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Two Swiss banks are in the starting blocks following regulatory nods – a milestone for Switzerland's hidebound financial industry. For the two banks-to-be, the hard work is just beginning.

Not one but two crypt banks were approved this week to begin taking deposits: a milestone in efforts to build a bridge between traditional finance and the burgeoning digital asset industry. Seba and Sygnum represent a win for Switzerland's financial industry, which has spent much of the past ten years seeking a new identity.

The two heighten Switzerland's appeal for international clientele with an appetite for cryptocurrencies, digital assets, and the token economy. Swiss wealth managers face increased interest – if not demand – for the products. As a result, traditional banks like Vontobel, Swissquote and Maerki Baumann have dipped their toes into blockchain and crypto finance.

Champagne Chilled

The crypto banks also represent a milestone in respect to Swiss financial regulator Finma: it is a novelty for a national regulator to back two crypto start-ups simultaneously. The Bern-based regulator displayed its independence as well as a pragmatic openness to a rapidly-developing segment of finance (with stricter money laundering requirements).

What now? Seba in Zug and Sygnum in Zurich are sure to be popping bottles of champagne chilled for the occasion. By morning, the sobering fact that they are operating a business model which at the moment simply burns cash without producing revenue.

Burning Cash

The banks' respective capital needs are enormous: Seba Crypto hoovered up $100 million to start, Sygnum has snatched $60 million in the first 18 months of its existence. The «cash burn» rate of the respective banks will be one of the biggest worries of their respective CEOs – at Seba, ex-UBS banker Guido Buehler and at Sygnum co-CEOs Manuel Krieger and Mathias Imbach.

This is a tricky task, given that both firms have ramped up their operations to far more than a handful of well-paid technology staff and bankers (Syngum has 60 staff, roughly one-third of whom are in IT, while Seba is reportedly at north of 100 staff). 

Modest Tone

Seba and Sygnum are both relatively sanguine about how quickly they will win business. The reality is that they need to acquire a paying clientele quickly in order to record revenue – especially as the Swiss licensing process effectively requires them to build the costly infrastructure they need as a bank, but without any actual business (or money) coming in. 

Seba head Buehler sought to downplay expectations. «Because we built up so quickly, we want to start small operationally, with a group of ten to 15 clients,» he told journalists. The bank plans to launch its services as a sort of pilot project with these clients, then if successful seek to widen its clientele to other client groups and jurisdictions.