‘Middling’ Swiss Fintech Industry Needs More ‘Clout’

‘Middling’ Swiss Fintech Industry Needs More ‘Clout’

by February 14, 2022

The Swiss government is underwhelmed by the performance of the financial technology sector. The finance ministry believes that it’s high time this was remedied.

“Unlike the Swiss financial centre, which remains at the top of the global rankings, Switzerland is currently only in the middle of the pack as a fintech hub,” states a recent synopsis of the current situation. “As a leading financial centre and location for innovation, this needs to be remedied. Switzerland needs to build its international visibility and clout.”

So how do the administrators aim to boost the number of Swiss fintech “unicorns”?

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They have commissioned a wide-ranging feasibility study with action promised on several fronts within the next three years. Sights have set on 12 areas, including the blockchain, open banking, cybersecurity, cloud computing, artificial intelligence and green finance.

That’s a wide-ranging mandate, and so far, precious few concrete plans – let alone radical solutions. It’s the nature of Switzerland to examine everything thoroughly and slowly progress through the steps before acting. And there have been some advances, such as the upgrade of financial and corporate laws last year to embrace digital ledger technology and tokenized securities.

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Innovation platform

A couple of suggestions from this latest study caught my eye.

The first is a mooted body to coordinate the efforts entrepreneurs, regulators and academics in the fintech sphere.

“There is still no uniform platform for innovation and the exploitation of technology in the Swiss financial centre. This hinders both the establishment of new fintech companies of foreign origin and coordination between existing market participants in Switzerland.”

The idea is for the authorities to create a centralised entity to smooth the passage into Switzerland for overseas fintech companies. This fits with a more wide-reaching government agenda to retain the country’s image as a business-friendly location when a minimum corporate tax rate is introduced.

The second main objective of a “uniform platform” is to better link universities with companies to ensure a supply of fresh talent. Again, this desire is not confined to the fintech industry. Business leaders from various sectors have made similar suggestions in the past. It’s worth noting that several Swiss universities, in all corners of the country, have introduced blockchain courses to their curricula. Only a week ago, the non-profit Caspar Association donated CHF345,000 to the University of Zurich’s Blockchain Centre.

Flexible licenses

Another angle explored by the Swiss government, is the possibility of upgrading financial regulation to give Swiss fintechs a better chance against foreign competition. In recent times, the regulator has introduced a fintech banking license and a new category for digital asset exchanges.

But the speed of digital finance is moving so fast that “the existing array of licence categories partly lags behind market developments”. Decentralised finance and the adoption of financial services by technology firms is at risk if the demands of existing regulation “prove to be so high that the additional activity is abandoned”.

For all the new license categories being created, I’ve heard complaints that Switzerland lacks an EU-style e-money license, has yet to introduce a functioning eID system and lags behind other countries in creating efficient digital onboarding of customers to obtain financial services.

Forcing incumbent finance to open up

Switzerland is also behind the pace when it comes to Open Finance. The EU has created laws that force banks to loosen their jealous grip on client financial data. People can share their data with whoever they choose, which gives fintech companies greater access to customers. The Swiss fintech company Numbrs has found that this doesn’t always work in practice, even when offering services in Germany.

The Swiss authorities are encouraging the era of Open Finance but have so far refused to force financial institutions to play ball. Now they are hinting that this could change if Swiss financial players drag their heels too much.

“A more mandatory approach must remain an option in case developments in the market prove to be too slow or do not go far enough, thereby preventing the creation of new, innovative offerings and the potential for efficiency.”