Neobanks such as Revolut, N26, Zak and Neon are shaking up the Swiss banking industry. Finally, one is tempted to say, because it is clients who will profit from the shake-up. Here are the seven hypotheses by finews.com.
1. The Cake Isn't Getting Any Bigger, But the Blend Is New
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Basellandschaftlichen Kantonalbank (BLKB) won't be the last Swiss bank to launch a digital bank. UBS would do well to develop one, not least because Credit Suisse (CS) has already its own with CSX. The result is there for all to see: competition is getting stiffer in Swiss banking when even cantonal banks are vying for business in the whole of the country. This means wider choice, better service, more transparency and lower prices for customers.
2. Cannibalizing Is the New Trend
Thomas Gottstein, today the CEO of CS, made it clear when he was still the boss of the Swiss Universal Bank that if the digital bank was going to cannibalize the traditional bank, so be it. Or put another way: it is better to have your own digital bank to make a grab for the revenues of your traditional business than a competitor such as Revolut or N26. Incidentally, projects such as CSX courtesy of CS, the sustainable bank of BLKB, or the affluent private bank Alpian free up innovative powers that otherwise were stifled by Swiss banking tradition. In particular, if client feedback is becoming a focal point of the innovation strategy.
3. Interest Business Has No Future
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The Swiss digital banks and smartphone-based financial services are evidence for a truth that has become glaringly obvious: Swiss banking won't have a future in the business with interest. Proof are slim margins and no end in sight for the negative interest rate. This means that Swiss banking won't continue to provide much of the same but a differentiated, specialized, and tailor-made service.
4. A Bank for Every Client
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Early movers have few problems establishing their identity. If however a large number of new products gets launched in a relatively short period of time, the unique selling point becomes a highly problematic proposition. In particular, if the services themselves are plainly similar.
Future service providers will have to position themselves very pointedly – something that Swissquote has done to perfection with its label as a bank for traders. BLKB aims to position itself as a bank for sustainable investments – it knows full well that nobody in St. Gallen has been waiting for a new state institute with its headquarters in Liestal. The options for newcomers are many, not least in the so-called eco-systems. Baloise for instance has pushed the idea with the home and mobility eco-systems and a digital banking offering would sit well with such a business cloud.
5. Trench Warfare in the Cards Business
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The credit card business remains lucrative and the payments service offers direct access to clients. Banks are doing their utmost to fend off rivals. The trench warfare increasingly is shifting to digital payment apps and sheds light on what banks are facing in the credit and wealth management businesses.
6. Consolidation in the Domestic Market
The developments and projects pursued by Swiss firms show what is at stake. Banks that still base their business on a physical network are facing extinction. With lower margins and the disappearance of fee banking, branches are becoming too costly. While digital banks remove the territorial barriers, new cooperation across the domestic borders will flourish and mergers even among cantonal banks become a real option for the future.
7. A Magic Return of Interest?
Banks are subsidizing savers even if they've stopped paying any interest. Savings accounts tend to return nothing at all, even if most banks refrain from charging the average saver any interest. The emergence of competition among digital banks may eventually prompt a return of interest. Analysts at Moody’s expect that interest may soon become a tool to woo new clients as competition is heating up.
