Why Sweden is the Silicon Valley of Fintech

Josh Bell
Dawn Capital
Published in
4 min readOct 29, 2020

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Photo by Jon Flobrant on Unsplash

You do not have to spend long in Stockholm to appreciate how deep-rooted its tech culture has become. The headquarters of Spotify, Europe’s most valuable technology company, features prominently in the city. The teal livery of TIER e-scooters is a familiar sight across the streets of the capital. Klarna’s offers of “buy now, pay later” for your online shopping adorn many street corners, with the company becoming Europe’s first fintech Decacorn in early 2021. And in June 2021, Visa’s $2.2bn acquisition of Dawn portfolio company Tink was announced (we wrote about it here).

These are the tangible manifestations of Sweden’s rapid rise as one of the most distinctive and important European technology hubs — one that has produced more billion-dollar startups per capita than anywhere in the world outside Silicon Valley. Between 2015 and 2019, nearly 800 startups raised funding in Stockholm, a capital of fewer than a million people, putting it behind only Berlin, Paris and London — cities many times its size.

It is also not by accident that Europe’s largest acquisitions in fintech — Tink, and iZettle, also a Dawn portfolio company, which PayPal bought for $2.2bn in 2019 — have emerged from the same country. From our experience of backing some of Sweden’s most exceptional founders over the last decade, there are undeniably unique characteristics of the Swedish ecosystem that have driven these success stories, especially in fintech. These deserve to be better understood — for what they tell us about the past and present of European technology, and also its future.

But the linchpin of Sweden’s fintech triumph lies with its incumbents. These unusually forward-looking banks and other financial institutions have simply refused to accept their designation as “legacy”. They have, alongside new players and disruptors, gone after this new world. They have collaborated, partnered and competed, raising the bar in a way that has not happened elsewhere. And this has meant startups have continually had to up their game.

It is Sweden’s banks who have helped lead the mass adoption of digital payments, paving the way for Sweden to become Europe’s first cashless society as soon as 2023. Eight years ago its six largest banks created Swish, a payments and money transfer app that now has over 7 million users. This has led to a rapid rise in digital payments, with cash in circulation having fallen to barely 1% of GDP, the lowest level in the world. In turn, it has created a conducive environment for companies including iZettle and Klarna to rapidly gain traction as enablers and beneficiaries of an almost cashless economy.

And as major Swedish fintechs have grown and in some cases exited, buoyed by support from incumbents, they have helped create a second driver of success: a flywheel of talent and capital to seed the next generation of companies. Before founding iZettle, in which Dawn was an early investor, Jacob de Geer had helped build three companies — two of which were acquired and one listed on Sweden’s stock exchange. Since its $2.2bn sale to PayPal in 2018, we have witnessed the same cycle of employees going on to found, invest in or work for a new set of companies, many building this next wave of companies in Stockholm. Tink’s co-founders Daniel Kjellen and Fredrik Hedberg had been able to pick talent from companies like iZettle, Klarna, Bambora and King to embed experience and a winning mentality from the top to the bottom of their organisation.

This legacy of success spreads widely, but above all locally. There is a strong tendency — unusual in European technology — for Swedish companies and founders to stay in Sweden and continue investing in the domestic ecosystem. Even after Spotify’s listing on the New York Stock Exchange and iZettle’s sale to a US-listed company, both have continued to be based in Stockholm where they are major employers. That is a testament to Stockholm’s attractiveness as a place to live and work, and a sense of pride in building enduring global companies that retain strong Swedish roots.

Moreover, these advantages rest on structural factors that have helped to fuel Sweden’s entrepreneurial culture: a corporate tax rate that has gone from 52% in 1991 to 21% today, and R&D investment as a share of GDP that is among the highest in the world — behind only Israel, South Korea and Switzerland.

Expect Sweden to play a prominent role in the growth of open finance, helping providers to offer a new generation of innovative services to their customers. Whereas open banking has been driven by regulators in many countries, in Sweden there has been strong demand within the banking system from an early stage — mirroring its active role in the rise of digital payments and support for platforms such as Tink, Europe’s only banking leader, another company of which Dawn is a proud backer. From its base in Stockholm, Tink’s API aggregates data from 2,500 financial institutions covering 95 percent of the population in Europe.

For decades, Silicon Valley has been the monolithic reference point for building all kinds of technology communities. But other tech hubs are increasingly providing greater insight into what can fuel their success — and how potent specialisation can be. The key is not just an attractive regulatory environment, experienced founder-led ecosystems, the right culture and forward-thinking incumbents. It is incumbents who chose to adapt and innovate with and alongside startups: in Sweden, financial services and fintech are one and the same. And the entire country is a testbed for this. If we can understand this, then we should expect that — focused — tech hubs of the future are just as likely to resemble Sweden as they do San Francisco. We just need to keep building them.

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