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Confronting technological challenges together
Article published in Le Temps on 9 March 2020
In the digital era, it is crucial for companies to grasp the importance of technological advances and anticipate their impact on business models. This wave affects all sectors, including wealth management, with mentalities and practices that are changing more and more rapidly.
Today, around one in four Swiss people say they are willing to buy a financial product from a fintech, and 30% would be open to the product offering of large technology groups, according to a recent study by consulting firm Bain & Company. Of the new generation – aged 18 to 34 – almost half would not hesitate to carry out financial transactions via companies such as Amazon, Facebook or Google.
Swiss banks are already adapting to this, while at the same time continuing to evolve in a demanding economic environment beset by ongoing negative interest rates and restrictions on access to the European market. These factors, combined with the costs generated by regulation and the necessary investment in technology, are impacting margins, which continue to be eroded. In the long term, however, these margins are essential for hedging against risks, building up equity capital and financing investments.
The contribution of artificial intelligence
Given the complexity of this environment, the Swiss financial market could tackle the challenges of the industry more collectively to strengthen its position as a leading wealth management centre. Now, it is possible to harness synergies across the financial centre to reduce costs. Does it really make sense for most banks to have their own payment service, or for institutions to recreate the profile of clients with multiple bank accounts each time? For example, a central “know your customer” service containing basic data would generate substantial savings.
Digitalisation contributes significantly to productivity gains. Artificial intelligence helps combat fraud, for example, by making it easy for suspicious patterns of behaviour or unusual money flows to be flagged.
The Twint interface is an example of how a consortium of banks developed a payment services platform for users and institutions. While the potential for synergies is considerable, many initiatives have so far failed, probably because of the relative good health of the sector, as well as the reluctance of some institutions to establish common standards.
Innovation and openness towards fintechs
For private banks, investments in IT and technology are the greatest expense after payroll costs. The Swiss National Bank’s (SNB) 2019 survey on digitalisation and fintech in Swiss banks highlighted the paradox that, in a context of historically low margins, digitalisation and cooperation with fintech players represent an opportunity to reduce costs but also to innovate. On the other hand, increased competition could exert additional pressure on margins. The race for technological equipment costs billions for the major players, investments that must be amortised. However, the construction of extremely sophisticated and interlinked IT systems makes it difficult to integrate the innovative solutions of new fintech players.
To achieve this, banks’ IT systems must become more agile and modular, both to be able to integrate certain external solutions – such as those of the fintech players – but also to be able to update some of the functionalities more easily, and thus be more in tune with technological innovation cycles and client expectations. This progression towards more flexible and open systems (in keeping with “open banking”) requires a more widespread implementation of application programming interfaces (APIs). This would allow different IT systems to communicate with each other, without having to modify the entire infrastructure.
This approach will allow us to increasingly build our platforms in the form of ecosystems that integrate internal solutions and interactions with external platforms.
However, it is gratifying that the framework conditions for innovation are clear and pragmatic in our country, as shown by the introduction in early 2019 of the “fintech licence”, a less stringent version of the banking licence. Similarly, the framework legislation for digital assets was developed in record time and is recognised as being extremely pragmatic. It is essential to pursue a constructive dialogue with the regulator in order to continue along this path.
Lastly, the changing client base constitutes another major challenge. The new generation of clients is more diverse, younger and more global. They are highly entrepreneurial. They demand access to products and services anywhere and at any time, while prioritising expertise via human contact. Younger clients, in particular, expect to access online banking as easily as buying a book on Amazon. They expect to have an amazing technological experience. It is up to the financial players to identify and respond to these new needs.
While there are many challenges for the Swiss financial centre, many new opportunities are also opening up. However, only certain service providers will be able to set themselves apart via their investments, create a global offering and adapt to the changing global environment. The pooling of synergies and resources, together with a solid legal framework, sound strategic choices and respect for our values will be integral to the future success of the financial centre.
Important information
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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