Credit Suisse's domestic head Thomas Gottstein names the new kids on the block pressuring the banking industry and explains how and where he sees growth for Switzerland's second-largest bank.

Credit Suisse has been more successful in cutting costs than rival UBS. This is giving it some breathing space as margins continue to erode in the low-interest-rate environment and as competition sharpens.

«In the mortgage sector, it is above all the insurers and pension funds that compete with us», Thomas Gottstein, Credit Suisse’s Swiss head, said in an interview with Swiss daily «Aargauer Zeitung» (in German).

Insurers and pension funds favor investments in long-term assets, and since bonds which form the basis of their portfolios are under yield pressure from low interest rates, are moving into new business sectors – like mortgages. There they are able to out-price banks and are stealing their market share. Credit Suisse Switzerland is also feeling the pinch: «In terms of total business turnover, this is the largest new competitor», Gottstein said.

Postfinance and Fintech

Another serious rival is Postfinance, should the system relevant institution obtain a banking license – which in the present environment is causing concern. For Gottstein, Postfinance doesn’t pose a threat as long as it is privatized and doesn’t have state backing. «I have fewer problems with such a model than with a cantonal, or regional bank, which has state guarantees», he said.

Executives are also eyeing consumer services which position themselves with their business model between client and bank. «We pay them commissions when a client comes to us through them. That erodes the margins», explained Gottstein.

Other banks face similar pressures and are looking for yield opportunities. Valiant, for example, is planning a mortgage offering.

Readying for Tough Times

There are also newcomers in the banks' bread-and-butter retail business, as evidenced by Vlad Yatsenko, co-founder of Revolut. The British fintech plans to target the Swiss market, and aims to offer a Swiss IBAN by year-end.

Revolut offers payment systems, credit cards, insurance currency trading and crypto currencies, all with practically no fees. The industry needs to prepare for tough times, Gottstein warns, with the whole sector under pressure.

Less Formal Culture

Credit Suisse has already reacted with the cost cutting program, paring the 17,000-strong staff in Switzerland by some 1,600 jobs over a three-year period. «This should be achieved by the end of the year», the 54-year-old said.

Most of the cuts were to external staff and consultants, as well as in the private client business, in an effort to speed up the decision-making processes. Gottstein also wants to see a change of culture within the bank, making interpersonal relations less formal (click here to read more).

Tapping Wealthy Swiss

Lower costs will provide more long-term sustainability, but the bank will also need to boost yields and explore new profit sources.

Gottstein sees potential with wealthy clients, a sector that has grown by a third in the past three years. Digipigi, Credit Suisse’s digital piggy bank, with more than 20,000 customers within one year, is also making a contribution.

Nixing Cryptocurrencies

Several banks, like Liechtenstein-based Bank Frick, Zurich private banks Maerki Baumann and Falcon or the mortgage bank Lenzburg, see the cryptocurrency market as a yield generator, as finews.com reported.

Gottstein however has distanced Credit Suisse Switzerland from this market. «Cryptocurrencies can be a magnet for monies with a dubious origin, namely money laundering. It wouldn’t surprise me if such a case hit the headlines at some point. This could lead to much more stringent regulation», Gottstein said.