For many years, Switzerland has been a leading international centre in the financial services, and particularly wealth management, sectors. A rougher background over the last decade, as well as the arrival of an increasingly technology-enabled and oriented sector, however, has led many to question the status quo and Switzerland's leading position.
What, then, is happening in Switzerland? Is the Swiss market engaging in the tech-led whirlwind that is happening all around us or is it sticking with the tried and tested model of the past?
While it may not be on the same table as markets like the UK, US or Singapore when it comes to being (or being seen) a technology hub, that is not to say tech wizardry is not happening.
Benoit Hailly, Managing Director at indigita, a Swiss RegTech, comments: “The perception that Switzerland is not a FinTech country is rapidly changing. According to Swisscom, there are over 293 registered FinTech start-ups which is a significant amount for a country with a total population of only 8 million.”
The historic strength of the banking and wealth management industry can mean that other things get overlooked. But technological changes within financial services as a whole, and wealth management in particular, mean that the demand is there from financial institutions for technology to better support them and their needs.
Homegrown support has long been present. Indeed, given the depth of the wealth management sector, it’s no surprise that some of the leading large wealth management technology vendors are Swiss; Temenos, Eri Bancaire and Avaloq notably.
But traditional vendors are not enough in a period of rapid change within the wealth management industry. Banks have been slow to realise this but the view is that they are now ready to move with the times.
Moritz Kraus, Director of Sales at Tindeco, an investment management platform, explains: Switzerland has developed significant technologies for the wealth management industry over the past few years. A major factor has been the advent of new regulation (see below). But although there are major gains in efficiency to be made by implementing new scalable technologies, the industry has generally been reactive, focusing more on the need to cut costs rather than the opportunities to invest in new technologies.”
This is the classic legacy challenge story – amplified by the desire of private banks to retain control over their clients and protect revenues. But changes in the needs and expectation of customers such as new generations of wealth-owners are to be met and therefore new ways of services need to be established.
Thomas Schornstein, Head Sales & Marketing at additiv says: “Banks are still having difficulty in knowing how to move with digitisation. And many are still thinking in old world terms of having tailor-made and proprietary solutions. They are looking to digitise what they already have and fail to realise that what is actually needed are standardised solutions to use as a starting point to build on allows for a streamlined approach to the process. This is very much needed with the private banking and wealth management arena.”
This is where the burgeoning FinTech and WealthTech industry steps into the picture. Broadly there is an understanding within the Swiss financial services industry that if banks and wealth managers do not adopt and coordinate with the new technologies, they will lose against their competitors and therefore there is appetite for disruption.
Christine Ciriani, Partner at Motive Partners comments: “The need for speed was driven by both regulation (you cannot comply with MiFID2 through manual solutions), desire to reduce cost of servicing (robo-advice for certain customer segments) and competitive pressures to distribute products through transparent and user-friendly channels and to improve use and management of data.”
As a consequence, almost all the banks have dedicated teams and funds partnering, financing or else supporting young tech companies when there is either a strategic fit or a compelling investment case. For example, F10 and FinTech Fusion, two leading incubators both have tier 1 banks as supporters.
Kraus comments: “Banks know that in most cases, technology is a problem they can no longer solve for themselves and are actively supporting accelerator programs such as F10, VentureKick and Swiss FinTech Awards with prize-money, use-cases, proof-of-concepts, and so on to get in touch with relevant technologies in early stages.”
Schornstein concurs: “Banks are ready to pay a vendor to take this problem off their hands and provide a solution. They know that by employing a third party the cost involved will be easily recouped with the efficiencies that the vendor solution will bring.”
But what are the solutions on offer? Big data, AI, machine learning, open APIs, robo advisors and RegTech are all of interest. Payments capability too has a small but significant presence. There is also a strong cryptocurrency and blockchain set based in ‘crypto valley’ near Zug.
Hailly comments: “Cryptocurrency is a strong area to watch with about 84 startups. We were recently in Singapore for the country’s FinTech festival week and about half of our Swiss delegation came from the crypto world. This is a more opportunistic development. Companies that want to thrive in a supportive environment with pragmatic laws which allows for their development have taken root to form a small but rapidly gaining critical mass. Currently, is it developing and growing but the inevitable round of consolidation will come and that should leave us with a robust sector.”
Support
Indeed, FinTechs looking for support could co much worse than Switzerland. The two universities in Zurich and Lausanne work closely with the financial industry and are also working to attract those wanting a FinTech career.
Capital to invest is also available
Ciriani comments: “In 2017, more than double funding was invested (CHF151 million) and 7 FinTech ICOs raised capital of CHF283 million. You can feel the change in the air.” There is a wealth of talent not only from Swiss-born start-ups (Ethereum, SwissBorg, Tezos) but also from companies coming to Switzerland to benefit from its incubators. Clearly, the availability of capital combined with strong engineering talent and DNA coming out of the universities is a good thing. So the trend is increasing but it is still small given the global market.”
And Tindeco, for one, is collaborating externally. It is the industry partner of the University of Edinburgh's School of Physics and Astronomy. “We are working with the team that manages and analyses data created by the Large Hadron Collider (LHC) to leverage their experience in Machine Learning / AI / Big Data to solve problems and create new and better investment solutions for the Swiss financial industry,” says Kraus.
The environment and the know-how are in place. All that remains is for this thriving FinTech sector to develop and strengthen. Not all firms will proposer and, as with all emerging sectors, a degree of consolidation is to be expected. Nevertheless, the foundations are rock solid and form a strong base to build from.
Hailly summarises: “We need a continuing spirit of collaboration underpinned by the knowledge that the infrastructure, as well as the capital to fund progression, is there.”
Switzerland, despite some fearing it is not stepping up to the technology plate like some of its traditional and new competitors, is far from inactive. More to do, maybe, and much to do to see its FinTech and WealthTech scene gain the attention of its existing wealth management centre status, but the base of old world know-how and client base with new world activity, funding and support is in place. Now a collective effort from Switzerland must add some more oomph to that base.
