Finfolk — the key to the puzzle
Although the old folk of Orkney had three possible folkloric origins for the shapeshifting selkie-folk, to the scholar of Orcadian mythology, the source of the tales is not as clear-cut.
On the face of it, the selkie-folk stories don't appear to have a Norse origin — only a few scattered accounts of selkie-folklore are found in Norway and Iceland. Instead, the distribution of the myths — from Shetland, through Orkney and down the west coast of Scotland into Ireland — seems to clearly point to a Celtic origin.
That is, until we remember that the tales are confined to a relatively narrow area around northern and western Britain - an area known to have been a Norse "seaway" and an area of Norwegian settlement.
To get a better idea of the source of the selkie-folk mythology, I believe we need to examine the mythology surrounding another “creature” found in Orkney and Shetland — in particular its development over time and geographical space. I believe the selkie folklore is inextricably tied up with the tales of the Finfolk, and that at one time these two magical races were regarded as one and the same.
Although Orkney folklore now regards the selkie-folk and the Finfolk as completely separate, both clearly have the same source — the people the early Norwegian settlers referred to as "Finns".
These were the Saami people of Scandinavia - a race feared and respected as great magicians.