Switzerland has just been named Innovation World Champion. That's good news for the Swiss financial industry which has been mired in the doldrums for a decade.

The downfall of Credit Suisse is etched into the collective Swiss memory as a major crisis. A country otherwise so concerned about the rule of law and stability had to take it on the chin because respecting these traits during the largest European bank merger since the financial crisis wasn't exactly exemplary in the view of many observers. Investor confidence suffered.

Switzerland, so used to success, suffered a further setback when Lausanne-based management consultancy IMD recently published its annual ranking of the most competitive economies. Switzerland slipped to third place behind Denmark and Ireland.

Innovation Nation

An innovation study by the Singularity Group is providing some balm. In a survey of around 1,700 executives from listed companies, the Swiss think tank determined Switzerland to be the most innovative country in the world, well ahead of Taiwan and the United States when measured by the current revenue generated from innovation.

Switzerland's per capita innovation revenues amount to $8,400, accounting for 2.1 percent of total global innovation revenues of $3.401 trillion. Surprisingly, the industrial sector accounts for 45 percent of the revenue, surpassing pharmaceuticals.

Reindustrialization Trend

Its contribution has more than doubled since 2018, showing a clear trend toward reindustrialization with application-oriented industrial companies, many Swiss-based, being the main benefactors.

Companies create innovations primarily when working on their premises. What's more, innovators are less likely to cut costs and more likely to look outward, focusing on improving the customer experience, rapidly expanding their product range, entering new markets, or replacing outdated products.

No Big Versus Small

The level of research and development spending or investments in capital goods doesn't play a measurable role. It's a myth that younger and smaller companies play the lead role on the stage of innovation.

The report identifies artificial intelligence, new energies, and the flood of Big Data as the biggest triggers for upheaval. Of these new technologies, the latter is currently having the greatest impact on the financial industry, according to the study.

A Sleeping Giant

Over the long term, there is enormous power in the use of generative artificial intelligence (AI). The financial industry is heavily knowledge- and technology-based and can benefit enormously from AI applications.

McKinsey calculates the use of AI in the banking sector can create additional revenue of between $200 billion and $340 billion.

The World's Digital Vault

Modernizing existing IT applications is an area ripe for change. Many banks rely on nested IT systems in their day-to-day business, which evolved into a patchwork over the years.

In Switzerland, the financial industry is an international leader in custody solutions for digital assets, according to the «Swiss Digital Asset Custody Report 2023». It remains to be seen whether the industry will remain an innovative center of excellence not only as the world's digital vault but also in other sectors like blockchain applications or asset management.

Now that Switzerland can boast the title of innovation world champion, there is a glimmer of hope.