How Iceland’s Banking Collapse Created An Opportunity

“Most people remember where they were when the financial crash came,” says Georg Ludviksson, CEO and cofounder of the digital banking solutions provider Meniga.

In his case, he had just returned to Reykjavik with an MBA from the U.S. to take up a new post with an Icelandic bank. The collapse of Iceland’s banking system put paid to that.

“Living on a tiny island where the biggest banks’ balance sheet was over ten times that of the value of the national GDP, when the crash came, its impact was enormous,” Ludviksson says.

After the banks collapsed, $85 billion in debt, 50,000 people had their savings wiped out. As the Icelandic krona plunged by 80%, capital controls were imposed on businesses, pensioners and individuals that would last till 2017.  

“The banks here had expanded very aggressively,” says Ludviksson, in his office overlooking Kópavogur. “They were complacent–they didn’t have to try. The banks found it easy to recruit all the brightest people.”

“The crash changed everything,” he says. “Now people don’t want to work in banks, they want to be part of something meaningful and feel they are working for themselves.” 

Ludviksson saw at first hand the impact that financial worries had on his family and friends and wanted to do something that to help people to get their finances in order. In 2009, he co-founded Meniga.

Just over a decade later, it has 65 million end-users around the world, and its digital banking solutions are used by banks such as UOB, Unicredit, Tangerine, Santander and Crédito Agrícola. The company employs over 150 people and has offices in Reykjavik, London, Stockholm, Helsinki, Warsaw, Barcelona, and Singapore.

In September, Meniga launched a consumer app, Meniga Rewards, in Finland and Sweden. 

Every time users make a purchase from a consumer brand or restaurant chain such as Vapiano and MAX Burgers, cash goes back directly into their bank accounts. By signing up to the platform, retailers also benefit, because they gain access to behavioural customer data which helps them to target offers and benefits to customers more accurately. 

Addressing Climate Change

When the app was launched, Meniga introduced a feature in partnership with UN Climate Change, which allows users to donate cash earned to two projects in India and Malawi aimed at reducing and eliminating greenhouse gases.

Few Icelandic people need reminding about climate change; most see its effects every day as the hydrodynamics governing the gulf stream become increasingly unpredictable and the Greenland ice sheet melts. According to the Icelandic Met Office, the country's glaciers have retreated by a total area of about 750sq km since 2000.

Iceland’s fragile ecosystem has also been affected by mass tourism, a direct consequence of the weak krona after the crash. Tourism now accounts for 40% of Iceland’s export revenues, and 10% of its GDP. Last year, about 3 million tourists visited Iceland—its population is little more than 330,000.

The OECD says that in the absence of reform, Iceland’s economy is too dependent on volatile sectors such as tourism.

This view finds agreement from Svein Valfells, CEO of Monerium, which earlier this year was awarded the world's first e-money license for blockchains issued under EU e-money regulations. “Before 2008, the government put most of its energy into trying to prevent a banking crash,” he says. “After the crash, it was trying to clean up and rebuild the financial system and the economy. The government lacked the right infrastructure to support the tourist industry.”

Monerium’s cofounder and chairman Jón Helgi Egilsson was one of the key financial figures who helped to get Iceland back on its feet as chairman and vice-chairman of the Central Bank of Iceland between 2011 and 2016.

Making Customers Less Dependent On Institutions

Egilsson believes that global finance is still over-dependent on centralized institutions, hence the importance of offering customers more options to transact e-money, as Monerium is doing. “We are trying to decouple the payments system from the banks, so people don’t need to depend on the banks,” he says.

Egilsson relates how when the banks collapsed, they took all their data and payments systems with them. The danger was that if a customer had paid for a transaction, and the banks’ database collapsed, that transaction itself would then be destroyed.

He adds: “After 2008, we suddenly had a new technology—blockchain—which could create a widely distributed payment system, enabling everyone to be in control of their funds. Blockchain is providing us with a new way to build payment networks. Problematic payments are a global issue; if we can make finance healthier, we make the world’s economy healthier.”

To underline his point, he turns to a local example. “We saw with the crash in Iceland how dependent the economy was on the banking system—when a fisherman went out fishing, he suddenly had no way to get funds. The 2008 crash freed resources and talent from the banks. Now we have a tremendous opportunity, because of technology.”

Iceland is used to facing the toughest of challenges. Digital technology has helped Iceland’s banking industry face one. As Iceland moves into the third decade of the 21st century, the hope is that technology will help Iceland transcend other equally serious challenges.