In the past, many Swiss banks sought to expand in growing markets, but more recently, the focus has turned to the domestic market. Opportunity or risk? In an essay for finews.first, financial consultant Robert Hemmi examines the question.
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Switzerland has the world’s highest density of millionaires, the banks are extremely close to their target clientele, and the regulatory burden is comparatively light. With favourable conditions such as these, why is it still difficult for private banks to expand at home?
The answer lies in the particular characteristics of the Swiss market: Most private banking clients have been tied for decades to their main bank. Apart from providing investment advice, this primary relationship covers a wide service spectrum, from mortgages to payments to online banking services.
Three out of four Swiss private banking clients have a maximum of two depository bank relationships*, which would suggest that the spectrum of banking services is already well covered.
«Swiss clients are more attached to their primary banking institution than their counterparts abroad»
With onshore private banking representing a quarter of the total volume in the Swiss financial system, the domestic market is an important source of revenue for many Swiss financial institutions. However the market share of classic private banks is comparatively low: Three out of four onshore private banking clients have their main banking relationship with a large bank or cantonal bank.*
With the strong reluctance among Swiss clients to switch providers, it is difficult for classic private banks to break through this overwhelming dominance of institutions positioned as main banks.
Because Swiss clients are much more closely attached to their primary banking institution than their counterparts abroad, they are also much less mobile than offshore clients who are often closer to their long-term client advisor than to the bank itself.
«Swiss respond negatively to (too) aggressive attempts to acquire clients»
As the crises experienced by the two largest Swiss banks over the past 20 years have shown, many clients remained steadfastly loyal to their main bank in times of trouble.
This loyalty is confirmed by the finding that four out of five Swiss private banking clients would not consider changing their primary banking relationship.*
A further significant factor is that Swiss clients respond negatively to (too) aggressive attempts to acquire clients. Here too, the broader based banks have an advantage that they can build up their private banking clientele through their own retail and wealthy client channels.
«There is a small client segment willing to change providers»
Stand-alone private banks, whether they like it not, have to resign themselves to their role as secondary bank. Or to put it another way: Without innovation and attributes that clearly distinguish them from the competition, there is not much they can do about the existing power relation in Swiss private banking.
Does that spell only bad news for private banks with growth ambitions in the domestic market? Not at all. Because on the one hand the research also shows that there is a small client segment willing to change providers, and on the other hand Swiss clients are also extremely open to innovative advice concepts.
«Increasing price sensitivity of clients is also an issue in Switzerland»
Such concepts are successful when the client recognises clear added value in the advice service on offer and is therefore prepared to enter into an additional banking relationship.
Added value could mean a model of client advice that is more tailored to the life stage of the client, for example. Other things that can be useful in gaining ground as a secondary bank in the hard-fought onshore market are focused expansion, catering for specific target groups, such as women, wealthy clients with a link to trading etc.
It also should be remembered that increasing price sensitivity of clients is also an issue in Switzerland. Banks could gain competitive advantage by developing innovative pricing and discount models
• Study: «Swiss Private Banking Clients», 2009, University of Zurich. The findings of this survey are just as relevant today.
Robert Hemmi is managing partner of TCP The Consulting Partnership, a consulting firm he founded in Zurich in 2001. As an established expert in private banking, he regularly publishes expert articles on strategy and changes in the financial sector.
Before his activity as a consultant, Hemmi held various management roles at Credit Suisse, including Chief Operating Officer and Chief-of-Staff in Singapore, with regional responsibility for HR, IT, finance, compliance, operations and infrastructure.
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