SwissBanking
The online magazine of the Swiss Bankers Association
March 29, 2017

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Healthy growth in the fintech sector

Healthy growth in the fintech sector

According to the IFZ FinTech Study 2017, the framework conditions for the commercial success of fintech companies are outstanding. In contrast, however, the euphoria surrounding the founding of such companies and ambitions to launch disruptive innovations are gradually levelling off.

By providing an overview of the framework conditions for the fintech sector and the development of companies in this segment, the IFZ FinTech Study 2017, which was presented at a conference at the beginning of March, fills a big gap that had existed in the assessment of the competitiveness of the Swiss fintech sector.

A particularly positive surprise is that Zurich and Geneva placed third in the rankings of the best fintech framework conditions, from among 27 cities around the world. In light of the fact that high-flyers London and Berlin ranked 8th and 15th, however, the rankings should be treated with a certain amount of caution.

According to the findings, Switzerland is doing the right thing early on with the planned fintech licence and sandbox.

The study identifies room for improvement particularly in terms of access to infrastructure, and cites Singapore as a good example in this area. Significant potential for development in Switzerland also exists in the simplification of factors surrounding the founding of companies and in exchanges with the authorities (keyword here: e-government). On the other hand, fintech-specific regulation received good marks from the authors of the study. According to the findings, Switzerland is doing the right thing early on with the planned fintech licence and sandbox.

Little disruption, lots of specialisation

The increasing difference between the revenue models of fintech companies and the banks is an indicator that fintech companies are increasingly fishing in their own ponds and are looking to achieve success as partners or suppliers to banks. The study shows that in future, fintech companies whose growth opportunities are biggest in the international B2B business will, at least initially, continue to work in a complementary manner with the banks as opposed to standing in competition with them. The authors do not see a risk of a sudden disappearance of today’s banking institutions, as long as they actively address the challenges presented by the new digital possibilities.   

The study shows that in future, fintech companies whose growth opportunities are biggest in the international B2B business will, at least initially, continue to work in a complementary manner with the banks as opposed to standing in competition with them.

On the contrary, in their efforts to increase efficiency by scaling their business activities, the banking institutions will, with the help of technology, increasingly focus on certain core businesses and make these available to other financial institutions. It is therefore quite possible that this will lead to a further fragmentation in the banking business. These developments are likely to continue to impact job descriptions and wage levels in the banking sector.

Moderate momentum

The number of companies founded in the Swiss fintech sector rose further in 2016, although not as quickly as in previous years. Trends in financing such as venture capital have also levelled off. The study identifies the reason for this as a professionalisation of the sector reflected in a higher level of self-financing.

Even the best of framework conditions are of no use if the world takes no notice of them, or the work permits for foreign employees are at risk of dissolving.

The basis for further growth, however, lies in the ability to help the services on offer achieve an international breakthrough, and to acquire financial and staffing resources to this end. In order to secure the latter, a quantum leap must be made in terms of international marketing as well as legal and planning certainty. Even the best of framework conditions are of no use if the world takes no notice of them, or the work permits for foreign employees are at risk of dissolving.

And finally, it is the excessive, often non-digitalised bureaucracy arising from dealings with the authorities that obstructs the development of the fintech ecosystem. A praiseworthy exception is FINMA’s approach for fintech. The authors of the study feel that the ingredients for positioning Switzerland as a leading global fintech location are in place. It is now up to the banking sector to make the best out of them.