Regtech

How to Get a Swiss Fintech License, Swiss SME Banking Heats Up

Switzerland’s fintech license appears to have attracted a horde of cryptocurrency startups looking to leverage the relaxed regime to provide certain bank-like services which would have otherwise required a full banking license, Michael Brüggler, managing expert at Fintech Werkstatt, told Fintech News Switzerland in an interview.

Michael Brüggler

Brüggler’s venture, Fintech Werkstatt, supports fintech startups in getting regulatory approval, for both the sandbox and fintech license. It also provides advisory and business services in areas such as company registration, financial budgeting and business planning.

Fintech Werkstatt managed the application process for MOGLI, an e-wallet provider which was recently granted a fintech license by the Swiss Financial Market Supervisory Authority (FINMA). MOGLI, which is still in the beta phase, targets both retail and corporate segments, providing individuals with the ability to send and receive payments conveniently, as well as white-label solutions for corporates looking to support digital payments.

Switzerland’s attractiveness to crypto startups comes as no surprise considering that the nation has thrived as a major blockchain hub. Last year, the Swiss Parliament passed an amending act that incorporates crypto assets and distributed ledger technology (DLT) into Swiss law, allowing for the introduction of digital securities represented on a blockchain platform, and recognising a new authorisation category for “DLT trading facilities.”

While these recent regulatory changes have lowered the barriers for market entry, the reality is that young startups, even with the proper license, will still face hurdles when operating in Switzerland.

“There is no passporting [of these licenses] in the European Union (EU) and a fintech in the sandbox has great difficulties to open an account with a bank or even a service provider,” Brüggler said. “Even with a fintech license, it is challenging to open a correspondent bank account. If you’re dealing with cryptocurrencies, it is close to impossible.”

Funding is another issue, especially if you are an early-stage startup with limited financial resources, Brüggler said.

“Raising seed money takes a lot of time in Switzerland. Most funds talk about their will to finance innovation but at the same time request that these companies must already have traction in the size of at least CHF 1-5 million in turnover. Building innovation, something truly new, is contradictory with this requirement,” he said.

“Realistically you need much more capital than the minimum required capital [3% of the public deposits received, but no less than CHF 300,000] requested for a fintech license.

“For a fintech license, you have to spend at least half of your equity. And with the remaining funds, you can’t realistically build or buy an e-wallet application. Also, you still have running costs to build up your organisation.”

Despite the drawbacks, Brüggler praised Swiss regulators for establishing a licensing process that’s quicker and much more streamlined. He also noted their willingness and proactiveness to assist companies in the process.

“We know EU licenses that take over 12 months to be approved with equity requirements above EUR 1 million,” Brüggler said. “We sent in the application for MOGLI and managed to get the license within eight months. That’s decent in comparison to the EU.”

“Plus, the accessibility of FINMA is outstanding … a governmental authority that takes the time to explain the issue, always picks up the phone, and promptly replies to email. This is rare with rather autocratic authorities and really sets the Swiss fintech licensing process apart,” Brüggler concluded.

Besides MOGLI, FINMA has granted a fintech license to two other companies; Yapeal and Klarpay.

Relio, a startup building digital bank accounts for small and medium-sized enterprises (SMEs) in Switzerland, could be next in line, Brüggler predicts, noting the startup’s “in-house competence”.

Relio was founded by Lav Odorovic, the Founder and previous CEO of Penta, a German neobank for freelancers, startups and SMEs. The company is backed by SIX Fintech Ventures, the German High-Tech Gründerfonds (HTGF), F10 Investment, an angel investor and Revolut’s former COO Richard Davies.