Banks were being disrupted far before Credit Suisse's collapse. New technologies, regulation, and changing customer behavior are just a few factors driving the current changes, writes Daniel Kobler in a piece for finews.first. 

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UBS's takeover of Credit Suisse has long-term ramifications for Swiss finance and the domestic economy. The whole issue of too-big-to-fail now weighs even more heavily on everything given the concentration risk posed by having just one remaining major bank. At the same time, the interbank and commercial banking sectors could be negatively impacted.

Although the market ramifications will be extensively assessed by the Competition Commission and Finma, it is also clear that there is enough competition in most client segments and services given the country has an open banking market with roughly 230 institutions.

Right now, what is particularly interesting is where any future growth will come from. The financial center is less attractive, and not as international, after losing Credit Suisse, particularly for Swiss companies active abroad.

The collapse of Switzerland's second-largest bank will also limit the level of value creation in the sector. Many clients and employees were voluntarily, even explicitly, at Credit Suisse for the reason that they closely identified themselves with the former bank's values.

«Swiss banks are currently in a phase of transition»

Current bank regulation also impacts growth potential in the financial sector. But it does not pose a decisive obstacle. Instead, it simply makes innovation and change more difficult and expensive. The largely principles-based regulatory regime, one that is also technology agnostic, requires banks to take concrete steps in order to ensure they stay fully compliant.

Besides macroeconomic factors, changes in prevailing business models imply a 25 percent reduction in potential revenues between 2005 and 2022. What that means is that Swiss banks are currently in a phase of transition. Legacy frameworks, usually highly integrated and resource-intensive, have to face up against constantly shifting realities.

Technology has become the central element changing the entire business paradigm but most do not use it to its full potential, or only in very limited, even hesitant, fashion.

At the same time, all these developments, particularly the rapid automatization and optimization of processes with artificial intelligence, can help banks add value. Our experience with banks abroad is that they can increase revenues by up to 10 percent by better personalizing product and service offerings. Beyond that, they can potentially cut costs by 30-50 percent in internal IT areas, particularly when it comes to generating code, or drafting and reviewing legal contracts.

«This value-added model does not satisfy clients much»

Besides that, they also have the potential to raise bank Net Promoter Scores (NPS) by up to 25 percent by improving the level of personal interaction and further automating the provision of standardized client advice.

Changes in technology also have an impact on competitive intensity, the dynamics of innovation, and client behavior. With that, it should be said that digitalization only increases the pressure on costs and investment.

The products and services provided by most traditional banks are not differentiated enough for them to separate each individual institution from competitors, at least not decisively. Most of the revenues they currently generate are strongly influenced by product silos that have benefited from years of extremely depressed interest rates.

This value-added model does not satisfy clients much. In Switzerland, only 24 percent of them are happy with the product range and ability to individually tailor products, Accenture’s current Banking Consumer Study shows.

«The bank of the future»

This all requires business models that are digital, modular open, and agile, not something that can be said about the current structures of Swiss banks.

The sector's reply is usually that the current developments are relatively slow ones and only affect selected client segments. Besides that, there is often not enough scale in the domestic market to justify innovation and investment.

On the other side, competitors are encroaching on their turf (more innovative banks, insurance, and fintech). The traditional banking model of an institution with a proprietary client interface is being increasingly questioned, increasing the pressure on them to act. Still, with everything being said, they still need to follow specific technologies and strategic principles to successfully counteract that, among them:

  • Digital distribution through hybrid advisory and client management models
  • Competitive cost structures aided by ecosystem partnerships and targeted use of resources
  • Agile, client-focused organizational structures, albeit transformational programs of this size and nature are subject to intense pressure to succeed.

Also, the following guidelines are necessary to ensure success:

  • wide internal acceptance that constant change is a fundamental pillar of all activity that needs to be embedded in corporate culture
  • The change needs to be self-financed by optimizing the current value chain
  • The definition of business and technology change as well as the orchestration of transformation through the entire value chain
  • Constant assessment of individual measures and the courage to change direction if the path taken is not leading to the desired results

For many Swiss banks, it will be a matter of survival to recognize these challenges and derive the appropriate measures from them. Company-wide transformation, inclusive of business models, is key to a successful future in order to generate new growth impulses for the financial center as a whole.

Daniel Kobler has more than 20 years of experience in the consulting sector. He was a director and partner at Deloitte for 13 years as part of the strategy consulting team for financial services. In 2019, he moved to Accenture to become the capital markets industry lead. Since September 2022, he has been heading the financial industry area at Accenture Switzerland and he is also one of the consulting firm's global client executives.

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