M&A fuels Denmark-based Nets' expansion beyond the Nordics

Nets has been a dominant payments technology player in the Nordic region for years, helping to drive the region's high proportion of mobile and digital transactions. Armed with fresh venture capital funding, Nets wants to expand its influence broadly across Europe.

The Copenhagen-based company's activity this year has been brisk. Nets last month announced plans to expand in-store acceptance of Finland’s Pivo Wallet to iOS devices via the Bluetooth-powered approach it pioneered in Denmark.

Nets also is piloting electronic receipts to accompany in-store mobile payments in Finland and recently bought Poland’s Dotpay/eCard from MCI Capital; and Germany’s Concardis, marking a decisive advance into European zones where Nets sees big opportunities to convert cash transactions to digital channels.

"In the Nordic region, about 75% of payments are digital, and we've been a driving force in that movement over many years, but in the rest of Europe it's the opposite — in most markets the majority of transactions are cash. We'd like to accelerate a broad regional conversion to digital payments," said Bo Nilsson, Nets' CEO.

Three months ago Nets was sold to a consortium of private equity firms for $5.3 billion, culminating a series of rollercoaster ownership moves in the past few years. Advent International Group and Bain Capital Ltd and Denmark pension fund ATP bought Nets for $2.7 billion in 2014 from a consortium of Danish and Norwegian banks, and in 2016 Nets held an IPO.

Now under private ownership again—and with deeper pockets—Nets is looking to expand the payments technologies it's developed in its core markets of Denmark, Norway, Finland and Sweden to other global regions, according to Nilsson.

Despite its recent hairpin ownership changes, Nilsson expects Nets to retain in its present configuration for the foreseeable future.

"Right now we're owned by three private equity firms that are all very experienced in the payments industry, and with greater access to capital hopefully we can move fast on our goal to be one of the largest provider in the payments business in Europe," Nilsson said.

At the center of Nets’ innovations is its Smart Payments lab in Copenhagen, where the company is running several experiments with sending payments over social media networks, integrating robotics and exploring how payments can enhance VR.

Earlier this year the lab launched a system that uses consumers’ finger veins to authenticate payments.

But what Nets sees as its biggest advantage in reaching the broader European market is its versatility in working on all sides of the payment ecosystem, as a processor for banks and merchants on the consumer side and as a partner to banks and corporations for B2B payments.

Driving collaboration between banks and merchants will be key to Nets' growth strategy, Nilsson said.

From its origins as a technology organization owned by a consortium of banks, Nets in recent years played a key role in bringing merchants aboard Dankort, Denmark's domestic payments scheme that has been a catalyst for rapid mobile payments adoption in the country.

"We helped to build an ecosystem in Denmark where the rules of engagement for all parties were clear and manageable, which helped mobile payments scale quickly," Nilsson said.

Observers note Nordic countries are mature markets with smaller populations than many other nations, with fewer banking and technology players operating in more homogeneous economic environments. Nilsson concedes that recreating the level of mobile payments adoption seen in many Nordic countries isn't likely.

"We don't expect to see mobile payments like we have in Denmark and Norway catching on as quickly elsewhere, but there's a lot of untapped potential to improve the user experience for payments with similar technology all over Europe," he said.

Nets employs about 2,500 people in offices in Denmark, Norway, Finland, Sweden and Estonia.

With the Concardis merger, Nets will reach 19 countries altogether, including Croatia. Germany and Poland are prime focus points for expanding digital payments, Nilsson said.

Partnerships will be crucial to Nets' European advance, according to Thomas Jul, Nets' group executive vice president for financial and network services. Jul joined Nets last year after a long career in technology with heavy wireless network experience with Ericsson in the U.S., Europe and Asia.

Jul says payments technology can go only so far without broader industry collaboration.

“There’s no single path to expansion, but I think the payments industry has reached a point where partnerships between banks, merchants, telecoms and government will be necessary to reach the next level, and some of the global regulatory developments like PSD2 may be the key,” he said.

Nets, founded in 1969, originally was a systems integrator that increasingly focused on payments-related IT before becoming a major player in mobile payments development in Europe over the last decade.