With the steady increase in new digital financial service providers, the pressure on Swiss banks is increasing, but are these challenger banks really pushing out established institutions?
Yuh has gained tens of thousands of users in a very short space of time, Neon tripled its number of customers in 2020, Inyova is expanding to Germany, Yapeal has expanded its product range to cross-border money transfers, Zak is working on a crypto offering, CSX is pumping millions into marketing, Flow Bank is promoting easy access to investment products, and Fea Money is a women-only banking app – clearly, a new area of competition has opened up in the Swiss financial center.
With the flood of new Swiss financial apps, neo or smartphone banks, the hype surrounding foreign challengers, U.K.-based Revolut and Germanys N26 has faded into the background somewhat.
No Tangible Impact
Everyone thinks that by definition neo- or challenger banks are challenging Swiss retail banks, taking market share from them with their low fees and ease of use, driving structural change and ensuring increasingly intense competition.
Is that really the case? Finews.com recently had an informal conversation with a high-ranking manager of a major Swiss bank about challenger banks.
They said neither Revolut nor any of the new market entrants had had a tangible impact on revenues in Switzerland so far. It was primarily the new mortgage platforms as well as insurers and pension funds with significantly cheaper mortgage rates that would cause the core business a few problems.
Where Does Danger Really Lurk?
The statement seems surprising – but taking a closer look maybe not. When you dig deeper it turns out that none of the so-called challengers has a range of services that would pose a real threat to an established regional, cantonal or big bank.
Not even Revolut, which boasts over 350,000 customers in Switzlerland. Of course, the Revolut credit card scores highly because of its significantly lower foreign transfer fees. But Revolut does not meet the definition of a Swiss challenger bank.
Some can, others won't
«Revolut has built up a considerable customer base in Switzerland because they can save a lot of money on credit card payments abroad,» Deloitte banking consultant Anthony West said. «But I wouldn't call Revolut a challenger to the established Swiss financial institutions. It also lacks a comprehensive range of services, for example in loans.»
N26, the second neobank unicorn with a Swiss business, is even further away from meeting the criteria. Since entering the market two years ago, the offer of a euro account for Swiss customers has not changed much. Disruptive change looks different.
Neon, the first independent Swiss smartphone bank, wants to «stay small» in terms of its own resources and is pursuing a niche open banking strategy by hooking up with third-party services.
Dynamic Fintechs, Sluggish Banks
Other new providers such as Inyova also occupy niches with impact investing. This works very well for them because the Swiss banking scene is still very uniform and undynamic.
This contrast between sluggish banks and the great dynamism of the fintech startup scene might also be proof that Swiss financial institutions have not yet had a challenger breathing down their necks.
The situation is very different, for example, in the U.K. or U.S. where providers such as Monzo or Starling (U.K.), Chime, Current or Varo Bank (U.S.) are in a different league, drawing in hundreds of millions in investor funds and with customer numbers running into eight figures.
No Funds or Sense of Urgency
At the same time, major U.S. banks such as Goldman Sachs or J.P. Morgan are investing up to $30 billion a year in their technological transformation to maintain the upper hand. No Swiss bank can match that.
Those who keep up with what is going on in the boardrooms of the larger Swiss financial institutions do not perceive any real sense of urgency. The pressure from the challengers on earnings is too low.
The Basel Cantonal Bank, or Cler’s, in-house smartphone bank Zak, does not pack a big punch either in terms of growth or mobility. CSX, Credit Suisse's digital offering launched last year, is currently being massively promoted with millions spent on marketing, which suggests CSX has not been pulling in the punters.
Changing Fee Structure
Credit Suisse insiders say CSX was not launched in response to Revolut and its peers, but to retain those CS retail customers for whom the standard banking packages (account and credit card) have simply become too expensive. In other words Swiss banking’s fee structure has primarily been changed by established banks cutting fees rather than pressure from so-called challenger banks.
First Do No Harm
In this respect, bank-owned products such as Zak or CSX as well as start-ups such as Inyova, Neon or Yapeal should be seen as complementary to the existing range of banking services. They bring diversity and promote transparency.
However, it would be undesirable to cannibalize the existing business and the pressure has not become tangible in any way shape or form, given the good business numbers. The Swiss market is, it seems, not made for challenger banks, as Deloitte consultant West said: «I doubt whether the Swiss market is in any way attractive to a true challenger bank with a broad range of services, including lending. The customer acquisition costs are simply too high for a market of such a limited size.»
