Switzerland – The emblematic destination for chocolates, watches and of course, “Banking”, is obviously the go-to place to explore banking innovation and understand how digital is changing the traditional banking landscape. The banking system as we know it today, practically originated in Switzerland and hence, our series on Digital Banking around the world would be quite incomplete without a feature on Switzerland.
A 2018 study by the Swiss Bankers Association found that Switzerland holds more than 25% of the global cross border assets. With the country’s neutrality, long history of banking secrecy and the federal laws to protect the wealthy Europeans it has been the largest offshore financial center and tax-heaven in the world since the 20th Century. However, with changing times comes changing trends and like every other country around the globe Swiss Traditional banks are facing a major threat from the more agile, forward-thinking Fintechs with their digital solutions and innovative service offerings.
Let’s face it! The wealth balance is shifting from the Old World to Asia and the emerging countries and markets are definitely giving the Swiss Banks ‘a run for their money’ where competition is concerned. Moreover, the era of open banking has greatly endangered the fundamental elements of Swiss value propositions like privacy and anonymity. With an increasing need for transparency and the gradual demolition of banking secrecy, the very pillars of Swiss banking system are at risk. The growing compliance and regulatory standards for banks such as Basel17 III or the OECD’s standard for AEOI are all pivoting to global convergence. So, with all new banking trends, where is Switzerland placed in the digital banking list?
On the top of course! Duh!
According to EMEA Digital Banking Maturity Study 2018, Switzerland ranks second out of thirty-eight countries in digital maturity and is among the least cash-reliant countries in the world. The country has gained this level of digital maturity owing to various factors like:
- Amazing digital offerings equipped with extensive functionalities especially throughout the client journey
- Highly digitized traditional banking products and services
- Readiness to embark on the Open Banking journey
- Adoption of beyond banking functionalities, which is in its early stages and far behind when compared to other EMEA countries
The Snag Spot
Although, Swiss Banks rank high in digital maturity when compared to other EMEA countries, they produced relatively poor scores in user experience when compared to the UK and the Nordics. Studies have found that this is mainly because of the ineffective digitization strategy. The Swiss Banking landscape lags behind due to:
- Inability to incorporate regular and systematic analyses of market trends into their strategic planning process
- Lack of well-established digital strategy backed by concrete data and insights
- Lack of regular KPI measurement
- Lack of a well-aligned digital realignment strategy
Overcoming the Snag Spot
The millennials being a technophile generation it is apparent that banks need to adapt their business models to include technological innovations. Recent studies show that more than half of Switzerland’s population e-banking for the various obvious reasons of convenience and time saving. Digital disruptors currently at large in the Swiss banking arena include:
Blockchain technology exemplifies data security and process efficiency with no insurance and minimal overhead costs. The future implications of Blockchain in banking include smart contracts, intellectual property, anti-counterfeiting, foreign exchange and much more.
#Trivia – UBS is exploring smart bonds and self-paying instruments with Blockchain technology.
Robotic Process Automation
Robotic Process Automation has brought about automation of cumbersome back-end processes that was time consuming, error-prone and resource exhausting. These computer coded software has helped the banking ecosystem to enhance efficiency, scalability, productivity while decreasing cost and risk.
#Trivia – Credit Suisse has adopted the concept of ‘digital labor’ which involves bots in risk, finance and operations departments of the bank bringing about enhanced process control, improved time to market and umpteen other benefits.
Today biometrics is not only about advanced security but also augmented customer experience and reduced security cost. These biometric solutions are becoming increasingly popular because they are difficult to replicate and faster to process. The more advanced biometric solutions available are heartbeat rhythm, eye-vein, fingerprint, voice recognition, palm and facial recognition systems.
#Trivia – Pictet & Cie, implemented Bioscrypt 3D facial recognition biometrics for employee authentication to enhance security and reduce security cost.
Exploring Open Banking
Although Switzerland has ‘missed the first boat’ to open banking it is soon catching up. With the initiatives of the Swiss Fintech Innovations Association (SFTI) the common Swiss API standard is taking shape and their first draft was published in September 2018. This is a list of specification of business domain payment and accounts and emulates the best practices from the Berlin Group, which is a pan-European standardization initiative for API framework across EEA and European Union. The initiative is aimed at providing a secure and reliable payments platform for financial institutions that will help them reduce operational cost and risk.
Banking – Futuristically
The Swiss traditional banking arena is facing serious threats from modern tech giants who innovate around the universal banking model instead of replicating it. They bring about innovative banking products, apps and services ensnaring the high-frequency, low-margin revenue while imbibing insights on purchase behavior. Some of the products from these tech banking competitors include:
- Google is all set to launch an API platform for android devices which will facilitate easier payment options
- Barclays UK and Twitter have launched Pingit, a mobile application that facilitates payment transfers through Twitter.
- Alibaba is exploring opportunities to use facial recognition software for payments
- Facebook is experimenting on using their messenger platform for money transfer.
Although, these technical giants have no interest in entering full-fledged banking they are definitely interested in acquiring customers with these easy payment applications which would maintain their acquisition traction and generate revenue from add-on services.
The banking sector is the lifeline of the Swiss economy and digitization is likely the way forward to sustain in this hyper-competitive market. Regulations and reluctance towards digitization are found to be the major hindrances towards exploring the modern banking innovations for traditional banks whereas this remains the greatest advantage to tech giants venturing into the banking space. FINMA, the Swiss regulatory organization has come a long way from enforcing secrecy to regulating open banking APIs. For example, FINMA now recognizes video identification of clients which is considered one of the greatest concessions granted by the Swiss financial system. Although, Switzerland ranks among the top in embracing digital in the banking sector there is still ‘miles to go’.