors. We also connected empirical findings with established theoretical outcomes to achieve pattern matching. When working with a research design, external validity is important to define the boarders in which a research s findings can be generalized (Yin, 2009). External validity should therefore be increased by using rival theories within single cases or by using replication logic in multiplecase studies (Yin, 2009). We have chosen to use two rival organizational theories, namely RCT and PEOT. Both perspectives are applied to illuminate different aspects of our case study and compared. Reliability ensures that the same conclusions can be obtained if a later researcher follows the procedures described in a study. Ways to increase reliability can be to use a case study protocol and develop a case study database (Yin, 2009). We used a case study protocol throughout the process of writing our thesis. The case study protocol contains procedures for contacting key informants, preliminary outline for the case study report and a line of questions which is to be addressed through the data collection. LIMITATIONS & PERSONAL REFLECTIONS Our choice of research design lacked clearly articulated propositions. Propositions would have given our research clearer directions and assisted in linking the empirical findings and theory. In this study, we chose not to have any propositions, but believe that this can aid possible further research. Conducting our literature search, an improvement that could have been done is to conduct the restricted search in more academic databases than just SCOPUS. A search in e.g. ISI Web of Science could have revealed articles not shown in the SCOPUS search results. The main part of the selection process of the literature was done based on subjective judgment. A 18

limitation is that we didn t manage to pick out the optimal sub-set of articles. With limited information, it is also easy to jump to conclusions. During the data collection, our data collection plan was not specific enough. A subject of improvement is to create a better system to collect, preserve and get an overview of the vast amount of the data from the beginning. In that way, contradicting sources of evidence can be handled in a more systematic way. A limitation to our study was the access to relevant data. It was difficult to find the data we needed because there seemed to be no complete overview of the Norwegian banking industry as a whole, especially concerning saving banks. Works like a historic overview of a specific bank, ordered for their anniversary, normally do not regard the banking industry in general. Information from the earlier years was especially hard to find. This means that the gathered information may be somewhat limited. However, we have accomplished an extensive foundation of data and find it sufficient to make conclusions. A limitation regarding construct validity is the fact that we did not get key informants to review our drafts. In this case we did not find it necessary because we recorded all the interviews. Still, it would have been an increase in construct validity. The interviews are at risk of being interpreted subjectively by the interviewer (Yin, 2009), and even though we recorded the interviews, the conversations may be affected by the interactions between us and the interviewee. A measure that can be done to increase the quality of information gotten from interviews is to interviewing the same people more than once. That would give us the chance to get a deeper understanding of the topic after we have processed the information gotten from the first interview. In addition to this, we could have interviewed more people from both smaller and larger banks to increase the internal validity in our study. However, the difficulty lied in that very few people had the necessary expertise from the early decades that we needed. 19

4 EMPIRICAL RESEARCH The empirical research section is divided into three parts. The first is a detailed chronological history of the technological development in the banking industry. The second is a presentation of the different actors in the industry and how these have been affected by technology, regulations and industry trends. The third part is a more extensive elaboration about the four innovations we have chosen to focus on. Technological history Industry dynamics Presentation of the 4 innovations For convenience, the following figure is a rough overview of the events that we find have had large impact on the industry from 1960 until today. 1964: EDP systems 1984: Deregulation 1996: Internet banking 1970: Bank cards 1991: Banking crisis 2001: Mobile banking FIGUR 3 TIMELINE OF THE MOST IMPORTANT EVENTS 4.1 TECHNOLOGICAL HISTORY The following sub-section is an overview of the technological development in the Norwegian banking industry over the past fifty years. The focus lies on the innovations in technology and new services provided by the different actors in each decade. 1960 Before 1960, the banking industry was no pioneer in utilizing new office technology. The 1960s however, was characterized by technological change (Spilker, 2004). One of the catalysts was the increased amount of work caused by escalating use of checks and the introduction of new services such as bank giros and salary accounts (Spilker, 2004). In 1960, every bank in Norway introduced salary accounts as an optional service. The Banks were therefore forced to take a more sales oriented approach than before to get companies 20

to use their services. Employers were encouraged to deposit employees checks into personal salary accounts. They could cut costs by transferring the salary directly into a salary account instead of withdrawing cash in the bank and sorting them into different envelopes to the different employees (Brøvig, 2007). The introduction of salary accounts also opened up for checks as a mean of payment for private customers, as opposed to only larger companies (Haare and Solheim, 2011). The number of checks used increased drastically and led to an increase in manual work for the bank employees (Brøvig, 2007). Around 1963, National Cash Register (NCR) cashier machines were introduced to the banking industry to relieve the cashiers from some of the manual work. The numbers were written on a keyboard and the NCR machine produced the numbers on vouchers, bank books and paper rolls. A further development of these bookkeeping machines was the Posttronic punch card machine that could read a magnetic strip on the backside of the account cards. The Posttronic machine could also produce punched tapes for interest accounting which were sent from the banks to the NCR in Oslo. Complete interest notes were sent back from Oslo to the banks (Brøvig, 2007). Later on in the sixties, the process of producing the punched tapes were done electronically due to the huge amount of work doing it manually resulted in. Punch card systems was the leading technology prior to EDP systems, but the amounts of checks just continued to rise and the capacity of the punch card systems became a bottleneck and the storage rooms used to stock the punch cards grew in an unsustainable pace (Sejersted and Bergh, 1982). The increased administration costs did not match their earnings from it (Ildstad, 2014). Because of their extremely high amount of transactions, it was intuitive for the banks, when a technology arrived that could go through large amount of data, to take this into use» (Ildstad, 2014). A solution to this was to adopt an EDP system. The machines used for this purpose in the early 1960s represented a huge investment, which forced the banks to make alliances, materialized by jointly owned data processing companies. This made a foundation for future cooperation between the Norwegian banks (Spilker, 2004). System solution suppliers Today s system solution suppliers have their origin in the data processing companies established to accommodate the transformation to EDP machines. Through several mergers and changes of names, all the data processing companies have become one large system solution supplier, namely Evry (Former known as Ergo Group AS). In recent years, some smaller system solution suppliers have appeared, like Systec and Bekk (Remman, 2014). A full overview of the development of the system solution suppliers from the 1960s until today can be found in the appendix 2. A high degree of integration and standardization was necessary to make the EDP system investments cost efficient. For instance, a conversion to automatically readable font on checks and a common structure for account systems across banks were implemented. Check processing had a huge efficiency improvement potential. This process was reduced from twelve operations with manual processing to five operations with the new EDP systems (Haare and Solheim, 2011). In addition to this, the banks introduced a new system with bank account numbers in the format xxxx.xx.xxxxx, where the first two numbers represented the 21

bank, the following two represented the account type, and the last numbers where the account number and a control number (Brøvig, 2007). EDP EDP is an abbreviation for Electronic Data Processing, now called information and communications technology (ICT). EDP machines performed repetitive actions to process a large amount of data and enabled banks to complete online transactions in real time. A system that was introduced to the banks in the middle of the sixties was the IBM System 360. This computer system was also used to process data for the first moon landing. The technology behind this system pioneered the 8 bit technology which is still used in today s computers. EDP was for instance used to process checks by processing automatically readable fonts. A magnetic ink character recognition (MICR) was used to process the different checks. This later changed to optical character recognition (OCR) (IBM, 2014c). FIGURE 4 AN EDP SYSTEM (IBM, 2014C). Because of the EDP systems, the account cards were replaced with computer lists which relieved the bank employees of a huge amount of sorting work. Reconciliation which usually would last for days could now be done within hours (Brøvig, 2007). The development of EDP systems in the sixties laid the foundation for further technological solutions necessary because of increasing costs and transactions in the seventies (Haare and Solheim, 2011). 1970 Even though the first interactive internet bank services were established in 1996, the first utilization of electronic online systems to increase the efficiency in banking was established in 1971 as a collaborative between Nordlandsbanken and IBM (Brøvig, 2007). This system enabled information exchange between the different offices. The development was done in two stages. Initially, employees could get instant access to customer details and accounts. At a later stage, these systems would also be used for direct updating of deposits 22

and withdrawals (Brøvig, 2007). These were changes that had little influence on the customers other than shorter turnaround in some cases. This online system was the first of its kind in Norway, the second at the time in Europe and was established only two years after the first online connection between American universities were set up. Most of the banks followed in the subsequent years (Spilker, 2004). Bankens Betalingssentral (BBS) was established in 1972 and already from the very beginning; the organization comprised all banks in Norway. This coordinated effort has contributed strongly to one of the most efficient banking systems in the world today (Hanisch, 1982). The objective of the organization was to organize and centralize the handling of bank giro, in addition to centralize the system for credit cards, identification (ID) cards and cash machines (Brøvig, 2007). The previous system was characterized by time consuming manual work consisting of sorting and organizing the same transactions several times. A new giro which used an optically readable font was introduced. Organizations using EDP could utilize the new bank giro where BBS analyzed and sorted the information on each giro (Brøvig, 2007). Thanks to BBS, a customer could soon walk into the nearest bank regardless of what bank he or she was a customer of, to cash checks or pay bills. This service was in place in Norway long before the rest of Europe, while in the US it is still not possible (Spilker, 2004). This revolution also paved the way for the close cooperation between actors in the banking industry. Because of the elevated use of checks, the customers needed an ID card with their information. This was initiated by BBS (Brøvig, 2007). The banks and card companies like Visa, Eurocard, Diners and American express operated with plastic cards. The cards themselves did not have any electronic information and the cards were used mainly as an ID. However, in the 1970 s the cards got a magnetic strip which held information about the customer and the account he predisposed (Ildstad, 1988). The development of in this technology sped up when the banks later on started to issue cards that could be used in the first generation of ATMs (Ildstad, 1988). The savings banks where the first to introduce the new card services to their customers. In the beginning, the major usage of the bank cards was to withdraw cash from ATMs, but the developers envisioned other services like payment in shops already then. Samvirkebanken, which had a close relationship with the grocery business, became the first bank to install a network of card terminals in Norway in 1984 (Spilker, 2004). Debit and credit cards The two most popular card types in Norway are debit cards and credit cards. With debit cards, the money is directly deducted from the bank account, while the use of credit cards results in a bill later on. The Norwegian banks issue cards to their customers in collaboration with the different payment companies. The payment companies provide the card systems and technology. The most common payment companies in Norway are BankAxept, Visa, Mastercard, Diners and American Express. These different debit and credit cards can be issued in most Norwegian banks, while American Express is only issued by DNB (Watz, 2014). In 1973, an international payment system based on computer technology called SWIFT was introduced to the marked. Using this system, the banks could transfer money and messages between the different banks in a secure way (Brøvig, 2007). 23

1980 Invoice payment processes went through several changes during the 1980s in order to streamline the process. One attempt was to install boxes where customers could post their giro outside of the bank s opening hours. The payment process however, had to be done in person. Therefore, another attempt was to move on to mail giro. This meant that the customer could now pay their bills through the mail. Because of extensive marketing campaigns, this process was more successful (Spilker, 2004). Regarding card technology, the bank industry in Norway had before 1980 not accomplished to align the standards for the underlying technology for the different services. Disagreements between the savings banks, the commercial banks, and Norges Postsparebank became a hindrance for standardization (Ildstad, 2014). One of the major technological developments in the 1980s was the ATM. The early eighties were characterized by the coordination of the magnetic strip on debit cards, the customers identification code between the commercial and savings banks (Brøvig, 2007). This, in addition to the decrease in use of checks by between five to ten percent, led to an increase of the use of cash by customers. This was not in neither the customers nor the banks interest. The banks sought to maximize the amount of money they managed, while the customers wanted interest on their wealth (Ildstad, 1988). The 1980s were characterized by negotiations between the banks about which technology to use for payment terminals, the exact fee for each service and how the card terminals should look like. Despite the prolonged discussions, the number of payment terminals in shops and debit cards increased these years (Ildstad, 1988). In the middle of the 1980s, the cards with the magnetic strip were well integrated. Still a pilot project in Lillestrøm was started in 1984, testing a new technology. The aim was to do a test installation of a smart card, in other words a plastic card with an integrated computer chip. The chip could identify the customer using the card and save the different transactions made with the card. The pilot project was a success, and the commercial banks decided to invest in this technology. However, they did not manage to convince the savings banks, which kept the cards with the magnetic strip. The two different technical solutions led to a strained relationship between the savings banks and the commercial banks during the eighties (Norges-Bank, 1988). This resulted in two different cards, where the commercial banks issued smart cards, while the savings banks issued cards with a magnetic strip. The terminals were equipped with solutions for both payment methods, both the magnetic strip and chip, which meant that the customers could choose which method to use (Ildstad, 1988). 1990 The transition from the 1980s to the 1990s in Norway was characterized by an enormous decrease in number of checks deposited while at the same time the number of ATM and card transactions more than doubled (Brøvig, 2007). Bankenes Standardiseringskontor (BSK) was established in 1994, to encourage standardization for technological systems to improve the compatibility between the banks. The need for greater availability to bank services asserted itself and in the beginning of 1990, DNB launched its project called Direktebanken. This was a 24

telephone service where employees served customers over the phone until 8pm and was marketed for customers with a busy schedule. After three years, Direktebanken was closed due to a low number of customers and high operational costs (Spilker, 2004). The first internet connection was up and running at UCLA in 1989 under the name of ARPANET (Leiner, 2012). Still it would take some time until it became the internet as we know it today. In 1995 the last research project on the subject was dismissed and with it, the last restrictions on the use of the internet to carry commercial traffic. After that the internet has been commissioned by various commercial Internet Service Providers and the internet revolution was a fact (Roessner and Bozeman, 2009). With the development of a more user friendly web browser in the nineties, different actors in the industry realized the potential internet could have on the banking industry. Among others, Fellesdata started a project with some of Norway's largest banks, where the goal was to develop an internet bank. As Hans Ildstad said: I remember how I discovered internet. I went to a further educating course at NTNU in 1995. [..] There we used a browser called Mosaik, the first browser that were launched. It was Mosaic that really made internet popular because it was extremely user friendly compared to the earlier technology. (Ildstad, 2014) 25

Internet banking campaign When Sparebanken Hedmark launched Norway's first interactive internet bank for the private market in 1996, it was the first time this technology was utilized to provide this kind of services in the private market in Norway. Over the next years, the internet was mostly used for entertainment and the banks used strong measures and major marketing campaigns to convince the crowds about the benefits of this new service. One of Sparebanken NOR's campaigns spread the message "Internet can be a letdown, except when using the internet bank". However the method in use was rather special. Sparebanken NOR bought advertising space in several large websites, where they put only a link saying "blonde-babes.com" or "hot-lovers.com". If you clicked on this link, you were taken to the next page where you had to verify that you were over the age of eighteen and a Norwegian citizen to be able to proceed. When you verified this, a picture of two ladybugs mating or three golden retriever puppies looking at you, together with the message above and a link to Sparebanken NOR (Spilker, 2004). FIGURE 5 FROM SPAREBANKEN NOR'S MARKETING CAMPAIGN (SPILKER, 2004) Sparebanken Hedmark was the first Norwegian bank to let customers utilize the internet to pay bills in 1996. This service was launched two weeks before schedule to beat the competitor Landsbanken to the finish line (Spilker, 2004). This was actually a competition between the system solution suppliers Novit AS and Fellesdata. Novit AS had the commercial banks situated in the middle of Norway in addition to some insurance banks, Landsbanken and Kreditkassen as customers, while Fellesdata represented the majority of the saving banks (Spilker, 2004). 26

In the beginning, four transactions were made available to the customers through the internet bank; payment, stock trading, fund trading and securities services (Brøvig, 2007). Later on, almost all services available at the bank s branches, were made available through the internet bank as well (DnB, 2014b, Nordea, 2014). 2000 ~ During the 2000s the number of payment cards in Norway increased uniformly and in 2006 there were more than 9 million issued cards (Brøvig, 2007). The use of internet banking also increased drastically. In 2002, five of Norway s largest bank started the process of integrating and testing a technical pilot for BankID in their services. BankID works as an electronic signature which can be used to sign personal documents or as a secure log-in method on the internet. BankID was launched in 2003. The technology behind the service was developed in cooperation with Finansnæringens Hovedorganisasjon and Sparebankforeningen (Norges- Bank, 2003). In the later years, Sparebank1 introduced bank cards for children between the age of 8 and 13 (Sparebank1, 2014). Mobile banking The following is a list of the main services possible through mobile banking: - Transfer money between accounts - Payment of bills - Overview of bills maturity - Approval and editing of online invoice - Purchase of stocks - Ordering and termination of bank cards - Creation of budget and overview of consumption (Danske-Bank, 2014, Nordea, 2014) A result of internet banking was the electronic invoice (e-invoice). A trial project was launched in 2000 by Fellesdata, Telenor and Postbanken were customers got their phone bill as an attachment with their email. This let the customer pay their bills online without punching in the KID and account number. E-invoice was implemented in Norway for real in 2003. DNB tried in 2001 to implement their own system, but after a couple of years they realized that the battle was lost and switched to BBS standardized solution (Spilker, 2004). Another service resulted from internet banking was Avtalegiro. With Avtalegiro the invoice was paid automatically within the due date, without the customer having to write the KID number (Brøvig, 2007, DNB, 2014a). The wish for more availability of banking services resulted in different attempts to create a mobile bank. As early as in 1999, it was possible to purchase products using a WAP cellphone. WAP (Wireless Application Protocol) let the cellphones access the internet, and the payment was either drawn directly from the user's debit card or from the prepaid cellphone card. Available services included also checking the balance or transferring money between accounts (Norges-Bank, 1988). Most of the banks in Norway could offer banking services on the cellphone in 2000. With SMS, one could easily transfer money from one account to another, check the balance or transfer money to predetermined acquaintances and by 2010, 27

most of the banks in Norway could offer SMS bank services to their customers (Norges-Bank, 2010). Certain banks also offered their customers to transfer money from credit cards to another bank account or confirm received online invoices (Norges-Bank, 1988). However, the number of WAP users in Norway was as low as 6000 in 2001 according to a survey done by Sparebankforeningen, and the service was not a hit (Spilker, 2004). Another attempt to improve banking services through mobile phones was the contactless method of payment that was developed already in 2001 by Telenor Mobil and DNB. The project was called SmartPay and enabled customers to purchase products from the SmartPay suppliers through their cellphone. The payment could be through a prepaid mobile wallet which could be charged with maximum 1000kr. Visa and Mastercard also developed technology for payment through cellphones. A microchip could be inserted into the cellphone and would communicate with the terminal in the shop when the chip was close enough (Norges-Bank, 1988). The technology regarding cell phones went through a rapid development, and the Smartphones where introduced to the market, in 2007 (Kerris and Dowling, 2007). With the introduction of applications, new services became available to customers. Iphone users could download an application from DNB in the middle of 2000s which gave access to banking services (Rossen, 2009). In 2009, BankID was developed for cell phones (Norges-Bank, 2010). This meant that customers could use their phones to sign into their bank account for internet banking, in addition to banking services through their cell phones. Mobile banking gave customers access to their online bank account through a cellphone with internet access. In the later years, SpareBank1 launched a mobile bank app especially made for children (SpareBank1, 2013). 4.2 INDUSTRY DYNAMICS The banking industry underwent some large changes from 1960 to 2000 (Knutsen, 2007). Several factors have affected the amount and composition of banks in Norway. Among the most important are the deregulation of the banks, the development of new information and communications technology (ICT), the emergence of a significant private customer market, the increased cooperation between financial institutions and globalization (Knutsen, 2007). In this section, we will present the changes in the industry composition through the last five decades and some of the major reasons for the development. 28

INDUSTRY ACTORS Figure 6 shows the number of saving banks and commercial banks from 1960 until 2013. 700 600 500 400 300 200 100 0 Number of banks Saving banks Commercial banks Total FIGURE 6 NUMBER OF BANKS (FINANSNORGE, 2011) Norwegian banking sector has undergone a significant concentration process the last fifty years and from the above graph, we can see that the number of saving banks decreased by 76 percent from 1960 until 1990, while the reduction was only 12 percent from 1990 until 2012 (Finans-Norge, 2014). The number of commercial banks decreased by 66 percent from 1960 to 1990, though the concentration process started already in the early 1950s (Knutsen, 2007). The concentration was a result of fifty mergers from 1960 to 1980 (FinansNorge, 2011). These mergers were to a large degree between larger banks and smaller local banks and were often initiated by the smaller banks (Sejersted and Bergh, 1982). Savings banks vs. commercial banks The difference between savings banks and commercial banks is mainly the type of ownership structure. Before 1977, regulations were different for savings banks and commercial banks, but after a deregulation in 1977, savings banks could execute the same services as commercial banks. The different types of ownership are as follows: Savings banks: No external owners. The upper control authority is the Board of Trustees (Meinich, 2014). Commercial banks: Organized as a limited company. Commercial banks are subjects to the government, Finanstilsynet. (Meinich and Munthe, 2014) The picture below shows an overview of all the commercial banks in Norway. Since the whole spreadsheet was too large to present in less than 12 pages, a reduced version is included here in this paper. The time is presented horizontally and shows the years from 1960 to 2012. 29

FIGURE 7 OVERVIEW OF MERGERS OF COMMERCIAL BANKS (FINANS-NORGE, 2014) Each color represents one bank. As shown, three banks have gone through a significant amount of mergers (where two colors merge). The blue color represents the Nordea group. The purple color represents the DNB group, while the green is Danske Bank. As seen at the bottom of figure 7, after the deregulation 1984 many new banks entered the Norwegian industry. Most of these were foreign banks, and many of these perished after just a few years. In the later years some of the new banks entered the industry as a result of the niche created by internet banking, for instance Skandiabanken. A complete overview of the establishments, mergers and liquidations of the commercial banks in Norway from 1960 can be found in appendix 1. 30

0,025 Skandiabanken's market share 0,02 0,015 0,01 0,005 0 Skandiabanken FIGURE 8 SKANDIBANKEN'S MARKET SHARE (FINANS-NORGE, 2014) Skandiabanken have had a growth in market shares since it entered the Norwegian market. Figure 8 shows the development since 2003. As Geir Wist (2014) said; Skandiabanken has been extremely proficient in marketing [ ] and has created an enormous sympathy in the private market. Small-, Medium- and Large banks In this thesis we differentiate between the terms small-, medium- and large banks. Note that we will also refer to both small and medium banks as Small-medium Banks (SMB). Small banks: The small banks are often local savings banks with only one branch and a small range of local customers. Examples of small banks in Norway are Klepp Sparebank, Klæbu Sparebank and Aurskog Sparebank. Medium banks: The medium banks have more than one branch, but are not nationwide. Examples of medium banks are Sparebanken Øst and Sparebanken Vest. Large banks: These banks have branches all over the country and do often operate internationally as well. Examples of large banks are DNB, Nordea, and Danske bank Figure 9, picturing market shares for 2012, DNB is clearly the largest bank in Norway, followed by Nordea and Danske Bank. 31

Market shares 2012 DNB Bank-konsernet Nordea Bank Norge Danske Bank SpareBank 1 SR-Bank Sparebanken Vest Handelsbanken SpareBank 1 SMN SpareBank 1 Nord-Norge SkandiaBanken Sparebanken Hedmark Andre/Others FIGURE 9 MARKET SHARES FROM 2012 (FINANS-NORGE, 2014) The market shares of the three largest banks have been relatively stable in the 2000s as the graph below show. It is however noteworthy that DNB and Gjensidige NOR Sparebank merged in 2003 as seen in figure 10. 50 Highest market shares 40 30 20 10 0 Den norske Bank Gjensidige NOR Sparebank Kreditkassen/Nordea Fokus Bank og Danske Bank FIGURE 10 MARKET SHARES BASED ON CUSTOMER DEPOSITS (FINANS-NORGE, 2014) In recent years, many savings banks have entered a strategic alliance in order to achieve higher bargaining power, economies of scale when investing in technology, and sharing of knowledge. The three alliances are Eika Group, Sparebank 1-Alliansen and DNB. Sparebank 1- Alliansen was established in 1996 and comprises 22 savings banks from all over the country. One year later, the Eika Group was founded and comprises today 80 associated saving banks. DNB s saving bank division is the largest saving bank in Norway and collaborates with 12 other savings banks (Meinich, 2014). 32

REGULATIONS AND INDUSTRY TRENDS This section addresses the industry dynamics and how regulations and market trends have affected the Norwegian banking industry in the past decades. According to Knutsen (2007), the reason behind the concentration process seen in the previous section is somewhat complex. A similar trend was seen in international context as well, which might have been a triggering factor. In addition, the concentration may be viewed in connection with some general economic and technological factors. Businesses grew bigger in the 1960s and 1970s, which made it necessary for the banks to grow as well in order to accommodate their business customers requests. Larger investments in EDP systems and ICT would also become a prominent reason for merger (Knutsen, 2007). A noteworthy challenge for SMBs is to attract and retain employees. Finally, competent employees often seek out the larger banks where the career opportunities are better (Brønlund, 2014). 7 6 5 4 3 2 1 0 Birth- and death rates, commercial banks Establishments Liquidations Mergers FIGURE 11 BIRTH- AND DEATH RATES FOR COMMERCIAL BANKS IN NORWAY(1960-1983)(FINANS- NORGE, 2014) Figure 11 shows the amount of mergers, birth- and death rate of Norwegian banks from 1960 to 1984. The most common instance was that one or more SMBs merged with larger banks, usually within geographical proximity (Knutsen, 2007). Post Second World War, the business and industry became increasingly capital intensive and there was a larger demand for issuance of loans. This combined with strong restrictions on how large loans that could be issued to individual customers, the SMBs could not keep up with the pace. Because they did not grow fast enough organically, they sought to merge with larger banks to increase their lending capacity (Sejersted and Bergh, 1982). However, even though the structure-politics established in the 1960s encouraged concentration of banks, they first and foremost encouraged mergers between SMBs to create regional banks. This delayed the concentration process and the growth through mergers that larger banks such as Den norske Creditbank wished to achieve (Sejersted and Bergh, 1982). 33

Birth- and death rates, commercial banks 8 7 6 5 4 3 2 1 0 Establishments Liquidations Mergers FIGURE 12 BIRTH- AND DEATH RATES FOR COMMERCIAL BANKS IN NORWAY(2)(FINANS-NORGE, 2014) As seen in figure 12, the period from 1984 until 2010 is characterized by more unstable industry conditions with a mix of establishment of new banks, liquidation and mergers. The mergers continued through the eighties. In 1984 the government opened the industry to new actors. Oslobanken A/S was the first to be granted permission in March 1984 since the commercial bank law was created in 1961. The commercial bank law was changed the 8th of June 1984. The year after, seven foreign banks established themselves. However, to get permission to establish a business in Norway, the authorities in the respective country must allow Norwegian banks to establish themselves in their country (Knutsen, 2007). We can see this in figure 12 as an increase in the amount of banks in 1984. These recent establishments contributed to a significant change in the competition. In 1984, the Norwegian government started a gradual deregulation of the banking sector. The restrictions on loan size and loan rate was removed which made it easier for banks to issue larger loans. The government also implemented other measures to promote competition. One of these was to open up for new foreign actors in the Norwegian industry (Nybø and Dimmen, 2007). The foreign firms brought new marketing strategies and increased the competition which led to a battle for the market shares. This increased competition also resulted in an increase in granted loans which in turn made the profit from the loan rate lower. With this decreased income from loans, it was harder for the banks to stay profitable. A trending measure to survive in the industry became to merge with other banks. Especially savings banks saw it necessary to undergo merger (Nybø and Dimmen, 2007). Another deregulation that affected the banking industry was the repeal of the requirement for banks to have additional reserves. In the middle of the 1980s, the amount of granted loans increased by 20 percent per year. It was not until 1987 that the banks felt the downside from the massive amount of lent money. This resulted in a worse economy for the SMBs because they are more vulnerable than the larger banks when the capital requirements are increased by the government. For the first time, the loss from loans exceeded 1% of the total amount of lent funds. This combined with a fall in the stock market resulted in the loss of equity for some of the banks in the industry (Torsvik, 1999). The decrease in number of savings banks during this time can be seen in figure 13. 34

145 140 135 130 125 120 115 110 105 100 Number of saving banks FIGURE 13 THE NUMBER OF SAVING BANKS(FINANS-NORGE, 2014) Figure 14 below shows how also the rate of commercial banks was affected by the banking crisis. Many banks were unable to pay back their customers saving money, which contributed to the mergers and liquidations that characterized the early 1990s. The steep decline in the graph around 2012 is related to name-regulations (Nordlandsbanken, 2012). 35 30 25 20 15 10 5 0 Number of commercial banks Commercial banks FIGURE 14 THE NUMBER OF COMMERCIAL BANKS(FINANS-NORGE, 2014) The banking crisis in Norway lasted from 1987 to 1992. Because of the deregulation of the financial markets, a laxer monetary policy and an expansive fiscal policy by the government, the robustness of the financial structure crumbled (Knutsen and Lie, 2002). Den norske Creditbank (DnC) and Christiania Bank og Kreditkasse (CBK), also called Kreditkassen, suffered big losses from borrowers that failed to service their loans. The banking crisis culminated when the two grand banks lost their equity and the state had to rescue them. Their negative equity was deleted by a royal decree, and Statens Banksikringsfond contributed with new 35

equity (Torsvik, 1999).The recessing in the industry continued until 1989, when many of the banks again could show a positive result, but it was clear to the government that a regulation of loans and the level of given credit again was necessary. This resulted in a more or less stabilized industry in the beginning of the 1990s (Torsvik, 1999). In the beginning of 1990s, the bank as an institution was redefined as a financial institution as a result of regulations from the government. The same thing happened in the insurance industry which led to interconnections between the two industries. This meant that the two services were no longer strictly separated and the market opened up for financial institutions offering both services to customers. It was no longer required to be organized as a traditional bank in order to provide banking services and vice versa for insurance services. The tight connection between insurance and banking services can still be seen decades later (Sivertsen, 1997). However, the regulations regarding getting a concession to start a bank have never been stricter (Wist, 2014). 36

4.3 A PRESENTATION OF THE FOUR INNOVATIONS In this section, we take a closer look at the four innovations and some of the triggering factors and consequences of each innovation. We also look at how the innovation was received by the industry. Some of the innovations were adopted by most actors at once, while others were characterized by an era of uncertainty and a gap in the readiness to invest. 4.3.1 EDP SYSTEMS The use of EDP systems represented a huge improvement of the punch card machines by centralizing the bookkeeping. The technology behind the EDP systems was superior and it was soon realized that it should replace the old punch card technology (Spilker, 2004). Most banks adopted the innovation relatively quickly, but the large investment cost forced less resourceful banks into mergers or alliances. TRIGGERING FACTORS An important prerequisite for the adoption of EDP at that time was the availability of suitable technology. Already in the late 1950s it became clear that EDP was the natural successor to the punch card machines. The transition to EDP machines started in the rest of the Norwegian industry in 1961 when the first five machines were installed at the customers' premises. According to IBM Norway, the IBM 1400 series brought the "EDP age" to Norway (IBM, 2014b). Also among the large foreign banks the transition was already happening (Sejersted and Bergh, 1982). EDP systems came as a response to the need for a reduction in administration costs. This was mainly a result of two significant factors that were asserted in the fifties. The first factor is the increased use of checks. Hovedavtalen between Landsorganisasjonen i Norge (Lo) and Norsk Arbeidsgiverforening (NAF) was signed in the mid 1960s. This agreement opened up for paying salaries from/to bank accounts (Haare and Solheim, 2011). In the commercial banks there was a six fold increase in the number of redeemed salary checks from 1965-1977. There was an equivalent increase in the saving banks (Haare and Solheim, 2011). The second factor is the introduction of new services, such as salary accounts and giros (Hanisch, 1982, Helgesen, 2000). It was important for the banks to be able to offer good service to be able to retain and attract new customers, but at the same time these services were relatively unprofitable because of high administration costs (Helgesen, 2000, Ildstad, 2014). CONSEQUENCES OF THE INNOVATION The advantages of implementing EDP systems were clear at an early stage, however the investment cost was large, and many SMBs were forced to enter alliances and merge to be able to follow this trend. That decade was thus characterized by mergers and alliances. This transformation was highly significant, not only because it made the processes more efficient, but also because it provided a foundation for further integration and standardization between the banks (Sejersted and Bergh, 1982). As a result of high investment costs, DnC, Bergen Privatbank and Kreditkassen formed a joint venture, Integrert Databehandling (IDA) in 1963 (Haare and Solheim, 2011). IDA's task was to 37

perform analysis and prepare a common EDP solution for the owner banks. The long-term objective was to accomplish automation of the payment systems internally as well as between the three banks (Haare and Solheim, 2011). Another alliance was formed between the saving banks, Fellesbanken A/S and the Saving Bank Association. They formed the company Fellesdata in 1965. Regional companies with similar objectives were also formed. Norddata covered the Trøndelag region, while Vestdata covered the Bergen region. These were later merged and renamed Novit (Haare and Solheim, 2011). RECEPTION OF THE INNOVATION The punch card systems were held as a backup for some time because of operational problems with the EDP systems. In other words the EDP machines were well tested and it was clear that they were well suited to gain economies of scale, which were a significant need in the banking industry. However, the Norwegian banks chose to wait due to the high cost of the machines and the fact that they still bore some weaknesses. In DnC, the situation was described as following: "There are such a development in the area of electronic data processing machines that there are reason to be careful and preferably leave the practical experimentation to countries that hold the production of such material. We, in our bank, are in the favorable situation that we have at our disposal a contemporary punch card machine that has helped us master the quantity challenges following the expansion, and we can to a certain degree afford to wait and after careful consideration decide the timing of a transition to a more advanced machine system" (p.156, Sejersted and Bergh, 1982). Still the need kept rising and so did the quality and stability of the EDP systems, until the tradeoff was considered advantageous and the banks started the transition process as well. In 1965 the banks signed the deal with IBM to actually buy a machine, but the machine was not in use before February 1967 (Sejersted and Bergh, 1982). The technology was delivered by IMB, which had approximately 65 percent of the market shares in its industry in 1965 (Dvorak, 2014). In 1965 IDA was the largest customer of IBM measured in installed equipment (IBM, 2014a). Within ten years, almost every Norwegian bank implemented EDP systems (Spilker, 2004). The transition to EDP systems resulted in a closure of the punch card department in some banks for instance DnC, in addition to radical changes in the organizations as a whole (Sejersted and Bergh, 1982). 38

4.3.2 BANK CARDS Before the use of bank cards, customer used bank books for an overview of their accounts. This was replaced by bank cards with a magnetic strip. Later it was used as a mean of payment as well (Spilker, 2004). TRIGGERING FACTORS The triggering factors for bank cards were the need for an ID card during the transition to salary accounts, and free use of checks as a result of an agreement between LO and NAF in 1969. In 1970, the ID cards were equipped with a magnetic strip that held information about the customer and the account he/she disposed(prissmart, 2014). This magnetic strip had a great potential for extended services and therefore triggered the search for new applications. The ATM machine enhanced the success of the bank cards when installed in Norway in 1977 by Sparebankforeningen. The bank cards became more than an ID card and could now be used to withdraw cash. CONSEQUENCES OF THE INNOVATION With the possibility of paying with bank cards in stores, the foundation for cashless society was a reality. The number of withdrawals at ATMs however, increased. After several years with two different standards for the bank cards, the commercial banks and savings banks finally managed to agree on a common technology and a standardized solution for bank cards in Norway was established. The common solution (EFTPOS) was developed in cooperation with the new corporation BankAxept AS owned by the savings banks and the commercial banks (PrisSmart, 2014). In 2002, the Norwegian banks cooperated with the transition from magnetic strip to the smart chip cards. The chip could hold more information and was also more secure against fraudulent activities. The transition from magnetic strip to the chip started in 2008, and as of January 2012, the magnetic strip was no longer accepted in BankAxept s terminals (Norges- Bank, 1988). RECEPTION OF THE INNOVATION Today, every bank offers debit or credit cards to their customers and it stands as an essential service which no bank would leave out. However, the bank card technology did not have a rock solid place in the industry from the beginning. Many years of different technology standards, discussion of a common standardization and uncertainties regarding the optimal solution has led to where the card technology is today. The major increase of card transactions did not happen until several years after installation of payment terminals in shops and gas stations because of delays regarding training and habituation to the new system. While the number of ATMs grew further in the 1980s, the use of bank cards increased (Norges-Bank, 1988). 39

FIGURE 15 DEVELOPMENT OF CARDS, GIRO AND CHECKS. BLUE: GIRO, RED: BANK CARDS, GREEN: CHECKS. (NORGES-BANK, 1988). Checks were a popular method of payment before the card technology was introduced in Norway, which culminated in 1984 (Norges-Bank, 1988). Because of the development in the card technology and ATMs in addition to an introduced fee connected to the use of checks, that form of payment decreased in use (Norges-Bank, 1988). In 1991, the number of transactions made by bank cards surpassed the number of checks used, for the first time (Norges-Bank, 2014). This is seen in figure 15. FIGURE 16 TRANSACTIONS PR INHABITANT, 2011 (NORGES-BANK, 2014) Today, bank cards have become well-established in the market and are the most important payment method in Norway. In fact, only Iceland has more card transactions per inhabitant per year (Norges-Bank, 2014). This is seen in figure 16. 40

4.3.3 INTERNET BANKING SMS banks and the phone bank Direktebanken and computer based systems were all predecessors to internet banking. Although not all of them succeeded, the development in technology led to how we see internet banking today. What characterize the era of ferment of internet banking is that some banks tried to develop their own system. DNB, for instance, launched their computer based system DnB Telebank ALFA XS in 1998, while other banks developed internet based solutions (Spilker, 2004). DNB developed their own solution for internet banking, and had their own system for e-invoice and Avtalegiro where the customer was transported to an external web site. They implemented the standardized technology after a couple of years (Spilker, 2004). TRIGGERING FACTORS The trigger behind the internet bank was primarily a need for rationalization of administration costs (Spilker, 2004). It was also a response to consumers' demand for extended opening hours as the bank became a bigger part of their life by providing more services. Even though the regional policy in Norway always has had a strong position, the physical presence of banks has decreased, as seen in figure 17. The major part of this decrease has been in the perimeters (Spilker, 2004). In addition, the limited opening hours constituted a decrease in the availability of banking services. The banks opening hours had been the focus of many negotiations with the banks employee organizations. Opening hours until 3.30 pm only in weekdays made the availability of banking services quite low. 2500 Number of branches 2000 1500 1000 500 0 Commercial banks Saving banks Total FIGURE 17 NUMBER OF BRANCHES (FINANS-NORGE, 2014) Internet was opened up for commercial actors in the middle of the 90s which increased the availability and opened up possibilities for internet services. Another factor that made the internet more approachable was the first browser, Mosaic. With this new user interface, one did not need to operate the blue screens (Ildstad, 2014). Mosaic was launched in 1993 by National Centre for Supercomputing Applications (NCSA) (Vetter et al., 1994). In other words, the banks threw themselves at this opportunity at the time when the internet was made more available for the public (Ildstad, 2014). In 2006 more than 352 billion kroner were 41

transferred through internet banks in Norway which was a tripling the last five years (Brøvig, 2007). CONSEQUENCES OF THE INNOVATION This radical innovation has improved the service to the customers. At the same time, information about other banks has increased and the switching barriers for customers have decreased, which increased the competition on the private market. The new technology also opened up a new market niche for pure internet banking services, exploited by Skandiabanken, Bankia and Landkreditt bank in Norway (Spilker, 2004). This made it possible to gain foothold in a market which is generally hard to enter. This is an example of how the technology has created possibilities for new entrants, because you can disregard the large distribution networks and the large workforce and the associated costs (Wist, 2014). Acta A/S on the other hand tried to enter the market as a pure internet bank (Kvistad, 2000), but as seen in figure 18 it ceased to exist after only five years. FIGURE 18 NEWLY ENTERED ACTORS (FINANS-NORGE, 2014) Internet banking also led to the implementation of Avtalegiro and e-invoice in the Norwegian market. Already in 2003, the number of e-invoices sent was more than one million, the double of the year before (Norges-Bank, 2003). In 2012, more than nine million contracts of e-invoices had been signed. In addition to this byproduct, internet banking has been a contributing factor to the decrease in branches. Since the customer no longer needed to meet in person in one of the bank s branches to make use of the banking services, the amount of necessary branches went down. In the period from 2000-2002, 40 branches were closed (Spilker, 2004). 42

RECEPTION OF THE INNOVATION Despite of the skepticism, the internet banking gained a foothold and in 1999 almost all Norwegian banks offered this service. Still, not everyone was convinced that internet banking was the future. There was still a high degree of uncertainty about the future of the internet banks in the beginning of the twenty-first century (Sparebankforeningen, 2002). This may have been a response to the recent burst of the dotcom-bubble. Several European banks concluded, during an international banking fair in Frankfurt 2002, that banking through the internet has passed its peak (Sparebankforeningen, 2002). In addition, other signs of decline were evident. SEB Sweden had to terminate 130 employees, which constituted one third of the SEB Internet Bank staff. The most successful independent internet bank in Germany also announced at that time that they were looking for European banks to take over their operation (Sparebankforeningen, 2002). In the early development phase, the system solution suppliers and some of the largest banks cooperated to fund the development of the first internet banks (Ildstad, 2014). In Norway, Hedmark Sparebank launched its internet bank in 1996 (Spilker, 2004). Shortly after, a rush of internet banking services were launched, and in 1997 fifty Norwegian banks offered similar services (Haare and Solheim, 2011). However, «The banks were quick to take the technology into use, but that does not mean that it was offered to customers at once because it took a while to test the technology thoroughly» (Ildstad, 2014). In 1999 most Norwegian banks offered internet self-services. DNB was one of the last to launch their internet bank in May 1999. Later, they tried to implement their own e-invoice system instead of the standardized technology, but had to implement the standardized version after a couple of years (Spilker, 2004). In 2002, the CEO in the Saving Bank Association, Einar Forsbak, stated that independent internet banks, such as Skandiabanken's operational concept "would not be a long-term phenomenon in the Norwegian bank market" (Sparebankforeningen, 2002). Numbers from April 2013 show that Skandiabanken still is operational with 57 million NOK in profit before taxes (Nettavisen, 2013). According to a comprehensive report written by Cap Gemini and Ernst & Young in 2001, the Norwegian internet banks were not particularly good. Pure internet banks came out on top with best service to the lowest price. They also had the most user-friendly solution. The bigger banks scored middle range, while the smallest banks scored lowest on both price and offering. Common to them all is that they were too product- and technology focused instead of focusing on usability (Ledelse, 2002). Numbers from EDB Ergogroup shows that 1.7 million internet banking contracts were registered in 2003 and by the end of 2010 this number had increased to 4.9 million contracts (Heggelund, 2011). In comparison with other methods of paying, internet bank is the method that has had the strongest growth between 2000 and 2010. As seen in figure 19, 66 percent of all bill payments were done through an internet bank in 2010. 43

FIGURE 19 DEVELOPMENTS OF NET BANKING, AVTALEGIRO, MAIL GIRO AND TELEGIRO. (NORGES-BANK, 2010) 4.3.4 MOBILE BANKING Mobile banking can in many ways be seen as a continuation of the internet bank in order to increase the availability of banking services. The WAP service and the SMS-bank were both attempts to increase the availability and convenience for the customers, however neither were a hit. TRIGGERING FACTORS Even though the term mobile bank has existed for several years, the use of mobile banking did not explode until after the smart phone entered the market. The development of smart phones and applications made it possible to create a user interface on tablets and smart phones which were easy and fast to use (Odenrud, 2013). Another reason why mobile banking has been a success is feedback from the users. A lot of the customers and experts were concerned about the security around mobile banking and questioned if it was as secure as internet banking. This led to investment in mobile banking technology and security (Odenrud, 2013). CONSEQUENCES OF THE INNOVATION The availability of banking services increased with the mobile bank. Norwegian banks saw an enormous increase in the number of monthly log-ins per customer. Compared to internet banking which had an average number of 5-6 log-ins per customer, mobile banking brought this number up to 20-30 per month (Ildstad, 2013). 44

Another consequence was noticed by the system solution suppliers. The system solution provider Nets was sold as a consequence of the time spent on developing a mobile bank. The time spent developing the new technology and keeping up with the latest trends proved to be too much for the 186 banks that previously owned Nets. The company was sold to an American investment company (Bakken, 2014). RECEPTION OF THE INNOVATION Large banks like DNB, Nordea and Storebrand were amongst the first banks to develop and implement mobile banking. SMBs like Hedmark Sparebank and Nordlandsbanken were also early adapters (Ernes, 2008). DNB and Nordea developed their own solutions, while BEKK developed the mobile bank solution for Sparebank 1 (Christensen, 2014), Systek developed the Eika group s mobile banking system (Systek, 2014), and EDB developed Storebrand s mobile banking system (Ryvarden, 2006). The Sparebank 1 alliance released their application based mobile bank in 2010 and is today the largest mobile bank measured in volume, while DNB has the highest number of users (Sørheim, 2013). The use of mobile banking has exploded the last couple of years and in October 2012, the use of mobile banking surpassed normal internet banking for the first time among the customers of the Sparebank 1 alliance (Odenrud, 2013). It only took mobile banking 2 years to reach the same amount of customers as credit card managed to get in 28 years and debit cards in 12 years (Finans-Norge, 2013). In 2013, a survey done by TNS Gallup showed that 1.1 million Norwegians now use their mobile phone as a bank, mainly to check their balance. Customers log into the bank's website via computer around 4-5 times a month while the mobile bank is visited 18-19 times a month (Odenrud, 2013). The increased number of log-ins to the online bank through cellphones can be seen as a rise in the internet banking usage. As the figure 19 shows, internet banking is clearly preferred amongst the customers. As much as 1.6 million or 45 per cent of the Norwegian population have downloaded one or more banking applications, while 39 per cent report that they use the banking application. This is an enormous increase in customer mass in only four years, however Dagligbankundersøkelsen 2014 show that this is used as an additional service to the internet bank (Finans-Norge, 2013). 45

4.4 SUMMARY The following table sums up our empiric section with an overview of the main points within the categories; technology, regulations, and industry trends. Technology Regulations Industry trends - Discovery of oil - High economic growth - Increased globalization - Increase in use of checks 1960 - EDP systems - NCR cashier machines 1970 - Bank cards - ATM machines - Standardization of giro 1980 - Standardization of bank cards 1990 - Internet banking -WAP 2000 - E-Invoice - Avtalegiro - Mobile banking - Deregulation of credit - Decrease of equity rate -Standardizing of giro and checks - Deregulation of loans - Opening up for foreign actors -Stricter regulations after the banking crisis -Regulations opened bank market for insurance companies - Public internet - Increased competition from foreign actors - Banking crisis - Financial crisis 46

5 PRELIMINARY DISCUSSION ARE THE CHANGES RADICAL? Before we will discuss our main observations, we will perform an ex-post check of the four presumably radical innovations we initially chose to focus our investigation around. We will check to which degree the innovations are radical according to definitions we presented in the method section. The main features we check for are summarized in the following three points: 1. The innovation is based on materials, technology or methods new to the organization, or a new combination of old elements. These components are derived from a completely new knowledgebase or a blend of new and old knowledge streams. 2. The innovation renders old knowledge and competences obsolete. 3. The innovation replaces a large proportion of the old products, services or processes within a set timeframe or creates a new market. EDP 1. The EDP systems were based on a completely new computer technology not familiar to the banks. 2. This new technology rendered the skills related to the old systems obsolete, and required new knowledge about data processing. This upheaval of skills is corresponding to Utterback s (Utterback, 1996) definition of radical change and Tushman and Anderson s (1986) definition of competence-destroying process discontinuities. For instance DnC had to close down a whole punch card department with 100 employees. The implementation of EDP systems affected the organizations as a whole, not only one department because every-day processes now were done faster. 3. The EDP system was a replacement for the punch card system. Therefore, we classify the EDP system as a radical innovation. BANK CARDS 1. As a mean of payment, the bank cards represented a new technology with the magnetic strip and smart chip. Giros were paper based and had to be handled directly at the bank, while ATMs the new payment terminals constituted a new method for handling withdrawal and payment automatically. 2. Bank cards reduced the manual administration drastically by automating the procedures for payment and cash withdrawal. It also contributed to a cashless society which had a huge impact on banks. Therefore, the ability to conduct this work manually was rendered obsolete over time. 3. Statistics shows that bank cards replaced checks and giros regarding number of transactions (figure 15). 47

We classify bank cards as a radical innovation. INTERNET BANK 1. The combination of the final deregulation of the internet and the availability of the first browser opened up for development of online banks with the WWW as platform. These two new technologies provided a basis for the success of making the interactive bank that was experimented with in the years before the breakthrough of the internet. The radical change created a need for new skills and equipment to be able to develop and operate the internet banks. 2. As a result of this transformation, new competencies and systems had to replace part of the existing operation. This also resulted in rationalization through closure of branches. Put differently, a large part of the original operation was discontinued to make room for developing new essential competences. 3. The internet bank substituted parts of the old services performed, especially when it comes to information services and transaction services, which necessarily also is reflected in the banks' operations. This is clear from figure 19. This means that it replaced the majority of older means of payments. We therefore classify internet banking as a radical innovation. MOBILE BANK 1. Mobile banking is based on application technology which was new to the banking industry. 2. We have not found any evidence that indicates that this innovation have an extensive influence on the operation of the banks. Since the mobile bank is built up of processes that are similar to those in the internet bank, just on another platform, it is reasonable to assume that the competences required could be built on existing knowledge and learning acquired from the incorporation of the internet bank. 3. For most people, mobile banking serves as an additional service to internet banking, since the customer now are able to log-in through their cell phone in addition to their computer. In 2014, 39 % of the population used one or more banking applications actively. We conclude that this innovation has radical characteristics and is in line with Tushman and Anderson s (1986) definition of competence-enhancing discontinuities, but is not classified as a radical innovation at the same level as the other three. Therefore it is not expected to alter the industry dynamics in the same way as the others. 48

6 DISCUSSION The empirical evidence has shed light on three main observations that clearly contradicts our theoretical perspectives. These are: 1. Radical technological change has a weak impact on the industry density 2. Larger banks contribute more to bringing forward both incremental and radical technological innovations 3. The number and proliferation of alternative designs is low These observations may be a result of some more specific characteristics of the Norwegian banking industry. Both the main observations and the supporting characteristics are discussed in depth in the three sections; industry density, industry composition and degree of innovation. The three themes together will provide the answer to the first part of our research question and provide the foundation for the second part. Industry density Industry composition Degree of innovation 6.1 INDUSTRY DENSITY The first section of the discussion addresses the industry density in order to establish the effect of the radical technological changes on the establishments, mergers and liquidations in the industry. Through this case study, we have observed that there is a weak impact of radical technological change on the industry density. This is mainly a result of regulations, close cooperation between interdependent actors and the relative advantages of incumbents compared to SMBs and new entrants. The last factor will be discussed in depth in the next chapter; market composition. We will first justify our statement and thereafter provide some explanations for this outcome. RADICAL TECHNOLOGICAL CHANGE HAS A WEAK IMPACT ON THE INDUSTRY DENSITY Between 1960 and 1990, there was a significant concentration process which makes it hard to separate distinct factors of concentrations from each other. EDP influenced the death rates through its huge investment cost. In the period from 1964 to 1970 when this big transformation took place we see quite a steep concentration process from 1963 to 1965/1966 before it flattened out somewhat. 46 savings banks disappeared through mergers or possibly liquidations from 1963 to 1965, and 18 commercial banks discontinued between 1963 and 1966. As seen in figure 20, the trend is quite similar among the savings banks and the commercial banks. 49

650 600 550 500 450 400 Saving banks 75 65 55 45 35 25 Commercial banks Saving banks Commercial banks FIGURE 20 DEVELOPMENT OF SAVING AND COMMERCIAL BANKS (FINANS-NORGE, 2014) The concentration process continued in the 1970s, but as we do not have any qualitative evidence pointing in the direction of bank cards affecting the birth and death rates, the concentration of banks in this period cannot automatically be assigned to this radical innovation. With the internet, four new banks, only providing banking through the internet occurred, of which three sustained the first period. One of the banks established in 2000, the two banks established in 2001 and one in 2002, are a direct result of this radical innovation. We see however, that the first internet bank, creating a niche market for only internet services, came four years after the first Norwegian internet bank. In other words, the existing banks recognized the opportunity to serve their existing customers earlier than the new entrants recognized and realized the opening of a new niche. The peak due to the establishments is shown by the arrow in figure 21. 50

Birth- and death rates, commercial banks 8 7 6 5 4 3 2 1 0 Establishments Liquidations Mergers FIGURE 21 THE NICHE MARKET FOR INTERNET BANKS (FINANS-NORGE, 2014) Of the new entrants, Skandiabanken has managed to acquire the largest market share. In 2003 it reached the top 15 banks in Norway measured in market shares. In figure 8, the development of Skandiabanken s market share is shown. Still, this increase is not dramatic and as seen in figure 10, the largest banks have not suffered. The larger banks did not perform any counteracts to protect themselves from the new attackers, other than having set fees and interest rates lower than they probably would have done if there were no threats in the environment (Spilker, 2004). This may implicate that the customers that switched banks, were of the least profitable and did not constitute any larger losses. Any effect of mobile banking would not have showed in these rates because of the newness of the innovation. As the modest impact of radical technological change on the market density implies, the factors such as regulations and societal trends have had a much larger impact on the birthand death rates than radical technological change. THE CONTRADICTION According to both PEOT and RCT, radical technological change will cause upheaval in the industry dynamics, due to lowered entry barriers and increased competition. This pattern has showed to be highly modest in the Norwegian banking industry. Only in the case of internet banking, a new market has opened up and a few new entrants have established themselves. However, the new competition has hardly affected existing banks. 51

THE EXPLANATION The regulations will contribute to making it more difficult for attackers to enter the industry. According to Geir Wist (Wist, 2014) The licensing requirements have never before been as strict as they are today. The licensing and capital requirements are made to protect the customer from unreliable actors, whose bankruptcy would directly affect the lives and living conditions of their customers. However, these regulations will also work as a barrier to shut out more attackers that possibly would contribute to the competition and bring the innovation forward in the industry. In addition to elevating entry barriers, regulations also contribute to influence the industry with the goal of achieving stabilization. We have seen examples where the government assisted struggling incumbents during the bank crisis. The expected failure of incumbents where thus hindered by regulations to prevent the consequences it would have for society if two of Norway s largest banks had gone bankrupt. In addition, the fact that the early data processing companies were owned by already established banks in the industry for an extended period, also contributed to shutting out attackers. This elevated the barriers to entry because of limited access to technology at a time when this competence was rare. In the next section we will continue to explain the modest impact of radical change on market density, focusing on the advantages of incumbents compared to SMBs and outside attackers. 6.2 INDUSTRY COMPOSITION The second section of the discussion seeks to shed light on how the radical technological changes have affected the composition of actors in the industry. We have found that the larger banks contribute more to bringing forward both incremental and radical technological innovations and therefore manage to maintain their market leadership. This has led to fewer entrances by new banks, and a reduction of existing SMBs. We will now discuss the factors contributing to significant advantages of incumbents in periods where creative destruction should be a fact. This has a large impact on the industry density and may further explain the modest impact of radical technological change. We will first justify our statement; thereafter present the contradiction with the theory and explain why it has ended up like this. This explanation is based on four observations which combined bring us forward in exploring why incumbents hold the advantages and have the right prerequisites for adopting the radical technological changes in this industry. LARGER BANKS CONTRIBUTE MORE TO BRINGING FORWARD BOTH INCREMENTAL AND RADICAL TECHNOLOGICAL INNOVATIONS In our study, we have observed that in addition to implementing incremental change, larger banks are highly capable of implementing radical technological innovations and adapt to changing environments. The majority is able to seize the opportunity early on in the technology cycle and to contribute extensively to bringing the radical innovations forward. Through the history, we see that the large commercial banks were the first to initiate the process of implementing EDP systems. For bank cards it is somewhat uncertain which banks 52

contributed mostly to the innovation. Internet banking was also brought forward largely by bigger companies. Even though a medium sized existing bank was first to launch, there were a handful of incumbent banks that contributed in developing the solution by sponsoring the development and thereby were able to influence the process. Later on, in 2000-2002 new entrants penetrated the market of internet banking. Of the early adopters to mobile banking, there were also predominantly larger banks. An interesting note is that we have seen that Nordlandsbanken was among the first to implement EDP and mobile banking and Hedmark Sparebank was the first to launch their internet bank and one of the two first to launch their mobile bank. Both these medium sized regional banks have interesting characteristics that have given them an advantage in their development of radical technological change. Nordlandsbanken established a relationship with IBMs service office and utilized this to gain access to an EDP machine. For Sparebanken Hedmark, OL at Lillehammer in 1994 paved the way, by ensuring that the necessary infrastructure and sufficient capacity were in place to launch their internet bank. This example illustrates how organizations that either by luck, or on purpose fit the environment better, flourish. The larger banks have only increased their market shares as seen in figure 10 and figure 7, which clearly implies that they have been able to adapt to the changing environment. It is also the larger banks that have owned the largest shares of the data processing companies in the earliest period, had the closest collaboration with the system solution suppliers concerning the development of the internet bank, and later on; have the most in-house development of technology, represented by DNB, Danske Bank and Nordea. THE CONTRADICTION According to theory, cultural inertia is correlated to age and success, which means that both SMBs and larger banks may be equally exposed, depending on age. Structural inertia on the other hand, would necessarily be a larger problem for larger banks as it increases with size and complexity. In addition, incumbents have a larger value network and set strategic goals that they might have to break with to pursue the radical change. The standard model states that the attackers are more likely to implement radical changes than incumbents because they have less inertia and established networks and strategies in their organization. Even though the incumbents have higher levels of inertia and more commitments, the pattern of the standard model is not observed in the Norwegian banking industry. In this case the larger banks have been highly involved in the radical change processes, and they have proven that they are capable of spotting the economic potential in the new technology, acquiring and implementing it into their organizations. This success of the incumbent companies also contradicts the notion of liability of aging. PEOT states that organizations are unable to adapt to the changing environment. This is due to the inertia in decision making processes and implementation, especially those that have built up its reliability and accountability over a long time. The incumbents in the Norwegian banking industry have proven otherwise by adapting to radical changes in the environment within relatively short periods of time. At the one occasion when entrants were able to establish themselves in the industry, the larger banks even beat the attackers to the market by having a proactive innovation strategy. 53

THE EXPLANATION There are several reasons why the larger banks were able to implement and strengthen their position by utilizing newly available technology. Part of the explanation lies in the high entry barriers due to regulations and alliances as discussed in the previous chapter on market density. We will now present some further explanations of this outcome. The first two stem from the incentives of the banks and the second two stem from the characteristics of the banks. ALL RADICAL TECHNOLOGICAL INNOVATIONS HAVE SERVED EXISTING MARKETS When serving existing markets is coherent with implementing radical technological change, existing banks have an incentive to do so. The transformation to EDP systems aided the banks in providing new salary checks and quicker and higher quality services to the customers. Bank cards, internet bank and mobile bank are also presented as extra services for the existing customers. An interesting notion however, is the new service offered by Sparebank1. Lately they have approached a new customer segment by offering bank cards and mobile banks for children down to seven years. However, this case is a bit special because the offering really targets the parents of the children that are already existing customers. According to RCT, incumbent firms may be successful in implementing radical changes when the innovation is valued within its existing value network. Since implementing the technological changes did not contradict the strategies of the banks, there was less resistance from e.g. stakeholders or interest conflicts within the banks. They rather had an incentive to implement the radical changes because it improved their position through improvement of the bank s offering to the customers and decrease in operational costs. When the barrier of deciding to implement the radical change is overcome, the existing banks have the advantage of knowing its customers and their needs significantly better than possible outside attackers. They also have established existing channels through which they may reach their customers when the new product or service is to be marketed. The existing firms also have the advantage of increased legitimacy through a long history of providing loyal service to the customers. THE RADICAL TECHNOLOGICAL CHANGES IN THE BANKING SECTOR HAVE LED TO INCREASED STANDARDIZATION When the nature of the radical innovation is more advantageous for one group of firms compared to another, the incentive to implement it will be stronger for the first group. We have seen that each of the radical technological changes considered in this thesis have led to a higher degree of standardization. EDP automated the earlier manual internal processes. The bank cards first made identification of customers easier. Later, when combined with the introduction of ATMs and payment terminals in stores, the personal service when withdrawing money was drastically decreased and the efficiency was increased due to a decrease in checks and electronic transactions. The internet banks standardized a whole range of services by making self-service possible. In addition the amount of giros 54

drastically decreased, lowering the administration costs further. Mobile banking worked in the same direction as the internet bank, as it continued the already started process of standardization by making self-service more convenient for customers. There are two important notes about the nature of the radical innovations seen in the Norwegian banking industry. The first concerns the monetary motives of incumbents and SMBs to implement the new technology. The second concerns the alteration of competitive advantages when the innovations are implemented. The initial investment cost of implementing technological innovations is in the case of all four radical innovations significant. The incentive to incur such a large cost to standardize existing processes has been to achieve economies of scale and to increase their competitive situation by improving their service offerings. However, there will be natural that smaller and less resourceful banks are less eager to invest in the innovations due to two factors. First the investment will probably represent a larger percentage of the banks available funds and therefore constitute a greater risk. In addition, the cost-benefit ratio of installation will most likely be worse for the SMBs than the larger banks because the economies of scale increase with the amount of operations. Outside attackers will be in a slightly different situation. Even though the economies of scale will be smaller for them than incumbents, the fact that they do not have to alter any existing processes may give them a net monetary incentive to enter the market. They rather have the opportunity to implement a standardized system that can satisfy a large customer group. Therefore a convenient way of entering the market is to wait until the dominant design with its standardized technological procedures and network are set to decrease time and cost of entering. However, this is only possible if an opening in the market has appeared without efforts from the entrants. An illustrative example is the ease of a new bank to reap the benefits of the bank card technology after the technology was set and all ATMs and payment terminals would elevate the value of the bank cards. This may be part of the rationale behind the pure internet banks that entered the market in the early 2000s. Smaller local banks have a competitive advantage in the interaction with the local community. This advantage has suffered under the increased standardization of processes. The relationship between the customer and employee in small outskirts strengthen the loyalty between the customers and the SMBs. This unique service offered to a segment of loyal customers make the small local banks compete in a different niche than the large national banks. Since the element of human interaction is constantly decreasing with the standardization of processes and new technology, the customers relationships with their bank are compromised. Every transaction can be done from the customer s home computer or cellphone, and it is easy to switch banks without even interacting with an employee. As this competitive advantage decreases, the more the SMBs are forced to compete on price and quality of service offerings, which pushes them into the same segment as the larger ones. Larger firms can increase their profit by either cutting costs or stealing market shares. Since the technological innovation has standardized their processes much already it becomes increasingly difficult to cut costs. Since all people already are customers of a bank, the growth opportunities left are stealing market shares from other banks or stepping into new markets. 55

As discussed above, standardizations favor the larger banks and make it easier for them to steal market shares from SMBs than the other way around. The observations of monetary incentives and competitive advantage, illustrate how the nature of the radical technological innovations favor the larger banks rather than the smaller ones. These factors decrease the SMBs opportunity to benefit from radical technological changes and reinforce the power of the large banks. In other words, the capabilities and characteristics of the larger banks match the nature of the radical innovations better than the SMBs and create a greater incentive to transform. However, this is not a completely clear argument for excluding new entrants, but rather an argument for the incumbents increased advantage and thereby an elevation of the entry barriers. It can therefore be claimed that the nature of the innovations in the Norwegian banking industry is a moderating factor of the standard model. In PEOT, this connection may be explained by competition theory. The organization that matches the environment best will have the best chances of survival if there are several organizations competing for the same niche. The organizations that become worse fitted to the environment need to vary its functionality or its territory to continue to exist. This means that as the two niches approach each other, the SMBs need to strengthen and accentuate the features that separate their offerings from the larger banks. This could typically be to sustain the central bodies in the local community through employment and sponsorships of activities such as local sports clubs or cultural arrangements. Both new entrants and incumbents gain advantages from standardization. However, the incumbents originally have a stronger position in the market. If this means that the incumbents are better fitted to the environment, the entrants may be discouraged to even try, or fail because their match with the environment is inferior. THE BARGANING POWER OF SUPPLIERS HAS AFFECTED THE IMPLEMENTATION OF RADICAL TECHNOLOGICAL CHANGE When an organization may take control over its suppliers, it gains an advantage compared to those that do not have this opportunity. The interaction between the traditional banks and the technology suppliers has affected the banking industry significantly these last fifty years. We have seen signs of the boundary between the two industries getting more blurred. While the distinction between banks, providing banking services, and system solution suppliers, providing technology solutions for the banks was more distinct before, it has been more common for banks to also develop their own technological solutions. In the unfolding of EDP, bank cards and internet banks and mobile banks, most banks were forced to rely on system solution suppliers to get their new products and services to the customers. The exceptions were DNB that developed its internet bank solution in-house and later in 2008, DNB and Nordea that developed their own WAP solution for mobile banking. DNB s repeated choice to develop technology solutions in-house may be part of a more long-term strategy that involved extending its internal technology development department. The situation in the 1960s compared to today is shown in figure 22. 56

FIGURE 22 RELATIONSHIP BETWEEN SYSTEM SOLUTION SUPPLIERS AND BANKS The foundation made when the banks teamed up to create the various data processing companies in the 1960s have had a great impact on the further innovation in the industry. In the beginning the data processing companies were directly owned by the banks, and therefore the banks had direct control over their operation. When these were sold, the banks lost some of their impact power over the technology suppliers. Through this fifty year period, the various system solution suppliers gradually merged to become one large system solution supplier, Evry. In addition, the reliance on the system solution suppliers gradually increased because the growing complexity of the solutions demanded a higher degree of integration. These factors led to higher supplier power because of the reduced control, reduced competition between the system solution suppliers, and higher degree of reliance. This might have increased the will to take back some of the power over the technology development. It has also been clear that technology is at the core of product improvements. It is thus natural that it is devoted a larger share of attention and resources. These factors may explain why some banks move towards insourcing of technological development. However, this is the case for the larger banks that have the resources to bear the expenses associated with testing and the uncertainty of taking a new product to market. For the SMBs on the other hand, this high bargaining power of the suppliers poses a concern because they do not have the same resources to develop systems themselves. Bargaining power is thus one of the main reasons why smaller saving banks enter alliances (Wist, 2014). The fact that larger firms contribute more to radical innovations, as well as incremental innovations, despite of the higher degree of inertia, may be explained by PEOT. Due to more organizational slack, the larger firms are able to reduce the dependencies on system solution 57

suppliers by investing in companies that develop the technology like in the sixties. Alternatively they may develop more of its technology in-house, and perform explorative research without jeopardizing their own existence like the trend seems to be in more recent time. In this way, they increase their flexibility by reducing their dependency on the suppliers, and mitigate the effect of inertia. This advantage increases the incumbent banks position relative to the remaining actors. In RCT, investing in additional competence and assets will rather be viewed as an extra source of inertia because it will tie the organizations to a certain pattern and way of operating. Thereby it will be a hinder of radical change if the change requires a break with the existing operation in the future. This explanation is therefore not sufficient to explain the larger banks success in the Norwegian banking industry. LACK OF RESOURCES HAVE HINDERED OR DELAYED IMPLEMENTATION OF RADICAL TECHNOLOGICAL INNOVATION Organizations with resources to implement radical technological changes will have an advantage over those that do not. The lack of resources has hindered radical innovation among SMBs. In the case of EDP it contributed to mergers in the most extreme, while in the case of mobile banking smaller banks that are not part of any alliance waited to invest in this new solution until the risk was smaller and the pressure from the customers grew too big. Limited resources have through the period studied, been related to three factors; the technology investment, regulations and societal trends. In addition to the direct effect of limited resources, namely that SMBs may be unable to invest in new technology, the lack of resources may contribute to an increase in inertial powers by e.g. boosting the risk averseness among share owners. Risk averseness as a result of limited resources, in general may cause the SMBs to take strategic decisions to wait until the dominant design is established to adopt the new technology. This effect is increased by the expensive solutions that are available to them from the system solution suppliers. This resource constraint make many SMBs strictly followers instead of contributors to innovation. This is in line with PEOT s notion of liability of smallness. In addition to resource restrictions, other troubles creating a less innovative environment are also found among the smaller banks, such as problems to recruit, train and retain the workforce and handling costs of regulatory compliance. These problems will not typically be found among incumbent firms. This strengthens the incumbent banks relative position in the industry. 58

Through this chapter concerning the market composition we have found that larger banks contribute more to bringing forward radical technological innovations as well as incremental because: 1. Their strategy to implement the radical technological changes has been coherent with serving existing customers in existing value networks. 2. The nature of the radical technological change favors incumbent firms which strengthen their relative position. 3. Being independent of essential technology suppliers gives more flexibility to innovate. 4. Resources are essential to be able to implement radical technological innovation. This chapter shows that the incumbents relative position in the industry is strong. This will make it more difficult for attackers to claim their position in the industry. Thereby, incumbents relative position contributes to moderating the effects of radical technological change on the market density. 6.3 DEGREE OF INNOVATION The third section in our discussion seeks to explain what implications the effects on the industry dynamics discussed under industry density and composition have for the degree of innovation. The empirical evidence has shown that the number and proliferation of alternative designs in the aftermath of the introduction of a substitutive technology is low. This will decrease the degree of innovation in the industry. We will now justify our statement. Thereafter we will problematize the finding with regard to theory, and finally provide explanations for this outcome. THE NUMBER AND PROLIFERATION OF ALTERNATIVE DESIGNS ARE LOW In the period prior to the introduction of the technologies that ended up being implemented, there were some alternatives that fulfilled partially the same needs as the final radical innovation did. Examples are the punch card machines before EDP machines, bankbooks and checks before bank cards, telephone banks and pc-based banks before the internet bank and WAP-based mobile banks and SMS-banks before the application based mobile bank. These alternatives were all beaten by the introduction of a superior technology and were relatively quickly adopted by the actors in the market. The era of ferment constituting the different variations within each innovation was also quite modest. While there is not any particular evidence that suggest there was uncertainty about what EDP systems to use, the three other innovations have clearly been through a period of two or more diverging designs before the dominant design was established. The conditions surrounding the transformation to EDP were somewhat different. This was because the banks implemented an already developed product instead of taking part in the development process themselves. In addition the product was well-tested and had proven itself in other countries already. Finally, the banks chose to cooperate with each other, which made the possibility for many different designs significantly smaller. 59

When debit cards were in its early phase on the other hand, there were widespread discussions and negotiations about what technology to use, the price of the service and the general design of the payment terminals. It arose two technology designs that vied to become the industry standard, namely magnetic strip promoted by the saving banks, and chip technology promoted by the commercial banks. There was also significant uncertainty around the features and design of internet banks in the early period of its development. Also uncertainty about whether the new service would be a hit or not in the long run characterized the first period. As much as seven years after the first internet bank for private customers was launched, there still were sceptics in the sector. Mobile banking provided by traditional banks has probably approached its dominant design incorporated in the banking applications. However, there are different designs with overlapping services provided by several other actors, like transportation applications and payment platforms covering different product categories that substitute services performed by the mobile bank. Time will show if these different solutions will prove conflicting or complementary. THE CONTRADICTION According to RCT, periods of creative destruction are characterized by high technological opportunities and fierce competition. The theory of technology cycles also states that there will be high competition on product specifications and uncertainty before a dominant design is set. From our empirical data, it becomes evident that the technological opportunities are high. This indicates that the struggle to bring forth the best option should be intense. However, even though the radical innovations follow technology cycles, the competition on product specifications is low, with relatively few alternatives and proliferation among them. THE EXPLANATION This low number and proliferation of alternatives may be explained by the number of actors actually contributing to the development of technological solutions, by the pressures for efficiency and by the short era of ferment. THERE HAVE BEEN FEW ACTORS DEVELOPING THE TECHNICAL SOLUTIONS Fewer actors lead to a lower number and proliferation of alternatives. In the Norwegian banking industry, technology development and traditional banking were separated in the early days. This means that there were at the most five system solution suppliers. However, as these merged through the years, the number of independent systems solution suppliers decreased drastically and today there is practically one Norwegian supplier of technology banking systems. Simultaneously, the in-house development departments occurring in the later years have weighed up somewhat for this decrease. Following, there is a very limited number of actors which contribute to the competition for the dominant design and that may drive the innovations forward. This leads to lower numbers and proliferation of designs than it possibly could have been. Few and similar alternatives lead to possibly missed opportunities to an improved economy and increased social welfare for society, because of artificially low levels of competition due to regulation. 60

EACH RADICAL INNOVATION HAS LED TO NEW INDUSTRY STANDARDS Pressures for standardization lead to fewer and less varied alternatives. Each radical technological innovation has led to new industry standards. Standardized account numbers followed the introduction of EDP systems to extract the potential benefits these systems provided. Standardized debit card technology was needed to be able to use the cards in payment terminals and ATMs across the country. Bank-ID, E- invoice and Avtalegiro, were all standardizations of services that ensured that the internet banking's full potential was achieved. Mobile banking provided by banks has probably reached its standardization by the use of applications and Bank-ID. These standardizations are all direct consequences of radical change. However, the processes of standardization have not always been smooth. In the case of the bank cards, the two parties were so powerful that the negotiations lasted for a long time until they found a compromise. This ultimate compromise was forces through by the government not to hinder the rapid technology of the payment terminals. The standardization process after the internet bank was established, proved to be more difficult due to DNB s choice to develop its own solution. DNB had to compromise its solution by directing the customers to an external webpage to be able to achieve a standardization of e-invoice and Avtalegiro. The banking industry depend on standardization to provide an efficient system, due to the fact that the various banks' systems need to be compatible to provide services such as transactions between banks. Standardization is therefore a natural consequence of each of the investigated radical technological changes because new technology needs to be incorporated into the already existing system. The history of the banking industry has been characterized by high integration between banks due to e.g. commonly owned data processing companies and SSB. This has resulted in an informal agreement of standardization between the banks. In addition, resource restrictions also affect the pressure for standardization. Development of innovations is so expensive, that the actors need to cooperate and build on each other s innovations by adding features. For this to work out, standardization is essential. In addition, consumer protection stands strong in Norway, which also creates a pressure for standardization. Compared to foreign banking industries, the standardization achieved in Norway has resulted in a far more efficient system and better service for the customers. It also forms expectations that all banks should be able to provide these services, which makes the adoption of the new standard a prerequisite for surviving. This is in line with Tushman and O'Reilly's (p.175, Tushman and O'Reilly, 1996) statement that "the changes are not driven by fad or fashion, but reflect the imperatives of fundamental change in the technology". The technological changes establish a new technological era and the organizations are bound to adjust to these changes and new standards to be able to continue to exist. From these observations we find that standardization after dominant design is established is extra prominent in this industry. We also find that the more actors that have to agree on a standardized solution, the more difficult it is. The incident where DNB chose to develop its own standard for e-invoice and Avtalegiro, failed because of pressures for standardization. This supports PEOT s view on individual influence. The managerial attempt to stake out the 61

direction of the organization failed because they did not foresee that this external factor would hinder it. However, in the banking industry an agreement between the actors has always been the solution, as opposed to each creating a solution and then letting the customers decide. This also causes a threat of retaining suboptimal variations in the standards because of skewed power balances. This contradicts PEOT s notion of retention. Organizations implementing the standards will be favored by the customers because of the convenience of e.g. transferring money between banks free of charge. Therefore the retained variation will not necessarily be the best. It is not surprising that fewer actors will cause less proliferation, and on the other hand ease the process of standardization. This causes a dilemma between more proliferation and potentially better products, and less standardization on behalf of the efficiency. As Hans Ildstad (2014) put it, the most groundbreaking innovations happen in the periphery. As cooperation and standardization tie the industry actors together, there is no room for the peripheral actors. This means that there is a danger that the regulator s control over the industry results in a lower degree of innovation and thereby less efficiency all over. THE ERA OF FERMENT HAS BEEN SHORT A shorter era of ferment will lead to a lower number and proliferation of alternatives. All over, the era of ferment has been relatively short in time. The planning and organization for implementing EDP systems started in 1963 and by the end of the sixties all the banks had implemented this radical innovation. The first adoption of the simple ID bank cards was initiated by BBS and was therefore quick and straightforward. The struggle between chip and magnetic strip technology on the other hand, lasted for a long time. However, the prolonged negotiations did not open up to any further innovations; it was rather a result of two powerful parties not wanting to give in. Almost all the banks had developed some kind of internet bank through the period from 1996 to 1999, while the standardizations of e-invoice, (Avtalegiro) and Bank ID was established in 2003. From 2010 when the first application based mobile bank was launched until May 2014, all large Norwegian banks offered mobile banking applications (Haugen, 2012). These short periods of uncertainty about what will be dominant design, and in the case of bank cards, the restricted period, limit the time period within which superior alternative designs may appear. This dynamic is however beneficial for the SMBs that take a strategic decision to wait until the dominant design is set because the period of uncertainty is shorter. Our observations contradict the theory describing technology cycles. RCT dictates that when an innovation builds on existing knowledge, the era of ferment is short. We have seen that three out of four radical technological innovations have required new knowledge and competences. However, the era of ferment has been short. 62

Through this chapter concerning the degree of innovation we have found that the low number and proliferation of alternatives are due to: 1. Few actors developing technology solutions 2. Pressures for standardization 3. A short era of ferment Industry density, industry composition and degree of innovation are three measures highly interlinked. The industry density will affect the industry composition, and the industry composition will affect the industry density. Industry density and composition will both affect the level of competition, which in the end will affect the degree of innovation in the industry. 63

6.4 SUMMARY OF FINDINGS Industry density: Radical technological change has a weak impact on the industry density when: 1. Regulations raise the entry barrier. 2. Regulations stabilize the market. 3. Existing technological networks raise entry barriers. Industry composition: Larger banks contribute more to bringing forward both incremental and radical technological innovations: 1. When serving existing markets is coherent with implementing radical technological change. 2. When the nature of the radical technological innovation is more advantageous for them, giving an incentive to change. 3. When they may increase their independence by taking control of their suppliers. 4. Because organizational slack may increase their capability to invest in radical technological change. Degree of innovation: The number and proliferation of alternative designs are low when: 1. Few actors participate in developing technology solutions. 2. Pressures for standardization are high. 3. The era of ferment is short. 64

7 IMPLICATIONS We have included four levels of implications in this paper; insights extended to other industries, managerial implications, implications for policy makers and implications for theory. 7.1 INSIGHTS EXTENDED TO OTHER INDUSTRIES This section corresponds to the second part of our research question; «What insights might be extended to other regulated industries?. We have chosen to divide the insights into three parts; insights for industries, incumbents and for SMBs. Radical technological innovations do not have as strong impact on regulated industries as they have in non-regulated industries. This means that the expected period of creative destruction may be absent. This insight has different implications for the various types of actors in the industry. In regulated industries, incumbents are more sheltered than in non-regulated industries. As mentioned earlier, the regulations raise entry barriers for newcomers which decrease the threat of failure for incumbents. In addition, the regulator s main task is to keep the industry stabilized which means that the failure of an incumbent important to society can be hindered with assistance from authority. Therefore, incumbents in regulated industries should have a different investment policy than in non-regulated industries. A more risk prone strategy regarding investment in innovation should be pursued. Since the regulations provide a safer environment for incumbents, a strategy where they aim to test innovative technology, even if this brings higher risk and costs. SMBs in an industry where regulations favor the incumbents seldom have the resources to initiate radical technological change. A more risk averse strategy should then be pursued. If it is more cost effective to lay the risk of testing new technology on larger, more resourceful firms. As a late-comer, the firm has the advantage of implementing the technology that has already proven to be successful. However, it is important not to wait too long because this can result in a loss of customers. 7.2 MANAGERIAL IMPLICATIONS Through our work on this thesis paper, some managerial implications have been revealed. The following section presents the managerial implications we have drawn from our empirical findings and discussion. The managerial implications concern the banks positioning in the market, their interaction with other market actors and internal focus areas. Managers should be aware of new markets opened by radical innovations. Additionally, they should be aware of the increased threat of new entrants also after the launch of new radical technological innovations. The opportunity for attackers is great while the innovation is still relatively new to the market, but after the standards and the network surrounding it, is established. At this stage, the cost and time of establishment is lower which makes it easier for the entrants to focus on market niche. 65

The competition from foreign banks that enter the Norwegian market by acquisition must not be underestimated. We have seen that by acquiring a value network and a customer base in Norway, while having support from an international network, entries by foreign actors can be quite successful. This is something managers of domestic banks should take note of. The Norwegian banking industry are increasingly globalized which means that corporate customers need cross-border support. This gives international banks an advantage, and might be a hint that domestic banks with enough resources should pursue a more international strategy. In the Norwegian banking industry, the system solution suppliers have an approximately monopolistic position. The cost of getting a system delivered is high, and often not optimally adapted to the specific bank. Managers should try to avoid a situation where the bank is too dependent on their suppliers. Managers of larger firms should pursue the option to develop systems in-house or move the development abroad where workforce is cheaper. Managers of less resourceful banks should try to achieve the most impact when negotiating with suppliers, by e.g. entering alliances with other SMBs. Communication with the bank s most important customers can shed light on needs which may trigger a new service or technology. Managers must focus on revealing these needs. This can be done by including representatives from their customers in for example a discussion forum. Managers of local banks should strengthen their competitive advantage by interacting with the local community through e.g. sponsorship to maintain the relationship with loyal customers. Managers should focus on achieving a competitive advantage by attracting and retaining competent employees. With stricter regulations through e.g. requirement for bookkeeping, competent employees is crucial. In addition, technical skills are needed to handle advanced technological systems. This is especially noteworthy for managers of SMBs which might struggle to attract competent employees because they cannot offer the same career opportunities as the larger firms. Managers should also build motivation as a part of their work culture. Motivation among employees is a competitive advantage which is harder to copy than an advanced technology. 66

7.3 IMPLICATIONS FOR POLICY MAKERS This research has some interesting implications for policy makers. Regulations have proven to have a strong moderating impact on the levels of competition in the Norwegian banking industry. In addition to elevating the entry barriers, these effects are enhanced by the strengthened position of incumbent banks. However, regulations ability to create stability in the economy comes at the price of decreased degree of innovation. This may cost the society largely in the form of lost opportunity to increase social welfare, and the higher economic growth. Put differently, policy makers need to take this downside of increased stability and security into account when they adopt laws. The degree of standardization also has implications for policy makers. Rushed standardization may incorporate a sub-optimal technological solution into the industry standard, which is difficult and costly to change because it affects all actors and indirectly the customers. Therefore, there is a dilemma between gaining short-term efficiency by rapid adoption of standards, and developing an optimal solution that will give long-term efficiency for the industry and for society. 7.4 IMPLICATIONS FOR THEORY This study builds on extensive theory regarding radical change and has contributed to existing theory by focusing on the specific case of a regulated industry. Existing theory dictates a state of creative destruction and upheaval amongst the actors in the industry after a radical change, nevertheless this is not the case in our study. The regulations seem to be the key factor explaining why radical technological change does not have the same amount of impact on the industry. Established authors in the field of both RCT and PEOT, speak of how incumbents have low capacity of adopting radical technological innovations and therefore succumb to new entrants. Our research has extended the theory by showing opposite results when regulations are added to the equation. We have also enhanced PEOT s notion of organizational slack s mitigating effect on inertia through supportive findings in our thesis paper. If this effect is enhanced under regulation is uncertain and needs further investigation. In addition we have shown that the notion of retention is invalid in environments with high pressures for standardization. 67

8 CONCLUSION This historical case study was motivated by the interesting theoretical cross-section between radical technological changes and regulations effect on industry dynamics. With the premise of this proving to reveal exceptional results, our second purpose was to extract insights valuable for other regulated industries. This is reflected by our dual research question. We will now present the main conclusions that answer our problem statement. 1. How does radical technological change affect the industry dynamics in the Norwegian banking sector? The effect of radical technological change in the Norwegian banking industry is moderated by regulations, through lowering impact on the industry density. Radical technological change has strengthened the position of incumbents in the Norwegian banking industry by reinforcing their relation with existing customers and improving their efficiency through standardization. Large investment costs tend to exclude smaller banks from cutting edge innovation, and even be a threat to their existence. 2. What insights might be extended to other regulated industries? The insights are specified for the industry, incumbents and SMBs. Regulated industries do not go through the same stage of creative destruction. Regulations result in a safer environment for incumbents, which means that they can take a more risk prone strategy in initiating radical innovation. Smaller firms should implement a risk averse strategy and let the more resourceful firms bear the cost of researching innovative technology. 68

9 LIMITATIONS AND FURTHER RESEARCH Due to time restrictions the scope had to be bounded to the topics most relevant to our research question. We wanted to look into any potential differences in radical technological change s impact on regulated industries, compared to the industries investigated previously. Therefore, it was natural to start by looking at the industry dynamics over a longer period to be able to strengthen the validity of the findings. A historical study of a whole industry over fifty years is however extensive, and have therefore forced us to exclude internal factors in the individual organizations. We have also limited the study to the big picture of the industry and the most distinctive characteristics of the Norwegian banking industry. However, we argue that our empirical data selection provide a realistic picture of the industry that is sufficient to shed light on the problem statement. Hopefully, this will provide a good starting point for further research, aimed at exploring the topic of radical technological change in regulated industries. All though our data foundation is extensive, further research regarding our research question should be done to provide stronger proof, and enhance the reliability of the causual relationships. We have only studied one regulated industry where our findings are used to generalize to other regulated industries. A study of other regulated industries like the power industry could be done to add to these findings and enhance the external validity. Further, more specific, research of both the private and commercial market in the Norwegian banking industry would be ideal to get an understanding of possible differences in the effect of radical technological change on the two markets. Such research can also reveal other factors like the banks resource prioritization between the markets that may provide further insight. 69

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11 APPENDIX APPENDIX 1: COMPLETE OVERVIEW OF COMMERCIAL BANKS The following is the development of commercial banks since 1960 (Finans-Norge, 2014). Name Founded Merged Liquidated Name change (N)orion Bank 1987 1989 Acta 2001 agderbanken pre-1960 Andresens Bank pre-1960 1980 (Kreditkassen) Bank 2 ASA 2005 Bank Norwegian AS 2007 Bankia Bank ASA 2001 Santander Banque Indosuez Norge 1985 1994 Banque Nationale de Paris 1985 Norge Banque Paribas Norge 1985 1989 (Oslobanken) Bergens Kreditbank pre-1960 1975 (Bergen bank) DnB Bergens Privatbank pre-1960 1975 (Bergen bank) DnB Bergens skillingsbank pre-1960 Bergensbanken Bolig og næringsbanken 1992 Buskerudbanken pre-1960 1987 (Fokus bank) Bøndernes Bank pre-1960 1987 (Fokus bank) Chase Manhattan Bank 1985 1996 (Chase 1992 (Norway) Manhatten Citibank A/S 1985 Den Danske Bank 1997 Den Nordenfjeldske pre-1960 Kreditbank Den Norske Creditbank pre-1960 1990 (DnB) Drammens Handelsbank pre-1960 1962 (Kreditkassen) Farsund og Opland Bank pre-1960 Finansbanken 1985 2002 (Storebrand Bank) Finnmarkens Privatbank pre-1960 1973 (DnC) Fiskernes Bank pre-1960 1984 (Kreditkassen) Fjordenes Kreditbank pre-1960 1961 (Vestlandsbanken) Fjære Sparebank pre-1960 Fjærland Privatbank pre-1960 1973 (Vestlandsbanken) Forex Bank AB 2004 Forretningsbanken pre-1960 1963 Fokus Bank (Nordenfjeldske Kreditbank) Fredrikshalds Kreditbank pre-1960 Fredrikstad og Omegn Bank pre-1960 1969 (Kreditkassen) GE Capital Bank 1997 Gjensidige Bank as pre-1960 Gjensidige NOR Glitnir 2006 74

Haugesunds pre-1960 1973 (DnC) Forretningsbank Holmestrand og Oplands pre-1960 1965 (Kreditkassen) Aktiebank Horten og Omegns pre-1960 Privatbank Hønefoss og oplands pre-1960 1962 (Kreditkassen) kreditbank Høylandet Privatbank pre-1960 1961 (Forretningsbanken) Industri & skipsbanken 1989 Finansbanken ASA inter nordisk bank 1985 Gjensidige bank Jæren Privatbank pre-1960 1964 (DnC) Kaupthing Bank hf. NUF 2007 Kjøbmandsbanken A/S pre-1960 1990 (Banque Nationale de Paris) KLP Banken 2010 Kredittbanken 1993 Kredittbanken, Ålesund pre-1960 Kredittkassen pre-1960 2001 (Nordea) Kristiania Folkebank pre-1960 1961 (Folkebanken Realbanken) 1966 Andersens bank Kristiania Hypotek og Realkredit-Bank pre-1960 1961 (Folkebanken Realbanken) kristiansands og oplands pre-1960 1980 Adgerbanken privatbank (Sørlandsbanken) Kristiansunds og Nordmøres pre-1960 1969 (Kreditkassen) Forretningsbank Kvam privatbank pre-1960 1979 (Bergen Bank) Landkreditt Bank AS 2002 Landsbanken pre-1960 VÅR Bank Lillehammer og Oplands Kreditbank pre-1960 1962 (Kreditkassen) Lister Privatbank Manufactorers Hanover Norge Moss og Oplands Bank pre-1960 1961 (Kreditkassen) Måløy Privatbank pre-1960 1970 (Bergens Privatbank) Narvik Handelsbank pre-1960 1975 (Nordlandsbanken) pre-1960 1985 Chemical Bank Norge Nordbanken AB (publ.) pre-1960 2000 Oslofilialen Nordlandsbanken pre-1960 DnB Notodden Bank pre-1960 1973 (Bergens Privatbank) Odda By og Bygdebank pre-1960 1964 (DnC) Opplandsbanken pre-1960 1980 (DnC) Opplandske Kreditbank pre-1960 1966 (DnC) 75

Os Privatbank pre-1960 1970 (Bergens Privatbank) oslo handelsbank pre-1960 1990 (Svenska handelsbanken Norge) Oslo Nye Sparebank pre-1960 1975 (Vestlandsbanken) Oslobanken 1984 1994 Pareto Bank ASA 2008 Porsgrunds Ørebank pre-1960 1964 (DnC) Postbanken pre-1960 Privatbanken ASA 2000 Privatbanken i Sandefjord pre-1960 1970 (DnC) Rogalandsbanken pre-1960 1991 (Fokus Bank) romsdals fellesbank pre-1960 2005 (Sparebank 1 MN) Røkens Bank pre-1960 1964 (DnC) Samuel/Midland Montagu 1985 1992 Samvirkebanken pre-1960 1993 (Fokus Bank) Sarpsborg og Oplands pre-1960 1972 (Kreditkassen) Kreditbank Sauda Kreditbank pre-1960 1965 (Bergens Kreditbank) SkandiaBanken AB Filial 2000 Norge Skandinaviska Enskilda 1994 Banken (SEB) Skudesnæs Privatbank pre-1960 1962 (Rogalandsbanken) Skånevik Privatbank pre-1960 1963 (Bergens Privatbank) Smaalenenes Aktiebank pre-1960 1961 (Kreditkassen) Sparbank1 Midt-Norge pre-1960 Sparebanken Telespar 2003 Stavanger bank 1985 1991 (Svenska handelsbanken) Storebrand Bank 1996 Sunnmøre kreditbank pre-1960 1975 (Sunnmørsbanken) Sunnmørsbanken A/S pre-1960 1990 (Kreditkassen) Svenska handelsbanken 1988 Svenska nordbanken 1991 1994 Swedbank 2000 Swedbank Oslo 1999 (Föreningssparbanken) Sørlandsbanken A/S pre-1960 1990 (Kreditkassen) Telemarksbanken pre-1960 1981 (Bøndernes bank) Terra Kort Bank 2009 Totens Privatbank pre-1960 1962 (Kreditkassen) Tromsbanken A/S pre-1960 1990 (Fokus Bank) Trysil Privatbank pre-1960 1960 (Kreditkassen) 76

Ullensvang Privatbank pre-1960 1976 (Vestlandsbanken) Unibank A/S, Oslo Branch pre-1960 2001 Vadheim Privatbank pre-1960 1974 (Vestlandsbanken) Valestrand Privatbank pre-1960 Verdibanken ASA 2003 Vestfoldbanken pre-1960 1981 (Kreditkassen) Vestlandsbanken pre-1960 1987 (Fokus bank) Vikedal Privatbank pre-1960 1960 (Bøndernes bank) Voss vekselog pre-1960 Landmandsbank Warren Bank 2009 2011 Østfold Privatbank pre-1960 1970 (DnC) 77

APPENDIX 2: OVERVIEW OF SYSTEM SOLUTION SUPPLIERS This figure shows the mergers and name-changes of the original data processing companies through since their establishment in the 1960s. Today there is only one large system solution supplier, namely Evry. 78

APPENDIX 3: TRANSCRIPT OF INTERVIEWS These in-depth interviews were done in Norwegian, thus the transcript is done in the same language. The table below shows an overview of the following interviews. No Name, Company 1 Hans Ildstad, Evry 2 Bjørn-Tore Brønlund, Helgeland Sparebank 3 Geir Wist, Danske Bank NO.1: TRANSCRIPT OF INTERVIEW WITH HANS ILSTAD Name: Hans Ildstad Company: Evry AS Date: 30.01.14 Place: Evry, Trondheim Interview parties: Hans Ildstad (H), Martha Bakken (M) and Astri Østmo (A) [ ] M: Var dere den første banken som begynte med å koble opp maskiner og sjekke saldo? H: Nei, det var flere andre banker som gjorde det. Vi hadde et tett samarbeid med en bank som het Andresens bank. Etter hvert gikk den inn i det som er nå Nordea i dag. Vi hadde et samarbeid med dem og vi hadde også samarbeid med Sparebanken. Så hele norsk bankvesen begynte å røre på seg innen den tiden der, og skjønte at nå måtte man gjøre noe. A: Og da var det internt i banken man begynte å utvikle disse nye løsningene? H: Ja, så publikum der ute merket ikke noe mye av det i første omgang. Det var først når de begynte å få kortene at de merket en forskjell. M: Ja, med magnetstripe? H: Magnetstripekortene ja, altså at kundene i første omgang kunne begynne å ta ut kontanter. Det var det første som skjedde; at vi hadde minibanker så de kunne ta ut kontanter og betale i butikkene. Men så begynte bensinstasjonene å installere EFPOS terminaler og kortterminaler så du kunne betale. De var de første som begynte med dette her ute i handelsnæringen med den type betaling. M: Jeg leste et sted at det var Maxbo som hadde det først? H: Nei, det tror jeg ikke er riktig, det var bensinstasjoner som var først. Men så kan det hende at Maxbo var tidlig ute med terminaler og vanlige butikkterminaler, for det kom jo også. Jeg husker jeg holdt et foredrag i -88 på Dataforeningen der jeg snakket noe om dette her, og da var det vel kommet opp i Vent litt skal jeg bare hente noe. (Ildstad forlater rommet for å hente noe.) På Norges bank sine hjemmesider finnes det årsrapporter for betalingsmidler i Norge og der ligger det faktisk tilbake til 87, og i de rapportene ligger det inne noe om status på betalingsmidler og hvordan de utvikler seg. Der kom man faktisk tilbake til -84 i denne tabellen. Men i -88 så var det blitt 2 mill kort. Da hadde vi 2,5 tusen butikkterminaler. I -88 så hadde vi 3750 terminaler totalt i hele Norge. A: Hvilket årstall da? H: 1988 M: Er dette informasjon du fant i årsrapportene fra NBO? H: Nei, dette her var faktisk fra det foredraget jeg holdt i -88 hvor det står litt om status EFTPOS. Men så tenkte jeg på den rapporten fra 87, så står det noe om sedler og mynt. Bankgirotransaksjoner myntomsetning nå begynner vi å nærme oss her. Sjekker hadde sitt høydepunkt i 84. Antall sjekker omsatt osv. M: Men du sa at det var innad i bankene at man skjønte at man måtte begynne å gjøre noe, og derfor begynte bankene å installere minibanker og disse kortene som da ledet til bankterminaler. Hvorfor 79

skjønte man akkurat da at man måtte gjøre noe? Så man på hva de gjorde i utlandet, eller var det en bank som plutselig fikk en god idé eller? Hvor kom denne kriblingen fra? H: Hvor kom idéen fra? Ja, det kan du spørre om. Det hadde jo sammenheng med de mulighetene man så i databehandling og datamaskiner. Fordi bankene kvernet igjennom store datamengder daglig, var det nærliggende, når det kom et redskap på plass som kunne kverne gjennom store datamengder, å ta dette i bruk. Så det foregikk over hele verden parallelt, spesielt i IBM og UniMac og slikt, begynte å bruke maskinene både til bankene og å selge dem. M: Så på en måte utviklingen av datamaskiner da, og de ble pushet på bankene og at bankene skjønte at her er det muligheter? H: Teknologien muliggjorde nye måter å gjøre det på. Og sånn er det veldig ofte, at teknologien muliggjør. Og så er det samspill mellom anvendelse og teknologi hvor teknologien muliggjør, anvenderne oppdager at akkurat, dette kan vi bruke det til og så går signalene tilbake til teknologien, eller teknologiselskapene at videreutvikle dette. Gjør mere av dette. Her er det et marked. Her er det pengene som rår, og at vi får omsetning på dette her og dette må vi gjøre mere. M: Dette er jo slik at teknologien pusher? H: Ja, og så er det alltid et spørsmål om det er teknologien som pusher utviklingen eller er det brukerne og behovet som pusher. Det er et håpløst spørsmål. For det er ikke enten eller, det er et samspill hele tiden. Og når det gjelder informasjon, jeg var jo med på å lage de første internettbankene her i landet, og vi var vel en av de første som kom med internettbank i markedet. Men vi var ikke den eneste. Her i Trøndelag så hadde vi konkurranse med en annen datasentral eller leverandør i Oslo som het Fellesdata. De begynte omtrent samtidig og vi kom ut med løsninger omtrent samtidig. Og så knives vi litt om hvem som kom først. Jeg var fremdeles i Forretningsbanken. Nei, unnskyld, på det tidspunktet var jeg i dette firmaet her. M: Men da het det vel ikke det det heter nå, da het det vel? A: Ergo group? H: Neida! Det het Novit da begynte. Eller Nordata, så endret det til Norvit og så Telenor Norvit og så kjøpte Telenor Fellesdata som var vår verste konkurrent, og så ble det Telenor Fellesdata og så ble det EDB, og så ble det Ergo, og så her for noen år siden så slo Ergo og EDB seg sammen og ble det vi er i dag. A: Og dette her er løsningene bak banken, ikke sant? H: Ja. M: Så de to argeste konkurrentene ble etter mange år slått sammen da? A: For Evry er absolutt størst i Norge på dette her? H: Ja A: Og så er det to konkurrenter? H: Det kommer vel an på hvilke områder du snakker om konkurranse, for vi er jo både en driftsoperatør, altså vi drifter for bankene forskjellige løsninger, og vi er løsningsleverandør, vi lager løsninger for bankene. Vi driver konsulentvirksomhet for bankene, vi går inn og hjelper bankene med utvikling. Og det er veldig mange firmaer som konkurrer mot oss på enkelte av disse områdene, men ikke alt. Så konkurrentene er finsk firma. Nå står det helt stille. M: Ja, vi finner ut av det. H: IBM er en konkurrent på driftssiden for eksempel, de er vel enda større enn oss i Skandinavia så vidt jeg vet. Men det var noe jeg tenkte på med, dere kan jo kikke på dette her. Der står det at i løpet av 1986 og 87 har det skjedd en utrolig utvikling innen elektronisk baserte betalingstjenester. Spesielt med innføring av betalingsterminaler i detaljhandelen. Norges bank har på dette feltet hatt som primært siktemål å samhandle teknologisk ulike plastkortordninger. Det ligger på nettet, alle disse statistikkene bak til 87. Det var jo den hoved utviklingen innenfor bank. Og den har jo gått sin gang og Norge var egentlig veldig tidlig ute med å lage online real-time systemer. M: Ja, jeg har hørt at Norge var en av de første som kunne betale regning over nettet. H: Absolutt. M: Men hadde man teknologien til å lage teknologien til å lage nettbank tidligere en det man gjorde? 80

H: Nettbanken kom jo spesielt med internett. Det var da det skjøt fart. Men allerede før internettet, hadde man nettbanker for bedriftsbanker. Jeg har plukket frem en artikkel. Det der var den første nettbanken, sannsynligvis i Norge. Det må være i 84. Og da satt vi og laget nettbank på dumme terminaler. Og det var litt av en utfordring, for det første måtte man sørge for sikkerhet da, for da skulle jo bedriftene sitte og se på saldoene sine og de skulle betale regninger og sånne ting. Og så måtte du lage linjeprosedyre som overvåket terminalen at den var med hele tiden osv. I dag er jo sånne ting ferdig laget av spesialistselskaper i USA eller hvor det måtte være. Den gangen snekret vi det sammen selv. Og første bedriften som kjørte dette var Norske Skog. Så de var de første som tok dette i bruk. Senere ble dette utviklet også andre steder. Vi satt i banken og utviklet det den gangen, men det ble også utviklet her i denne bedriften, noe som het NV-link. Det må ha vært i 85-88 eller noe sånt noe. M: Men disse første online bankene, ble de utviklet med en gang man hadde den nødvendige teknologien eller hadde dere kanskje teknologien i et par år og det var noen som holdt dere tilbake fra å lage det. H: Bankene var veldig tidlig ute med å ta i bruk teknologien og bruke det, men det betyr ikke at de drysset det ut til kundene med en gang, for det tok jo tid å teste ut og føle at man var på plass med det. PC ene kom vel rundt 82-81, og det tok jo litt tid bankene tok i bruk det til de standardfunksjonene, men det var først litt senere at man tok det i bruk som verktøy for hjemmebank og slikt da så, ja. Det var faktisk noen hjemmebanker for privatpersoner da, men aller mest for bedrifter. Det gikk også parallelt på slutten av 80tallet og begynnelsen av 90talet at man tok i bruk det. A: Det virker som om bankene var flinke til å kaste seg ut og benytte seg av muligheten, for ofte kan det jo være litt indre gnisninger og ikke alle har interesse i at dette her skal gå igjennom. H: Ja jeg husker da vi innførte terminalsystemer i filialene, det var ganske stor omveltning, og da var vi veldig nøye med å ha med oss funksjonærforeninger og funksjonærene i prosessen, med utformingen av arbeidsfasen og hvordan dette her skulle se ut og brukes osv. Først og fremst for å få dem engasjert og for å få dem til å vite hva dette her dreide seg om. For det var skepsis. M: Hvem var de største skeptikerne? H: Jeg vil påstå at det var de som da i første omgang ble rammet av det, altså de som måtte ta det i bruk. Som måtte lære seg disse tingene og spesielt de som var godt voksne. Men det varierte veldig. Men det var jo ganske traumatiske endringer som foregikk, men først og fremst for å øke kapasiteten og gjøre tingene mer rasjonelt internt i banken. Med kortene så kom egentlig det første disruptive innslaget ut mot publikum iom at man da kunne legge fra seg pengene hjemme og bruke plastikk i stedet for penger i normale butikker. Den neste disruptive innovasjonen det var helt opplagt internett. Så jeg husker måten jeg oppdaget internett på var at jeg gikk på et eksamensetterutdanningskurs på Gløshaugen i 1995. Jeg visste jo om internett den gangen også, men da satt vi og jobbet med det der nede. Temaet var Operation eller et eller annet sånn. Da brukte vi Mosaikk. Det har ikke dere hørt om. Det var den første browseren som kom. Det var den som virkelig fikk det til å løsne for internett. Internett er jo en ting, altså at du har nettverket, men det var ikke det i seg selv som gjorde at det her ble populært. Men det var det fantastiske brukergrensesnittet som kom med de første browserne. Hvor du ikke behøvde å bry deg om sånne blåskjermer og sånne ting. Det gjør jo ikke vanlige folk. Da ble det browserse ala explorer og chrome og dette her. M: Så dette var i 1995? H: Ja det var i 1995, ja. M: Men kom ikke Skandiabanken i...? H: Nei, det var senere. A: Men det skjer likevel fort da. H: Det som var litt morsomt var at etter at jeg hadde vært på det kurset, gikk jeg hjem til min administrerende direktør og sa "Du, nå har jeg vært på et kurs. Det var spennende. Nå skal du høre..." Og jeg oppdaget at jeg fortalte om nettet og denne browseren og sa at dette her, dette kommer til å få stor innflytelse på hvordan man gjør bank i fremtiden. Kan ikke vi nå lage en nettbank basert på internett. Jo sa han, det gjør vi. Men vi må ha med oss noen banker. Og så gikk jeg til fire store banker. Første banken jeg gikk til, det var Sparebanken her nede. Og gikk inn til en av sjefene der og sa at "jeg 81

må snakke med deg". Og så brukte jeg en time på å forklare hva dette her var for noe, altså internett. Og så sa han at det her hadde han hørt om. Spennende greier. Og vi skal kjøre prosjekt, og jeg vil ha 100 tusen kroner av deg. Jeg kan ikke love deg noen ting, kanskje dette er fullstendig bomskudd, men du får være med. Du får høste erfaringer av prosjektet og se hva dette her er for noe, og hvis vi kommer opp med noe får du selvfølgelig være blant de første som får være med på dette. Ja det var greit. Det var første gang i mitt liv at jeg gikk inn i banken og kom ut med 100 tusen kroner etterpå. Da var bankene så på alerten etter å få disse... Ja de skjønte at det var noe som skjedde, dette må vi være med på, denne teknologien som skjedde nå. Og så var jeg inne i tre andre banker, og i to av de bankene så gikk det på samme måte. I den tredje banken der jeg hadde med min administrerende direktør også, ble vi kastet på gangen. H: Nei, for noe sånt tull som det der ville de i hvert fall ikke være med på. A: Fordi jeg synes egentlig at det er litt utrolig at såpass mange så potensialet og trodde på denne endringen, for det virket jo som om det var noe som man allment visste... At noe skjer, men. H: Men det var ingen av oss som visste hva dette kom til å ende med. Men viljen til å finne ut av det var tilstede. M: Men da jobbet du i...? H: Da jobbet her i denne bedriften. A: Med utvilking? H: Ja. M: Men det var ingen i bankene selv som hadde tenkt på nettbank? Det måtte komme noen utenifra og spørre om de ville være med på det? De hadde ikke tenkt på det selv eller fått noen egne til å begynne å utvikle dette? H: Nei, du må tenke på at vi drev jo med teknologiutvikling på vegne av bankene. Så de hadde ikke egne organisasjoner, bortsett fra Fokus bank. Og Fokus Bank de var veldig tidlig ute også. Så de hadde allerede begynt å tenke på det. De var veldig lette å få med på dette her. M: Ja, for dere samarbeidet med dem også? H: Ja, det var en av dem vi samarbeidet med. A: Hvem var det, Fokus bank og...? H: Ja, Fokus bank og tre andre. Og så kom Fokus bank ut veldig tidlig med en nettbank. Jeg kaller det en statisk nettbank. Da var det bare bankens tjenester, ikke noe tilgang til kontoen eller noen ting. Mer som en nettside. Mens vi valgte å gå rett inn og begynne å få tilgang til konti og gjøre overføringer til konti etterhvert. A: Var det mange forskjellige muligheter som dere tenkte på å utvikle? Eller alternativer da, statisk... tilgang til konti.. Var det flere sånne H: Jada, der var det et par banker borte i USA som var tidligere ute enn oss. Det var... Nei jeg husker ikke. M: Men i dag, USA er jo ikke så flinke til å bruke nettbank slik som her i Norge. Hvis de var tidligere enn oss, hvorfor har det gått så bra med nettbank i Norge, men ikke i USA? For de bruker jo fortsatt mye sjekker og slikt også? H: Ja de er et sjekksamfunn. En av de tingene som vel hjalp oss, det var at vi har et veldig homogent bankvesen. Bankvesenet har hadde et veldig sterkt samarbeide på betalingssiden. Slik som hele betalingsinfrastrukturen og kortinfrastrukturen, var ganske unik i Norge. Fordi man ble enige om standarder og slikt som jeg leste fra den rapporten. Norges bank og andre jobbet veldig mye med å samordne løsningene. M: Ja, jeg bare leste i en eller annen rapport at det var ikke så smertefritt, og at det tok lang tid før de ble enige. H: Ja, brukte mange mange år på det. Så det var ikke noe lett prosess. Men det gjorde jo at den videre utviklingen var enklere. Og jeg kan betale noe til deg selv om du har en annen bank, det var en enkel prosess. Mens for eksempel i USA, der er det mye vanskeligere fordi de har ikke den samordningen. Så det er ikke gitt at du kan sende penger fra meg til deg via kanaler på samme måte som vi kan her. Og det er en grunn til at de har så mye sjekker også. For det er på en måte samordnet for lenge siden. Da er det enklere å få til. 82

M: Så fordi vi tidlig klarte å bli enige om standarder, så har det lagt til rette for videre teknologisk utvikling? H: Ja, og det er jo en fordel, men på samme tid kan jo det også være en ulempe for oss. At vi skal være så veldig flinke til å samordne, det betyr jo også at vi hindrer ting i å komme seg videre. Fordi det som ofte skjer når man går inn på nye løsninger og skal prøve med innovasjon og skape noe nytt, det er at det skjer ute i randsonene. Altså du har det som er den store hopen liggende i midten, og så ute i randsonene skjer det ting. Altså hvis det er veldig styrt... Veldig prosesssorientert sentralt, slik at du må ha en godkjennelse i alle kanter for å gjøre noe så hindres disse randsonene utviklingene av nye ting. A: Ja, for det er ikke bare det at man bruker en standard, det er at man må ha godkjennelse fra alle hold... H: Ja, og det har for eksempel skjedd i utviklingen av nye typer kort, kontaktløse kort for eksempel. Hvor man har kommet mye lengre i England, i Polen, Tyrkia for eksempel enn det vi har. Kontaktløse kort er når du har et kredittkort eller et bankkort i stedet for å bruke magnetstripe og chip og PIN, og sveiper man bare kortet og så betaler man. M: Er det lignende RFID? H: Ja, det ligger en RFID chip med intelligens inni. M: Busskort er jo litt sånn i Norge nå. H: Ikke akkurat samme standard som brukes, men samme teknologien. M: Men apropos det, i Japan så betaler de bare ved å scanne mobilene sine over... Litt sånn mobile wallet. Og teknologien er der og de har gjort det lenge, og da jeg var der betalte jo bare alle med den teknologien. Så teknologien finnes jo, hvorfor har ikke den kommet til Norge? Og jeg har lest også litt eldre artikler fra flere år tilbake hvor de sier at "Nå skal det komme!", men så skjer det jo aldri. H: Det kommer. DnB og Telenor satte i gang et prosjekt for flere år siden. ValYOU. Og det skal i gang nå i april, mai setter de i gang. Og da skal de inn i en sone Drammen og område rundt der og så skal de ha noen terminaler ute på Gardermoen. Og der er det sånn at du bare tar telefonen og så gjør du bare sånn. _ Og så betaler du. Og hvis det er store beløp må du taste PIN koden på mobilen. Altså i stedet for å bruke kortet. Akkurat den delen, det er at du har endret formfaktor. Altså betalingskortet er en formfaktor. At du har noe informasjon liggende i kortet, hvor du kan bruke det som en identifikasjonsmekanisme for å betale. Så tar du det kortet og så legger du det inne i telefonen med samme informasjonen og litt til, og så bruker du telefonen isteden som det samme. Så det er etter min mening bare en videreutvikling av selve kortet. Det har ikke noe med noe annet å gjøre. M: Så det er ikke en disruptiv forandring i seg selv, for det er bare å putte kortet inni... H: Overhodet ingen disruptiv forandring. Det som er en disruptiv endring, dere får unnskylde at vi hopper frem og tilbake... Jeg skal vise dere en tegning. Et prosjekt som jeg holder på med nå... Vi kaller det mobile wallet, men dette her er liksom den value saken. Fordi det man sier er at vi skal putte kortene inn i telefonen, betalingsmidlene inn i telefonen, lojalitetskort inn i telefonen. Og som jeg sier, det er ikke noe disruptivt i det. For det er jo bare en annen måte å drasse rundt med det. Så det som er min påstand er at "the future of mobile wallet is not in payment, but in adding value to consumer and shoppers value experience." Det er jeg som konsument er opptatt av. Det er ikke å betale. Couldnt care less. Det er det dummeste jeg vet å betale. Pain in the ass. Det er bare noe jeg må gjøre. Det jeg er opptatt av, det er jo selve handleopplevelsen. Det jeg kjøper, hvordan jeg kjøper, hvordan jeg får tak i det. Jeg blir i ekstase når jeg finner det jeg skal kjøpe på deal extreme uansett hvor det kommer fra. Så det vi har sagt, det er at i fremtiden så må bank eller de som ønsker å være med innenfor betalingsformidlingen, de må utvide perspektivet på det de holder på med. Tradisjonelt så er jo en commerce prosess en handelskjøpprosess, det er noe som foregår med stimulus, search and evaluate, purchase og experience. Betalingen foregår innenfor purchase. Der er det vi har konsentrert oss. Der er det vi som betalingsinstitusjoner eller bankene som institusjoner har konsentrert seg om å gjøre noe, ikke sant. Men så kommer det spillere der ute som PayPal og itunes og Google osv som begynner å bre seg utover og influerer på ting som stimulus siden og markedsføringssiden og purchase siden etc. Altså tar hele verdikjeden og engasjerer seg der. Så det som er min påstand og som jeg jobber mye med nå er å se hvordan kan bankene eller for den sags skyls vi som provider til markedet, men ikke 83

bare til bankmarkedet, hvordan kan vi bidra til å være med i hele verdikjeden. Og det å handle og det å skape seg ting eller det å selge ting. Og så strekke ut området fra bare å gjelde dette med betaling til å gjelde alt sammen. For å illustrere så kan du si at den tradisjonelle økosystemet for kort det er jo det at jeg har et kort som konsument, kjøpmannen har en terminal for å ta imot kortet, og så er det en utstederbank av kort og det er requierybank, altså en receptorbank for transaksjonene. Og det er der vi er som konsument. Så må vi utvide og dette har med siruptivitet å gjøre. Så vi må utvide perspektivet, for sett fra konsumentens side, så bruker han mobilen til mye mye mer enn bare betaling. Han bruker det for lojalitet, for reklame, du får poeng, sånn lojalitetspoeng og du får kuponger, altså tilbud. Du bruker det for selvscanning i butikken, du kan bruke det for å skrive handleliste til Rema etc. Ikke så mye enda, men det kommer. Men skjermer i butikken hvor det for eksempel kan stå "Hei Hans" når du kommer inn. Det ligger så enorme muligheter i denne mobilitetssaken. A: Så kan man selv velge hva som er nyttig. H: Ja, men alt dette her innebærer at vi er nødt til å se på et helt nytt økosystem. Ikke se så mye på dette med pay og ruter og sånn, men hvor du har en trusted service partner, hvor konsumenten er inne i denne linjen og de som yter tjenester, selger ting, coop, obs, bank for den sags skyld som skal levere tjenester gjennom mobilitet. Ikke nødvendigvis bare til mobilen, det kan være nettbrett osv. Så her er det nede i det området der (peker) foregår det ting. Der kommer det til å skje noe enormt. M: Men hvor mange er det som skjønner at "Nå er det noe som skjer?" H: Ingenting som har skjedd. Ingen har begynt med det. Men vi har konkurrenter på det. Og jeg jobber i et internasjonalt forum som heter Mo***forum hvor arbeidet vårt det går utpå å definere funskjoner og forskjellige vinklinger av dette med mobile wallets. Og der sitter vi representanter fra Danmark, Norge, Sverige England, Frankrike, Spania, USA, etc. Fra banker og fra datasentraler sånn som oss. Og noen av disse representantene, de har jo også vært med på disse diskusjonene her. M: Men er dette også slik at dere utvikler standarder? H: Det er en utfordring. Da forutsetter det at mange har felles forståelse og at mange er villige til å samarbeide. Så når vi snakker om dette her nå, det er veldig tidlig, så egentlig er disse tingene konfidensielle, det vi snakker om nå. Vi snakker ikke om det i store sammenhenger i hvert fall. Men jeg har vært ute og snakket med Nordea sentralt og DnB og Handelsbanken og Sparebank 1 og litt av hvert om disse tingene. Og det er en gryende forståelse for at "ja, her er det neo". Og det som er vår utfordring ovenfor bankene, det er at bankene kan gå inn og engasjere seg her, ikke nødvendigvis en helt naturlig rolle for dem fordi har jo med betaling. Altså i dette økosystemet så har de betaling her, men ikke nødvendigvis noe lengre ned. Så spørsmålet er vil bank engasjere seg? Og min påstand er at "Hvis ikke bankene ikke engasjerer seg, så kommer til å forsvinne". Hvert fall så kommer de til å forsvinne i folks bevissthet. Altså de blir ikke synlige. Jeg husker for eksempel ikke hvilket kort jeg har laft inn på ATB appen. Så derfor sier jeg at dersom man ikke engasjerer seg her, så kommer de til å forsvinne. A: Ja dette er jo akkurat det vi har skrevet om, at det er vanskelig å få med seg store organisasjoner på dette her, og så kommer de små organisasjonene inn. M: Men for å få til dette her med mobilen... Finnes teknologien for dette nå? Hvis du hadde fått samlet et team og fått penger, kunne dere ha lagt det nå? H: Mesteparten av teknologien finnes. Det er ikke noe rocket science. M: Så hvorfor starter man ikke allerede? H: Det er jo for det første ganske vanskelig å gjøre noe slikt, fordi man må involvere mange parter. Og standardisering finnes ikke. Det er ingenting som er standardisert når det gjelder akkurat dette her. Og det er mange ting som det er spørsmål ved. For eksempel du kan jo se for deg at du får en slik infrastruktur i samfundet der mobilen brukes overalt. Hvor mange av disse downtownbutikkene våre nede i sentrum er det som har app? Ingen. De småbutikkene der har ikke sjangs. De som har app er kanskje de aller aller største. Men hvordan skal man klare å få hele forretnings samfundet inn på det å bli mobile? Og levere tjenester av forskjellige slag altså hvor det nå måtte. Gjennom en mobilitetsløsning. Det er spørsmål som man ikke har svaret på enda. Men sett nå at alle sammen 84

klarte å levere apper til dette her. Hadde du lastet ned alle de appene som du trenger for å gå en tur på byen? M: Ikke for alle småbutikkene, nei. H: Så det vi også ser på er hvordan man kan lage en infrastruktur der butikkene ikke trenger å ha egne apper, men hvis man kommer innom butikken så kommer den appen opp og kan kommunisere med det. Så det er store spørsmål i dette her, men jeg er sikker på at vi kommer til å gå i den retningen. End of interview NO.2: TRANSCRIPTION OF INTERVIEW WITH BJØRN-TORE BRØNLUND Name: Bjørn-Tore Brønlund Company: Helgeland Sparebank Date: 11.03.14 Place: NTNU, Trondheim Interview parties: Bjørn-Tore Brønlund (B), Martha Bakken (M) and Astri Østmo (A) The first part of the interview was not recorded because of technical problems. M: Men blir det ikke da til at Nordea kjøper opp små banker? Eller bare går de under slik at kundene må gå til store banker? B: Ja jeg tror det kommer til å bli sånn at vi må søke inn imot store banker. Det blir det nok til etter hvert. A: Akkurat som at nett og mobil blir såpass stort at du ikke trenger fysiske banker lengre? B: Ja, det er jo en ting, og så er det jo også på grunn av de høye kostnadene på systemene. Det koster en og en halv million hvis du skal ha tilgang til å bruke betalinger over nett. Og det er jo bare en liten tjeneste. Så kan dere bare tenke dere til hva et virkelig stort system kan koste. A: Jeg har sett litt på statistikk på hvor mange færre banker det har blitt den siste tiden og fremover. Det kjennetegnes av mange fusjoner og at markedet har blitt mer åpent slik at det har kommet nye banker til og dermed flere avviklinger av noen banker. Men det er likevel ikke vært mange avviklinger den siste tiden ift det man kunne forestille seg? B: Nei, og det er jo litt fordi det er jo 95 sparebanker. Og Sparebanker kan du ikke bare kjøpe opp. Det er ingen som kan komme og kjøpe opp sparebanker. For de er egeneide. Sparebanken er eid av innskyterne. Så du kan ikke kjøpe opp en sparebank med mindre noen ønsker å fusjonere. M: Hvem kan ta den avgjørelsen? B: Det er jo forstanderskapet i sparebanken som gjør det ift generalforsamlingen. Og det må til for da vi nå hadde siste fusjon det var at de to bankene hadde såpass økonomisk problemer at den måtte fusjonere. Og sånn har det skjedde med Nordlandsbanken da den ble en del av DNB. Banken var teknisk konkurs og den som hadde lånt Nordlandsbanken mest penger til å holde seg flytende var DNB. Så det var DNB som brukte makten og kom og tok over. M: Så det blir vanskelig å kjøpe opp disse små bankene, så det eneste skjer er egentlig at de fusjonere med noe større? B: Ja det som antakeligvis skjer er to ting. Det ene er at de blir så små at kostnadene i driften blir så store at de ikke klarer seg. Og så er det nummer to og det vil ta lengre tid. For det er jo at de mellomstore og de minste vil ha problemer med å skaffe seg selv penger for å låne bort. Men mange av de minste sparebankene for eksempel den som ligger nært oss, den har jo mer innskudd fra kundene så de kan låne ut. Så den vil jo aldri få problemer med at den mangler penger. Men Melhus bank har mye mer i utlån og det den har i innskudd. Og da kan den jo gå på en smell med at den ikke klarer å betjene sine egne lån. Og da må den gå til for eksempel sparebanken Midt-Norge for å få låne penger. Så det er kostnadene som bestemmer. Og så er det kompetanse etter hvert. Det kan være en utfordring å holde på kompetansen. M: Hva tenker du på da? B: Når dere to er ferdig her nå, vil du jobbe i Melhus Sparebank eller Sparebank Midt-Norge? 85

M: Mener du at ingen vil jobbe i de små bankene? B: Nei og det er jo også en del av samfunnet det at vi blir mer og mer kompetente. M: Og det har litt å si for den fremtidige markedssituasjonen også da? Det er en påvirkende faktor? B: Ja, du tiltrekker deg ikke kompetente folk. Det blir fort et enkelt valg mellom Sparebanken Melhus og Sparebanken Midt-Norge. Og trenger ikke ha noe å gjøre med at man er karrierejeger eller lignende. M: Og litt også hvor det finnes muligheter? B: Ja, ikke sant. M: Det er noe jeg ikke har tenkt på som en markedsfaktor, så det er et litt spennende poeng. Men en annen ting, da mobilbank og det kom. Som i Helgeland Sparebank, hvem var det som tok avgjørelsen om at «Dette slenger vi oss på». Dette kommer til å slå an? For man vet jo ikke i starten om det kommer til å slå an eller ikke? B: Nei, og der har jo vi vært konsekvente på at når ny teknologi kommer, så har ikke vi vært de første til å slenge seg på. M: Dere lar andre teste det for dere? B: Ja, vi lar andre ta den kostnaden. A: Er dere risiko averse? B: Ja, du kan si det sånn. Investeringer koster relativt mye. Og det som kommer nå som det neste, det som DNB driver og tester ut er jo betaling med mobiltelefonen i stedet for kort. M: Mener du den ValYOU teknologien? B: Ja, det kommer til hele bransjen før eller siden. Det er bare et spørsmål om når. Og så vil DNB utvikle teknologien og så har de en liten fordel en stund. M: Nå er vel de i testfasen selv eller? B: Ja. Det er det samme litt altså Sparebank 1 har kjørt ut pengekort og disse kortene for barn. Vi fikk jo kort for barn og unge for fire år siden. A: Pengekort? Hva er det? B: Pengekort er som et kontantkort. A: Lommepenger på kortet i stedet for i lomma? B: Ja. Du er vel ganske trygg når du gir kort til unger uansett fordi du kan sette inn grenser. Så det er ikke sikkert at det blir en hit. A: Du sa det var Sparebank 1 som..? B: Ja Sparebank 1. De har stått i bresjen for dette. Jeg har selv en unge som har lyst på kort. M: Så han får ikke kort før om et år? B: Jo nå fikk jo vi den løsningen nå da, men Sparebanken hadde den først. Så vi merker jo at vi blir litt for sene eller at vi ligger litt etter. A: Mister dere kunder på å være litt trege, eller står lojaliteten så sterkt at dere ikke gjør det? B: Nei, det står så sterkt. A: Så dere holder dere akkurat innenfor grensen? B: Ja akkurat litt som dette med å designe kortet selv. Vi har vært helt bevisste på at vi skal ha et rødt kort. På at vi skal ha det som en identitet når folk er og handler på butikken. Så ser man det røde kortet. Vi har ikke hatt det der med at folk kan få lov til å designe kortene. Men det har jo vært et lite påtrykk fra kundene om at de ville ha det. Vi har ikke mistet noen kunder på det. Jeg tror ikke det er derfor de bytter bank. M: Nei de bytter vel ikke fordi de vil ha en annen farge på kortet. B: Og så fikk vi denne løsningen i fjor fra EDB. Men nå er det nesten ingen som betaler for det. Så vi er hele tiden noen måneder eller ett år senere enn de største bankene fordi vi ikke har råd. Men så må vi ikke ligge så lenge etter at vi sier at vi aldri kommer til å få nye løsninger fordi da kommer vi til å miste kunder. M: Ja for det er litt forskjell på å ikke kunne få akkurat det bildet man vil på kortet og det å ikke få betale med nettbrett. B: Ja det er to forskjellige ting, og det kan vi ikke la være. Men vi kunne latt være å lage noe annet enn rød kort for eksempel. 86

A: Så det som eventuelt kommer til å knekke de mindre bankene etter hvert er når disse store løsningsleverandørene blir dyre? B: Ja jeg ser hvor mye vi må betale og det er helt oppe ider. Det er enorme summer som går til utvikling og vedlikehold. A: Var det samme greia med nettbank og mobilbank? At dere var akkurat i tide, men ikke først ute? B: Ja, så er det en annen ting med EDB og det er at når du får en slik monopolist, så er det slik at de kommer med funksjonaliteter som koster mye, men vi får ikke tilpasse dem selv. Så det ligger liksom i feil ende. M: Men er det de som driver deres nettbank nå? B: Ja det er de som gjør det. Det er det som har vært kjempekritikk mot EDB da nettbankene var nede. M: Men hvis det er såppas sterkt monopol og det er så mange misfornøyde, så er det jo egentlig en åpning i markedet for å starte en ny bedrift og bli en ny leverandør. Er det ingen andre som prøver å ta opp kampen med Evry? B: Nei, altså. Vi er jo nå i en ny forhandling. Vi brøt jo forhandlingen med Evry. Og det betyr jo i prinsippet at vi kan begynne å forhandle med noen andre. Men det er jo klart at det er vanskelig å konvertere. Et forferdelig arbeid som koster skjorta å konvertere en slik kundemasse som bankene har. M: Ja det å flytte all dataen fra et system over til et annet? B: Ja, det er jo en ting, men en annen er også at dersom du går over til en ny leverandør så må du få en ny nettbank og nye systemer og lære opp alle ansatte i nye system. Nei alt det der drar med seg. M: Så det er slike ting som holder igjen bankene mer enn at de er trege og like innovative? B: Ja, det er kostnadene som holder dem igjen. Så derfor tror jeg at DNB går til India for å få produksjonen der. Derfor tror jeg vi kommer til å få flere uavhengige systemer som ikke blir så låst. For i dag har de både drift og systemer hos Evry. Hvis vi hadde bare den ene delen der så hadde det bare blitt halvparten så vanskelig å bytte. M: Men Norge er jo så langt fremme når det gjelder et cashless system og nettbank og slikt. Særlig ift USA fordi alle disse norske bankene var så flinke til å samkjøre seg for noen år siden, så hvis alle nå går til hvert sitt og vil ha sine egne systemer. Tor du det kan fremme innovasjon, for da får du ikke det at alle blir knyttet sammen og blir tunge og trege, eller tror du det kan hindre utvikling fordi da klarer man ikke å samkjøre seg så mye? B: Jeg tok en analog til forrige kurset, strategisk teknologiledelse. Der tok jeg en analog til statens innkrevingssentral. De har jo bygd opp sine system helt ifra bunnen av og er ikke tilknyttet noen. Og det er jo i prinsippet det samme som i bank, bortsett fra at i bank har du fått en gjeld frivillig. Men innkrevingen er i prinsippet det samme. Så du skal betale tilbake og da trenger man et system som fungerer. De har jo greid det med gode samarbeidspartnere på bedriftssiden og stormaskins løsninger på teknologisiden. Men jeg er ikke sikker på at næringen er innovativ nok til det. Men det var jo egentlig det som DNB prøvde på, men nå sier de opp alle folkene og flytter det til India. Så jeg er kjempe spent på hvordan Sparebank 1 gruppen kommer til å gjøre. Jeg tror det blir et signal andre kommer til å følge. M: Så de setter presedensen? B: Ja, de setter nok standarden i hvordan det blir gjort. M: For det er på en måte standarden jeg er ute etter når jeg stilte det forrige spørsmålet. Grunnen til at kort og internettbank ble så bra er at du kan gå og ta ut penger i en annen bank fordi alle bankene bruker samme systemer. Tror du man er på veg bort fra det fordi alle bankene vil ha forskjellige systemer slik at det blir mindre samkjøring? B: Nei det tror jeg ikke. M: For hvis det går utover kundene så blir jo det dumt at de ikke kan gå ut og ta ut penger der. B: Nei men det er et så sterkt forbrukervern i Norge at det kommer ikke til å skje. Det er nok mer på trappene at det skal være enda mere samkjøring og at man kommer til å bli pålagt at man skal kunne beholde kontonummeret ditt når man bytter bank. Nei, så det tror jeg ikke. Det er en utfordring på den markedssiden at produktene er så store og komplekse og så er det så mange systemer som skal snakke sammen. M: Ja, og nå tar jo den utviklingen helt over virker det som med alle appene som kommer. 87

B: Ja og så har du teknologiske løsninger som ikke snakker så mye sammen. Og du skal jo ha dette også til å fungere. A: Men dette banksamarbeidet, er det noe som går utover det at man kan ta ut penger i hverandres minibanker og bruke kort hvor som helst? B: Det er ingen begrensning i dag. Jeg kan jo stikke kortet i hvilken som helst minibank. A: Men hvis dere vil utvikle deres eget nettbrett funksjonalitet, hvordan ville det samarbeidet vært? B: Infrastrukturen via appsystemet er så komplisert at det er ikke mulig. Og verden går fortere og fortere. Det kan ikke være slik at man kan ta ut penger i dag og så blir ikke det registrert på kortet før om to dager. Sånn var det jo i begynnelsen. Da kunne du skrive ut sjekker to dager før lønning mens de enda var blakke fordi de visste at det ikke kom inn før to dager senere. Så da hadde de dekning for den. Den tiden er forbi. Nå skjer jo alt med en gang. Nå skjer jo transaksjon statistikken fort. M: Det går bare fortere og fortere, det er bare å henge med. B: Ja, det er sikkert noe veldig vesentlig og smart det som Telenor kommer med. M: Men hvordan henger dere med på utviklingen? Leser dere avisartikler, eller har dere et forum dere sitter i? B: Vi er ikke med i noe forum, men det finnes noe som heter Bankenes standardiseringskontor. På hvordan infrastrukturen skal fungere og skal drives. M: Så når noen skal komme med noe nytt, så må de innom der først og få til en standard? B: Ja, jeg vet ikke om de må gjøre det, men det er i hvert fall slik nå at alle gjør det. Fordi det er så kostnadsdrivende at man ikke har sjanse til å bygge opp dette her på egenhånd. A: Så de kommer til dette kontoret og henter ut basisløsning? B: Ja, de ser for eksempel på hvordan en fakturering skal være. M: Men når for eksempel DNB kommer opp med en genial id, hvordan får dere vite om den? B: Nå som Telenor og DNB tester ut, det er jo noe som de gjør for egen regning, men jeg vil tro at de setter standarden på hvordan det skal være. Så jeg tror ikke noen andre kommer og setter standarden for det. Så det blir satt en protokoll. Men så kan det jo være at Sparebank1 gruppen og Netcom utvikler en annen funksjon for dette her, men de bruker jo da samme standard. M: Så det er litt førstemann til mølla? B: Jeg tror at nå det med DNB at Sparebank1 gruppen var invitert inn i det samarbeidet, men avsto fra det. Men det er bare det at de bestemmer standard, og så kan andre gå inn og se. Men det er jo klart at Telenor ikke har noen interesse av at DNB skal ha enerett på dette. De har jo også mange kunder. M: For de vil jo spre det? B: Ja de vil jo spre det til andre kunder, mens DNB vil prøve å holde det som enerett så lenge som mulig. A: Men med kunne ikke to forskjellige store banker begynt på hver sitt prosjekt samtidig? B: Nei, jeg tror det blir samarbeid. At de gir ut protokollen for hvordan dette kommer til å fungere. Slik at man kan legge til funksjonaliteter. M: Men denne oppgaven som du har skrevet, går den på teknologi også? B: Ja, den går vel mer på produktsiden og at det ikke fantes noe alternativer. Men dere kan gå inn på FNO eller på standardiseringskontoret for å få mer informasjon. Jeg skal se om jeg finner nettadressen til dere. Jeg vil tippe at det ligger noe dere kan bruke der. End of interview. NO. 3: TRANSCRIPT OF THE INTERVIEW WITH GEIR WIST Name: Geir Wist Company: Danske Bank Date: 13.03.14 Place: Danske Bank, Trondheim Interview parties: Geir Wist (G), Martha Bakken (M) and Astri Østmo (A) 88

Start of interview. A: Har du jobbet i bankbransjen lenge? G: Ja, siden 1987. Jeg har jobbet i denne banken siden 1989. A: Så du var med da dette tidligere var Fokus Bank? G: Ja, det var jo Fokus Bank frem til 2012. Vi ble kjøpt av Danske Bank i 2009, men vi het Fokus Bank frem til 2012. Deretter byttet vi navn til Danske Bank. Men jeg har vært med lenge, så jeg har vært med gjennom mye av det dere snakker om. M: Ja det er jo interessant for oss. Hvilke roller har du hatt opp igjennom årene? G: Jeg begynte som kunderådgiver. Da jobbet jeg som kunderådgiver og så i begynnelsen av 90-tallet var det en finanskrise for norske banker, mye verre enn det den var i 2007 og 2008. Så da jobbet jeg med snuoperasjoner og vanskeligstilte bedrifter. Og så hadde jeg ansvaret for noe som het cash management i syv år. Cash management, det er betalingsformidling og likviditetsstyring og den type ting og løsninger. Det er jo IT tunge løsninger. Og så har jeg hatt ulike roller i bedriftsmarkedsområdet i Norge siden da og frem til nå. Og nå leder jeg det som vi kaller for Business Development i Norge. A: Så har du vært med på disse overgangene til bruk av kort og magnetstripe? G: Jeg jobbet jo mest innenfor bedriftsmarkedet da, så dette med kort og magnetstripe og slikt, det har jeg ikke noe annet forhold til enn som kunde egentlig. Men nettbank og sånt noe, det har jeg et forhold til. Fokus Bank var faktisk verdens første bank som hadde en internettløsning for bedrifter. Den lagde vi i 1999. Jeg vet ikke om det var verdens første, men vi fant ingen andre i hvert fall. Ikke en privatløsning, men en bedriftsløsning. A: Der man kunne overføre penger og styre selv? G: Ja, internettbasert ja. Før var det jo PC-løsninger og stormaskinløsninger. M: Men utviklet dere dette selv eller var det Evry eller Nets som gjorde det? G: Det var jo det som den gang het Novit som er Evry i dag som gjorde det. Men det var jo vår løsning da, så det var ikke noe de hadde funnet på selv. Vi spesifiserte hva vi ville ha, og så kodet de løsningen. Det var i vårt eie, så det var ikke noe de kunne selge til andre. A: Har du noe kjennskap til hvordan de andre bankene løste dette problemet? Kom de fort etter med lignende løsninger? G: Ja, relativt fort. Jeg husker ikke akkurat om det var ett eller to år etter, men de kom selvfølgelig ganske hurtig etter. Det vi så var jo at alle kundene konverterte til den løsningen umiddelbart. Det var jo superenkelt å få kundene til å akseptere den nettbaserte løsningen ift. den gamle. A: Men hva gjorde at dere skjønte at dette var et behov og gikk for den type løsningen? G: Det var vel litt flaks antageligvis og for så vidt at vi var nærme kundene. Det er forskjell på banker når man ikke er så stor, så er det litt hvordan man organiserer seg også. Vi la veldig stor vekt på å snakke med kundene. Den gangen hadde vi etablert noe som vi kalte for Advisory Board hvor noen av de største kundene satt sammen og diskuterte med oss om hva vil vi gjøre og hva vil vi ikke gjøre og hvilke forventninger har de til banken sin. Så det var det som gjorde at vi klarte det. M: Men har dere ikke dette fortsatt? G: Ikke på samme måten nei. Vi trenger det, men vi har vel ikke kommet dit i den nye strukturen. Vi er veldig Nordisk-orientert ift. landorientert. Med det nye set-up et blir det litt mer komplisert fordi det er mange flere interesser som skal dekkes. Da tenker jeg på at det er flere land, og hvordan skal man mikse kundene fra flere forskjellige land. Vi har ikke helt kommet dit enda. Det kan godt hende det er på veg. M: Men generelt, har du noen formening om noen hendelser eller faktorer som har bidratt til teknologisk utvikling? G: Ja, du kan ta to utgangspunkt da vet du. Bankene er veldig transaksjonsorienterte. Når man er det er det lurt å håndtere like hendelser så effektivt som mulig. Transaksjonene er like og disse må håndteres så effektivt som mulig. Derfor har du et internt behov som er stort for å effektivisere. Da trekkes du jo mot effektive IT løsninger og trekkes mot videreutvikling. Og så har du kundebehovet. For på bedriftssiden som jeg kjenner, så har vi store og små bedriftskunder, men de har jo også transaksjonstunge deler av bankforholdet. Inn og utbetalinger for eksempel. De sender 20 000 lønnstransaksjoner, de største bedriftene. De sender kanskje tusen utbetalinger. Avisbedrifter får 89

kanskje tjue tusen innbetalinger på en dag og det er viktig at man ikke trenger å punche inn alle disse innbetalingene, men at man har integrasjonsløsninger som gjør at det oppdateres automatisk i registre. Det er effektivitetshensyn som driver dette. Både internt og kundenes behov. A: Så da har det vært en vilje til å prøve ny teknologi som har kommet på banen? Er overgangen relativt enkel fordi man ser et behov for effektivisering, slik at man er på konstant utkikk? Eller er det mer skepsis til nye ting? G: Jeg vil ikke si at det er skepsis til nye ting. Men i en bank er det gamle løsninger som er tunge å endre på. Det er veldig omfattende slik at det kreves ganske mye å lage nye ting i tilknytning til dette. Det er kostnadstungt så man må være sikker og så tar det lang tid fordi det må utvikles og testes fordi man går inn på kjernesystemet. Så hvis noe går feil da, går det skikkelig feil. Så det gjør at det er tungt å gå over til nye systemer. Men det er ikke noe vi er redd for å prøve. A: Så det er mer organisasjonen som er vanskelig? G: Ja det er IT infrastrukturen som gjør det litt komplisert, mer enn organisasjonen i seg selv. M: Er dere tidlig ute og tester nye innovasjoner, eller lar dere andre teste først for å sjekke om det funker? G: Det går i bølger tror jeg. Nå har vi strategi om å være tidlig ute og være kjent for å være den banken som har kommet lengst på digitale løsninger. Det er det som er strategien i dag, så i dag er vi tidlig ute. Derfor har vi laget bedriftsmarkedsløsninger som kan brukes i flere land. Både på tablet og på Smartphones. Så det lanserte vi i fjor og videreutvikler kontinuerlig. Vi lager en markedsløsning der man kan handle aksjer og handle i valuta og den type ting. Så nå har vi en strategi om å være tidlig ute. I Danmark har vi noe som heter mobilepay som er betaling mellom privatkunder som har blitt en kjempesuksess. Danske bank har en million brukere i Danmark. Så den løsningen har tatt av. Telenor og DnBs løsning er det ingen som bruker M: Men har den kommet ut enda da? G: Nei, helt fra 2000 har det vært en kontinuerlig presserelease om at Telenor og DNB har laget en wallet av forskjellige typer, men de har aldri klart det. Men en eller annen gang lykkes de vel. M: Men har dere vært bakpå tidligere med å kaste dere på innovasjon? Hva gjør at det går i bølger? Er det ressurser? G: Nei, det er nok den strategiske tenkningen. Hvis du går tilbake tre fire år var vi vel kanskje mer som en follower der vi så hva som funket og hva som ikke funket og gikk for det som funket. Det er en mye billigere strategi og det er ikke krise om man ligger et halvt år bak. Så det er litt avhengig av det regimet som rådet. M: Så det har litt å si på enkeltpersoner som sitter i den strategiske gruppen? G: Jeg håper jo at det ikke har noe å si. Det har noe å si for den profilen banken ønsker å ha til enhver tid, hvordan profil ønsker de at vi skal ha i markedet. Ønsker de at vi skal ha en utfordrerprofil eller en profil som sier at de ar ledende på et område, så må vi jo gjøre det som er nødvendig for å bli ledende på det området. I dag sier de jo at vi skal bli ledende på digitale kanaler, så da er det den innovative delen viktig. Men hvis du går fem år tilbake hadde vi en mer follower strategi for å redusere kostnader og ha tilstrekkelig konkurranseevne. Da så vi litt på det som skjedde rundt oss og gjorde det som virket. A: Dere har ikke klart å se hva som fungerer eller lønner seg mest? G: Nei, det er vanskelig å si. Og så er det slik at det er ikke på produktegenskaper at man vinner kunder. Fordi veldig mye av det som bank selger er jo faktisk commodity. Det som er det mest automatiserte av alt er innenlands betaling. Den er jo nesten helautomatisert. Der levere alle bankene det samme og når alle bankene kan levere det samme, er det to ting å konkurrere på. Det ene er pris og det andre er å kunne i hvert fall forsøke å sette sammen løsninger på en mest mulig effektiv løsning for kunden. Det er de to tingene man kan konkurrere på. Så det her med å konkurrere på at man er så langt foran på produktsiden, det er veldig vanskelig. Det blir aldri noe ut av det. Man får ikke så stort forsprang at det gjør noe forskjell. A: Men bruker dere Evry til å utvikle slike løsninger? G: Nei, vi gjør det meste internt, vi. Vi har en kjempestor IT enhet i København og vi har noen underleverandører i India som programmerer. Så vi gjør det aller meste selv. Det er litt på grunn av 90

Danske bank har et sterkt kjernesystem som er grenseoverskridende, og man har vel også en viss skepsis til å knytte på eksterne leverandører inn i det. Man ønsker å ha kontroll på det. M: Er dette for å få et sømløst system? G: Ja. Så vi kan sitte her og operere konti i alle mulige Danske Bank-land in real time på kryss og tvers og ut fra konto i Sverige til svenske leverandører og hente inn penger. Og det er jo noe som kun banker med kontorer i flere land klarer å gjennomføre. Så Sparebank1 er jo ute når det kommer til det grenseoverskridende markedet. Da er Danske Bank og Nordea og til tider DNB og spesielt Handelsbanken er jo spesielt sterke på grenseoverskridende Nordiske løsninger. Spesielt Danske Bank og Nordea. M: Ja, for vi har snakket med en fra en litt mindre bank og han sa at den største konkurransen for de norske bankene er ikke hverandre, men de utenlandske bankene. G: Ja, næringslivet internasjonaliseres jo. Enten ved at du selger varene til andre land eller at du kjøper inn varene fra andre land, eller at du setter ut produksjonen. Når det skjer må du ha en evne til å følge bedriften som bank også. Vi er jo også til for å øke sannsynligheten for at bedriften lykkes. Vår eksistens berettigetes at vi øker våre kunders konkurransekraft. Da må vi tilby løsninger som de trenger og hvis de er grenseoverskridende, vil ikke en liten bank ha noe i det markedet å gjøre, for de kan ikke levere. De må forholde seg til bedrifter i Norge, så sånn sett er det en trussel. Men hvis du tar en ren norsk kunde, så har jo kanskje den lokale eller regionale banken like sterke kort på hånden, for den har jo også den sterke knytningen til lokalsamfunnet. Det politiske miljøet, næringslivet for øvrig. Næringsforeninger og idrettslag. Den kan spille på betydningen den har på lokalmiljøet. At den har vært der bestandig og at man kan ha tillit til denne banken. Den er der i gode tider og når det blir dårlige tider trekker utenlandske banker seg tilbake. Det er jo fortrinnet til en lokalbank. Når nasjonalt orienterte bedrift, så er det meste andre likt. Den commoditybiten betyr mye da. Det har med trygghet og nærhet å gjøre. Betydningen for lokalsamfunnet. M: Men sånn som Danske Bank gjør det jo ganske bra i Norge nå. Hvorfor har de gjort det så bra her i Norge? G: Hvis du ser på hvor vi har gjort det bra, så øker vår konkurransekraft med bedriftsstørrelse. Og mellomstore og større bedrifter hvor vi har lykkes og vår markedsandel øker også med bedriftsstørrelse. Hvis du tar Norges tusen største bedrifter, er vår markedsandel kanskje på 130 av dem. Men hvis du tar det norske markedet totalt sett, så er det kanskje 7 prosent som vi er hovedbank for. Så vi har lyktes mot den større delen av markedet. Størrelse henger også ofte sammen med hvor internasjonal man er og hvor stort behov man har for komplekse bankløsninger. Og da øker vår konkurransekraft. Som en stor bank som satser mer på kompetanse. M: Finnes det noen oversikt over markedsandeler, for vi har funnet fra 2000 og fremover? G: Markedsandeler kan du regne på mange forskjellige måter. Vi pleier å si at vi har 7-8% markedsandel slik vi regner det. Vi regner jo hvor stor andel av bedriftene er vi hovedbank for i de segmentene som vi prioriterer. Så kan du regne ift. utlån og innskudd. Men jeg har ikke noe markedsandelstall, nei. Men DNB er den desidert største. La oss si at de er ca. 30% da. Og så er Nordea litt under 20%. Og så er vi på8 og Handelsbanken har kanskje det samme. Og så har du Sparebank1 gruppen som i sin helhet er større enn oss. La oss si at de ligger på rundt 15%. Og SEB har også en liten operasjon i Norge og så er det noen internasjonale banker som har enkeltforretninger. Men DNB dominerer det norske bankmarkedet. A: Men tilbake til denne utviklingsenheten dere har. Vet du når dere bestemte dere for å bygge opp egen kompetanse på å utvikle IT løsninger selv? G: Ja, det er lenge siden. Vi har jo holdt på siden 80 eller så lenge jeg har vært i banken har det vært slik. Så det har jo vært lenge. De første slike bedriftsterminalløsningene ble vel utviklet i 87. Det var bare informasjon slik at bedriftskundene fikk se saldo på konto. Det var slike stormaskins løsninger tenker jeg. Så det var jo helt tilbake til 86-87. Så det tror jeg alle de store bankene har utviklingsavhøringer og jobbet med å utvikle cash management eller betalingsformidlingsområdet. Transaksjonsorienterte delen av kundeforholdet selv. A: Vi har bare snakket med litt mindre banker så langt og de har bare kjøpt tjenester. 91

G: Kundebasen til Evry og Nets er jo som regel små regionale banker mens de store bankene i hvert fall på bedriftssiden utvikler ofte løsningene sine selv. Evry kan ikke levere cross-border løsninger til oss. Vi har ikke lyst til at Evry skal selge våre cross-border løsninger til andre store banker. A: Vet du om det er mulig å få kontakt med noen som sitter mer på den teknologibiten? Sitter de i Danmark? Det hadde vært interessant for oss å snakke med noen som har litt mer oversikt over den tekniske historien. G: Vi kan ta det etter at vi har snakket ferdig. M: Men jeg lurte på sånn litt tilbake til disse basics. Vi tenker å fokusere på fire store utviklinger. Da tenker vi på EDB systemene, kortløsningene med minibankene, internettbank og da tilslutt mobilbank. G: Er dere på privatsiden eller er det bedriftssiden? For vi er jo delt. Det dere trekker frem der er jo både internt og mer på privatsiden. EDB ble jo satt opp for å løse interne behov. Men når du snakker om kort, nettbank og mobilbank så vet jeg ikke om det er bedriftsrelatert. Nettbank og mobilbank kan være begge deler. Hvilket segment er dere ute etter? A: Vi har sett mest på privatsiden hittil. Det er litt begrenset med informasjon på bedriftssiden G: Ja, jeg vet det. Hvis dere er ute etter en som sitter med oversikt over privatsiden så har vi en som heter Bernt Malvik. Han er mer internt orientert. M: Over til markedsforandringer. G: Forresten, det går an å snakke med FinansNorge. De har kanskje den type statistikk? A: Vi har kontaktet dem, men de hadde ikke så mye relevant. Men når du hører de innovasjonene som vi ramset opp i sted, føler du det er litt som milepæler i utviklingen eller er det noe annet du vil trekke frem? G: Jeg er litt usikker på hva som er milepæler da. Det er klart at med de interne systemene er jo selvfølgelig EDB en milepæl. I hvilken grad kort og minibank gjelder er det jo en milepæl ift hvordan varehandelen fungerer. Man får en løsning som gjør at man kan fjerne kontantene og fjerne kostnadene for varehandleren og for bankene. Det er jo en milepæl, ja. Det vil jeg si. A: Utgangspunktet vårt, hypotesen er jo litt det at på generell basis så vil det komme ny teknologi som gir nye muligheter for en bransje, men ofte er det de mindre selskapene som er fleksible nok og som har minst å tape og derfor kan hive seg på slike løsninger. Men det har så vidt vi har sett så langt ikke vært helt tilfellet i banksektorene, for der er det mer penger og muskler som råder. G: Du har en fordel da. Du må konsesjon for å kunne ta imot innskudd og bruke de pengene til de som har behov for å låne. Og det å få en slik konsesjon og få tilgang til infrastrukturen i bankbransjen koster penger. Og så krever det ganske betydelige kontrolloppsett som er ganske kostnadskrevende. Når du er bank er man også underlagt tilsyn. For det er jo slik at vi forvalter jo bedriftenes og privatpersonenes penger. Og da må det også være noen som overvåker og sikrer at vi forvalter de på en god måte slik at vi ikke går konkurs og at ikke kundene taper sine penger. Det er høye startbarrierer ja. M: Men har det ikke også blitt lettere å få konsesjon, for forsikringsselskaper har jo også fått lov til å drive bankvirksomhet. G: Jeg vet ikke om det har blitt lettere å få konsesjon. Jeg tror kravene til å være bank har aldri vært så tøffe som de er i dag. Men det her som dere undersøker, type IT gjør det jo mye billigere å starte opp bank. Fordi du slipper å ha et distribusjonsnett med kontorer overalt. Og den banken som har utnyttet det er jo en bank som satser i privatmarkedet, Skandiabanken. Den er jo en nettbank, men har jo vært fantastisk dyktig til å markedsføre sine gode sider og på en måte har de tradisjonelle bankene rakket ned på Skandiabanken i starten. De har jo klart å skape en enorm sympati ute i privatmarkedet. Alle bankene sa at de aldri kom til å holde de lave prisene, bare vent et par måneder så har de like høy pris-sats som resten av markedet etc. Så viste det seg at den vanlige nordmann har sympati med underdogen og så begynte ballen å rulle. Så det har vært en litt onecall-strategi. A: Ja det er jo et eksempel på at teknologien har åpnet muligheter. G: Ja og hvis du tar Gjensidige bank er det litt av det samme bortsett fra at de ikke har lyktes på samme måte. Jeg har forsikringene mine der og plutselig får jeg en mail om at jeg kan åpne konto og så gå inn i min egen nettbank og overføre pengene mine til den kontoen og få en god rente. Det er et eksempel på at teknologien har skapt en mulighet og gjort det enklere for nye banker å etablere seg. 92

For du slipper det enorme distribusjonsnettet og det høye antallet ansatte som koster og faste kostnader. M: Men nå begynner andre aktører å komme inn på markedet, slik at man kan betale gjennom andre aktører for eksempel BankNorwegian. G: Det er jo litt det samme. De utnytter at på grunn av IT er mye billigere. Men hvis du ser på hva som egentlig BankNorwegian har klart å ta av andeler i det norske markedet, er det minimalt. De er jo bittesmå. Det er ikke Skandiabanken. De har lyktes. A: Starbucks har jo også startet bank og betalingstjenester på mobil. AtB-appen som gjør at man kan betale rett inn til. Slike type muligheter. G: Det er litt sånn, du har ATB appen. Vi har en fordel. Vi sitter på pengene gjennom konsesjon. Da tenker jeg på mesteparten av pengene. Og så kan du si at den ATB mobilappen vil aldri være noe trussel for oss, for de vil ha hundre tusen kroner, som folk har satt inn for å kjøre buss og det er et ubetydelig beløp. Men hvis man lykkes slik som Skandiabanken og adferdsmønsteret til folk endres enda mer ift å sitte hjemme på kveldstid og ha en slik bankportal der man trykker og kan låne to millioner og får masse tilbud og trykker på den banken som er billigst og får opp et bilde der man identifiserer seg. Så søker du om lån og så går det da ett sekund og så har det da kvernet gjennom en datamaskin og så signerer man med en digitalsignatur og så kan man ha pengene nesten med en gang. Den dagen det skjer, så er det jo vanskelig å være bank i privatmarkedet. For da presses prisen egentlig mot null. M: Men hvordan tror du bedriftssiden kommer til å bli påvirket? G: Jeg tror det er mere kompliserte tjenester og det som er den viktigste prosessen i bank er kredittprosessen dvs å låne ut penger. Den har også mye med komplisert på bedriftssiden. Det er mer risiko og trenger mer vurdering og kompetanse for å vurdere kreditten på bedriftssiden. Så jeg tror at det er mye lengre frem før bedriftssiden vil være stå ovenfor den utviklingen. Det har jeg litt utfordringer med å se. Det er jo en del av bedriftssiden hvor dette kan bli tilfellet og det er hos de aller minste bedriftene som i sin natur er ganske like privatkunder. Men for en mellomstor-stor bedrift, tror jeg det er veldig langt frem. Og det er rett og slett fordi det stiller mye mer krav til kompetanse. Både på kreditsiden men også for å sette opp hele bankoppsettet. Hvordan skal man gjøre det, det er mye større bredde i hva de kjøper av tjenester og det er mye mere 1-1 eller individuelle oppsett på bedriftssiden. A: Det kan hende at man ser at bedriftsbanker og privatbanker skiller seg mer fra hverandre og at man er mer nødt til å velge etterhvert? G: Det kan godt hende. I hvert fall må man tenke forskjellig. Ha ulik strategi. De to kundesegmentene har helt ulike karakteristika. M: En litt annen ting, når det gjelder disse nye løsningene og innovasjonene. Vet du hvordan dere går frem for å utvikle dere? Ser dere på banker i utlandet og hva de gjør, eller sitter dere i et slags forum hvor dere diskuterer med andre, eller sitter dere i et hemmelig laboratorium? G: Vi sitter ikke på et hemmelig sted. Jeg tror den viktigste kilden vår (til innovasjon) er kundene. Jeg tror veldig mye innovasjon begynner på kundesiden. Historisk sett har det startet med de største kundene og de behovene de har hatt for effektivisering i relasjonen kunde-bank. Og så har de behovene på en måte blitt løst på de største, og så har behovet også vist seg å være tilstede nedover i segmentene mot mindre bedrifter og så har de også fått tilgang til de samme typer tjenester. Det har vært den tradisjonelle måten å gjøre det på. Nå har man jo begynt å utvikle mer spesialiserte løsninger for de litt mindre bedriftene, og det er jo gjort både ut ifra kundebehov, men også litt ut ifra interne effektiviseringsbehov. Så mot de mindre er det to utgangspunkt. Det ene er kundebehov og det andre er interne effektiviseringsbehov. Men mot de større så er det kundebehov som har vært driverne. A: Er det slik at behovet er der før dere finner svarte på hvordan dere kan løse dette best mulig? G: Behovene er der først. Behovet må være der før løsningen, for det er behovet som krever løsningen. A: Men du kan også si at da internett kom ble det på en måte et svar på et problem som har vært før. G: Ja det dekket jo et behov, men kanskje man ikke var klar over behovet. Det er jo sikkert riktig. Da kom teknologien og så brukte man teknologien nesten til å gjøre folk oppmerksom på behovet som 93

egentlig har ligget der hele tiden. Men som de ikke helt hadde skjønt hvordan de i all verden skulle klare å løse. Men jeg tror alltid at behovet kommer før løsningen. M: En annen vi snakket med sa at etter hvert kommer ikke små banker til å ha råd til å betale for de små løsningene fordi Evry har monopol på markedet at løsningene blir så dyre. Så små banker kommer til å trekke inn mot de større bankene. Hva tror du om framtidsutsiktene til bankene? G: Det høres jo bra ut. Jeg tror nok at han har sikkert rett i det. Det gjelder jo spesielt sparebanksektoren. Og det ser du jo allerede gjennom det at de små har organisert seg i Eikagruppen, mens de litt større eller regionale har organisert seg i Sparebank 1-gruppen. Det er jo nettopp for å ha størrelse nok til å ha forhandlingsmakt ovenfor Evry og den typen bedrifter. Jeg tror ikke at du kommer til å se at de små bankene kommer til å trekke mot Danske Bank. Da trekkes de kanskje mot hverandre før de går til en internasjonal bank. Det har noe med identiteten å gjøre og konkurransekraften til en lokalbank. Det vil jo ødelegge utgangspunktet. Så jeg tror nok at de kommer til å søke sammen med hverandre. På en annen side har de en helt annen bedriftskultur enn Skandiabanken for eksempel. A: Vi har jo sett en trend, Fokus Bank er jo også resultatet av diverse sammenslåinger. G: I 1987 så var det jo fire store forretningsbanker som slo oss sammen og så kom Samvirkerbanken og Rogalandsbanken så vi er jo et resultat egentlig av det samme fenomenet. At størrelse er viktig for å forsvare investeringene. Men så er det jo litt slik at IT har gjort det billigere å sette opp bank. Skandiabanken og bank Norwegian og Bankia er jo eksempler på det motsatte. At det er billig og at du kan hvis du er smart, sette opp en mer sånn internettbasert operasjon. Og så kan du drive bank ut ifra det. Men du må jo være dyktig til å markedsføre deg, for hvis du ikke er dyktig til å markedsføre deg får man ikke en eneste kunde. Og disse små bankene mister kunder på dette. A: Ja det er heller de nye bankene som tenker denne retningen enn de små sparebankene G: Ja for de har jo et helt annet utgangspunkt. M: Et annet spørsmål som jeg glemte. Når dere har en ny løsning, som dere har kommet frem til. Hvem er det som tar avgjørelsen om dere skal gå for denne eller ikke? G: Den tas av prioriteringskomite som på en måte vurderer dette her. Og det baserer seg på innstillinger fra de som sitter nærmest idéen og så innstiller de på å utvikle og så går de inn i en beslutningshierarki som ser alle innstillingene i sammenheng og som velger de med størst potensiale. Ganske byråkratisk, men det er slik det er. M: Tar det lang tid? G: Nei, tidligere var det en prosess som startet på sommeren og som var ferdig på høsten. Vi har et utviklingsbudsjett på flere hundre millioner, så det er ganske mye penger som går gjennom der, men nå er det gjort om til en kvartalsvis enklere sak for å få større tempo. Det er snakk om ganske mye penger og så må man ha styr på det og en vurdering om idéen er god eller ikke. For det er ikke alle idéer som nødvendigvis bør bli realisert. A: Men går det igjennom flere faser med testing? G: Selve IT delen gjør det. Det som skjer først er jo at man prøver å beskrive hvilket behov det skal dekke og hva som er basisfunksjonaliteten. Hvor mange kunder regner man med skal ta løsningen i bruk, hvilken pris antar man som mulighet til å ta. Hvor mye penger regner du med at du skal få som inntekt på det. Lager et businesscase. Og så kommer en IT utvikler inn og sier hvor mange timer han trenger på dette her og analyserer og setter opp. Prøver å estimere utviklingsprosjektet. Og så går den totalen inn i prioriteringssaken. Og så sees den da opp mot andre områder. Og så fra ledelsen har det blitt sagt noe om hvilke områder man skal være ledende innenfor. Og for kundene er dette et signal om at løsninger som er relatert til den strategien skal bli prioritert før andre. Det skal gå den retningen strategien sier at de skal utvikle oss. A: Men gjennom en business idé, blir den ikke testet opp mot markedet på noe tidspunkt før den rulles ut? G: Litt forskjellig. Den bør være iom at det meste tar utgangspunkt i kundebehov, altså at kunder har sagt at nå skal de gjør slik og slik, det er som oftest utgangspunktet. Men det blir ikke nødvendigvis testet opp mot kundene før det har kommet ganske langt. Så da blir den igjen testet. Da er det noen pilotkunder som tester. Men da har du nesten laget ferdig løsningen, så da er det finish som gjenstår. 94

De stiller egentlig bare krav til finishen. At det er galt stavet og slikt. Så når det er gjort er det jo lansering. I noen tilfeller så spør vi kundene når produktet er ferdig på tegnebrettet før vi begynner å utvikle. Men det er nok ikke flertallet av utviklingsløsningene som gjøres på den måten der. Det er jo det beste eller tryggeste. Hvis du gjør det så har du jo noen venner, ikke sant. De kundene som har testet det og de som har sagt at dette ser smart ut, de kjøper i hvert fall løsningen fordi du har klart å skape noen kompiser. M: Men opplever dere at andre banker hermer etter dere eller at dere hermer etter dem? G: Ja. Det spørs hva du mener med å herme. Men det er klart at vi må hele tiden tilfredsstille behovene som våre kunder har og hvis andre banker tilfredsstiller dem, så er vi nødt for å komme oss dit, litt foran igjen. Så ser kunden at Danske Bank er skikkelig i farten og så ser andre banker at de ligger foran. Så vi ser på hva konkurrentene gjør. Vi gjennomfører konkurrentanalyser. Så det gjør vi. A: Det er jo en rekke standarder og regler å forholde seg til. Er det noe som er hindrende i utviklings og innovasjonsprosesser? Eller føler du det er mer til hjelp? G: For kundene er jo standardisering en fordel. Det er veldig vanskelig hvis du tar betalingsformidling, du har jo en økonomistyreingsleverandør og en bank og en kunde og hvis vi leverer noe som han ikke håndterer, så blir det her sinnsykt vanskelig. Slik at det er standardisert slik at kunden bare kan si til sin økonomistyring at «Jeg har Danske Bank som Bank2 så nå må du sette opp forbindelsen mellom oss og banken. Og det at det er basert på standarder er jo en stor fordel for kunden. Og vi som er i en utfordrerposisjon, vi skal jo vokse i det norske markedet, det er jo DNB som står i forsvarsposisjon. Det er de som sitter på mest eller store andeler av markedet. Vi er jo definitivt tjent med at det er standarder for da vet vi det at da kan vi jo bare, vi får ikke noen problemer med å ta over. A: Det må jo være begrensninger ift hva slags produkter dere kan utvikle til tider? G: Nei, jeg vil ikke si det. Det kan være litt hvordan du utnytter informasjonen ikke sant og vi har ikke kommet noe langt på det, men du kan jo kreve beslutningsstøtteinformasjon for bedriftsledere og slikt ut fra den informasjonen du sender på standardiserte formater. Og likviditetsoversikter og prognoser er jo to slike enkle ting som du kan lage basert på all den informasjonen som vi sitter på. Og det er jo noe du kan presentere på ipads og all mulig sånne Ingen banker er der i dag at de har noen særlig gode slike ting, men det kan vi gjøre uavhengig av standarder, for standarder er veldig mye rettet mot de transaksjonsorienterte delene, der er det standard biten sitter. Det er en fordel. Det har vært styrken til det norske bankmarkedet ift de mange utenlandske at vi har hatt en sterk enighet bankene imellom om å ha en felles infrastruktur og felles standarder på hvordan man overfører penger og informasjon bankene imellom. M: Og du tror det kommer til å være en fordel fremover også? G: Ja jeg kan vanskelig se for meg at dette ikke skal være en fordel altså. Det er styrken til norske banker og det er en av hovedårsakene til norske banker er så gode. Det vil jeg påstå. Det er en av grunnene til at det ikke er sjekker i Norge lengre. Det er i hvert fall noe som jeg tror er lurt å beholde. M: Men det er noen som sier at de største innovasjonene skjer i randsonene og når alle bankene samarbeider er det ingen som ligger helt i utkanten og kan komme opp med noe genialt på siden. Tror du at denne sterke samkjøringen kan hemme det norske bankvesenet litt for da går alt litt tregere? G: Ja, det kan godt hende. Det er klart at det blir tyngre. Så det er jo baksiden på den medaljen for å si det sånn. Men jeg tror forsiden blinker mer. A: Fokus Bank ble kjøpt opp av Danske Bank. Kjenner du til historien om hvorfor Fokus bank ble kjøpt opp? Gikk det dårlig med banken eller var den ren business? G: Det var ren business. Det gikk bra med Fokus på den tiden, men årsaken var at den daværende ledelsen i Fokus bank mente at Fokus burde være en del av en større bank for å kunne opprettholde konkurransedyktigheten fremover. Danske bank ønsket å bli en nordisk aktør med et betydelig distribusjonsnett i alle de fire nordiske land. Og så hadde de kjøpt en bank i Sverige. Og så var de jo på søken etter et norsk distribusjonsnett og så var Fokus ute etter et samarbeide med en større bank for å kunne beholde konkurransekraften og da passet jo det bra. Da la Danske bank inn tilbud på Fokus bank og det var jo samtidig med at Handelsbanken gjorde det samme den gangen, men med en marginalt lavere pris. Handelsbanken ønsket jo også å bruke Fokus nett på veg inn i Norge, men kjøpte 95

Bergensbanken på Vestlandet. Så de valgte jo da Bergensbanken. De valgte da Danske bank i stedet for Handelsbanken M: Men syntes Fokus det var dumt å bli del av en utenlandsk bank? G: Vi hadde noe som ble kalt for postkassa. Det var en storfusjon mellom Postbanken, Kredittkassen og Fokus bank med hovedkontor i Trondheim. Det var en politisk konstruksjon for å skape et tungt finanssenter utenfor Oslo, men den falt jo fordi man ikke klarte å bli enige. Så det var faktisk et stort norskt alternativ oppe. Men vi som var ansatte så veldig positivt på Danske bank, jeg tror kundene så veldig positivt på danske bank fordi det stimulerte til å opprettholde konkurransen i det norske bankmarkedet og at kunden fikk gode alternativer. Og visste at vi ville være den norske delen av Danske Bank og ikke en del som ble slukt av Nordea. Så jeg tror både kunder og ansatte var veldig positive til Danske Bank da det skjedde. M: Er den norske filialen av danske bank, er det et norsk AS, må dere følge norske regler for hvor mye penger dere må ha i banken? G: Vi er underlagt både dansk og norsk finanstilsyn. M: For det er noen av de utenlandske bankene som ikke trenger å ha så mye egenkapital. G: Jeg tror at de reglene er rimelig like. Hvis du ser på land innenfor EU. Og det er mye som brukes mere i diskusjonssammenheng og det er marginale forskjeller. Og hvis du går til Danmark sier danske banker at myndighetene er så tøffe. Jeg jobbet i Sverige og der leste jeg svenske aviser og der klaget svenske banker på de svenske myndighetene. Og her sier de at norske myndigheter er helt urimelige, så det der tror jeg er totalt sett likt. Og det skal være det nye Basel regelverket som gjelder med krav til EK og hvor store innskudd vi skal ha til hvor mye vi låner ut etc. Krav til hvor stabile innskuddene skal være. Den type ting. Det er jo regler som gjelder innenfor EU. Så jeg tror det er mest staffasje. Og i hvert fall i Norge Sverige og Danmark sier bankene akkurat det samme. M:Men når dere er i utfordrerposisjonen, hva er deres største utfordring fremover? G: At vi besøker potensielle kunder nok ganger. At vi har høyere aktivitet. Det er vår største utfordring. Og at vi da selvfølgelig har aktivitet med kompetanse. At vi evner å sette oss inn det behovet kunden har og så levere en løsning som dekker behovet. Det må vi virkelig lykke smed for å vokse. M: Fordi dere ikke har nok ansatte? G: Nei fordi de ansatte vi har, enten så har de en høyere aktivitet og er topp motivert og jobber knallhardt, men de kan også være laid back og ikke ha så mye aktivitet. Så vår jobb er å motivere dem helt maksimalt til å ha så høy aktivitet som mulig og samtidig gjøre det enklest mulig for dem å lykkes og tilføre kompetanse og tilføre salgsstøtteverktøy og tilføre dem ting som gjør det enklere for dem å operere ift kunden slik at de er i flytsonen hele tiden hvor de trives best og har maks motivasjon. Det er det viktigste for oss å lykkes med. A: Tror du det er noe de andre ser på som sin største utfordring? G: Det vet jeg ikke. Det er jeg ikke sikker på egentlig. Men vi gjør definitivt det. Hvis du tar oss og Nordea så leverer vi omtrent de samme tjenestene og da er det jo kompetanse og pris og kredittvilje vi konkurrerer på da, men vi har jo valgt å ikke konkurrere på kredittvilje. Men vi konkurrerer på kompetanse. Og Nordea har egentlig samme strategi. Og da er det jo den som er flinkest og viser dette flest mulig ganger. Og da er det om å gjøre å få våre kundespesialister til å vise dette flere ganger enn konkurrentene. Da vil vi vokse. Og det er det vanskeligste. Det er mye vanskeligere å skape en slik situasjon enn å utvikle en IT løsning ikke sant. Menneskene er det vanskeligste. Og det er det som er verst å kopiere også. Man kan ikke kopiere en motivert medarbeider. Det må man skape etter mange år på din egen måte. A: Da danske bank kjøpte opp fokus bank, var det fordi alle så at nå er det større mer internasjonale konkurrenter som kommer på banen og at det var den veien trenden gikk som gjorde at folk søkte litt større? G: Jeg tror nok at det var for danske bank sin del. For Norge er de to største handelspartnere Sverige og Danmark. For Danmark er situasjonen sikkert likedan. I hvert fall er det Nordiske bedrifter de handler veldig mye i de fire nordiske landene. Det så de vel at hvis de skulle være konkurransedyktige, så må vi ha et tilbud til bedriftene som dekker de behovene som de har i de landene og så søkte de da etter partnere i de landene. Så det er også snakk om å dekke behov. Hvis du ser på DNB for eksempel, 96

de er jo et norsk utgangspunkt. De er ikke noe nordisk utgangspunkt. Hvis du ser på hvor de er etabler er de etablert i Rio for olje og Santiago for fisk i Houston for olje i Singapore for shipping, så de har faktisk fulgt norsk næringsliv langt ut i verden. Og det er jo derfor at de er på de stedene de er. Så det er akkurat det samme som har skjedde der også. De er veldig fokusert på norsk næringsliv. Og så er de selvfølgelig i Kina fordi der foregår det mye kjøp fra og norske bedrifter setter opp produksjonsenheter fordi kostnadene er lave ift Norge. Så de har jo også sin strategi der. M: Nå har vi jo fått masse informasjon A: Ja jeg føler vi har fått dekket en del. Er det noe mer essensielt som har skjedd? G: Hehe, om jeg har noe mer å snakke om? Nei, jeg tror vi egentlig har vært igjennom det meste. End of interview. 97