In some ways, Fintech feels like EM (Emerging Markets) to me. Possibly because I spent part of my Wall Street career in that subsector. Objectively, EM maintains a flavor of Less mature, of upcoming, of under-developed and of course, feels More threatening in terms of growth potential compared to the developed, mature economies; large populations with high birth rates; agile and mobile. Also, EM is associated with a dozen acronyms since Goldman Sachs coined BRICS in 2001. BRIC, BRCS, and PIIGS are the most popular ones but MIST, MINT, EAGLE, and more belong to EM too.
The Fintech ecosystem is advancing, the theme of this year’s (2nd year ) FINANZ und WIRTSCHAFT conference, “Fintech 2016-Advance Finance together”, reflects the convergence underway in the financial ecosystem and the strong element of a process that has traction. My motto has been:
FINTECH is a verb; it is a process; NOT a noun.
Fintech has made the traditional financial ecosystem (financial institutions, regulators, governments, agencies, investors) stand on its tiptoes and re-think strategies, market positioning, and value propositions. This is not about a window dressing digitization project. Fintech is pushing Finance to advance in new ways and in the process; both incumbents and insurgents are re-defining themselves. This is close to the concept that Neil Ferguson coined, Chimerica, a complex and symbiotic marriage. Ferguson speaks about Chimerica, what it means and it’s function of impact and how in many ways, China has been financing the American dream.
As Finance is undergoing a transformation,
the incumbents are in many ways financing the Fintech dream
and we are all on board watching the complex, symbiotic flirting and dating of the two “continents” (the older stakeholders and new entrants). We are not yet ready for an engagement or a marriage but we are heading there.
Lets zoom in now to Switzerland, in the center of Europe but not in the heart of Europe. The FINANZ und WIRTSCHAFT (Financial and Economic) conference last week, was a forum that poked and provoked the participants on Switzerland’s position in this journey. I left the conference sensing that LBZ (London, Berlin, Zurich) or LBL (London, Berlin, Luxembourg) could become the European acronyms by the end of 2016, as Europe advances while Chimerica, fires ahead. Nobody actually spoke there about such orderings of hubs, but Berliners kept provoking Austrians and Swiss Germans.
Clear facts were showcased, those limiting the advancement of the Swiss Financial ecosystem:
- Unfavorable taxation for startups in the canton of Zurich, may result in heavy tax bills before even being profitable
- Entrepreneurial culture that is lacking, simply because most graduates have professional plan A and B, awaiting for them in the corporate world.
The typical Swiss entrepreneur (there is actually a long term tradition) is more about slowly and carefully building companies and patents. This is not conducive to fintech, which requires lean and fast prototyping and scaling and entails high failure rates and pivoting.
- There are more incubators than startups, simply because of lack of funding. At the same time, Swiss culture is very much based on facts and precision and isn’t at all comfortable with ideas and investing in ideas. The Swiss open their wallets to facts not ideas.
- Funding is extremely small in size and not aggressive enough in an era that scaling up fast is essential.
As a result, Switzerland isn’t into aggressively seeding early stage Fintechs.
- Proof of concept is the next step needed to advance a Fintech startup. Swiss financial institutions have been shy in getting involved in this phase too.
- Swiss financial institutions incorrectly (in retrospect of course) thought that the regulatory burden would act as a fortress to the digitalization wave in banking. This is has proven wrong and things are happening much faster than expected. As a result, there is a “catching up” that is currently takes place.
- Swiss financial institutions don’t lack the budget to ADVANCE IN FINANCE but they do lack the culture. Urs Rohner, chairman of the board of directors at Credit Suisse, while being “interviewed” on stage by Mark Dittli, the director of Finanz und Wirtschaft, courageously spoke about this as the Incumbent’s Curse.
The suggestions for the advancing of these limitations, were either to import foreign entrepreneurs who are savvy and will infect the locals with their motivation and aggressive culture OR to put more political pressure to quickly pass favorable Swiss legislation that could unlock the local potential.
This last point, was loudly voiced from Mark Branson
“Fintech startups, bundle your forces and come up with some simple proposal-ideas for consideration”.
FINMA has already launched an initiative that encompasses a banking unlicensed sandbox and a light banking license. The actual implementation of such programs and the exact details (always the devil in the details), has to be determined via relevant legislation. So, the ecosystem has to put pressure in order to get the political consent. Once the willingness signal is out there, FINMA stated that they don’t even need to wait for the legislation to be passed; they are willing to proceeda and outline some thresholds in terms of AUM (e.g. below $5mil for light banking license, or below $200k CHF for an unlicensed sandbox).
FINMA openly committed to offering an interim framework for all stakeholders, including incumbents, to work with while awaiting legislation.
Mark Branson echoed loudly that “Switzerland wants Fintech innovation” and all stakeholders for Advancing Finance should contribute in obtaining publicly the political consent.
At the same that limiting facts were discussed, there were two strong main threads that brought hope for a LBSL setup (London, Berlin, Switzerland, Luxembourg) over the next year. The vision was echoed loudly from the panel “What does it take to Accelerate innovation” with participants from different innovation labs; Adrian Bührer, CEO of Swiss Life Lab; Guillaume Dubray, founder of Fusion Accelerator; Andreas Iten, CIO of SIX innovation; and Magdalena Krön, from Rise London and Open innovation at Barclays:
Everybody should have a Swiss Bank account on their Smartphone.
A Swiss digital wallet for everybody (not only the Swiss).
The other Swiss voice that was an actual example of what has already been done, was that of the CEO of BLKB, Beat Oberlin. He has been leading the transformation of a Swiss cantonal bank. As he mentioned “In 5 and 10yrs we wanted to make sure that we are not a building. We believe that our value proposition lies in our content. And we have been working with Fintechs like Twint, and others in digitizing our mortgage business and our bank offering and listening to our customers as to what options and what services they are looking for. “
Switzerland has its own culture and is advancing on its own rhythm and way, as financial innovation supply puts pressure on the idiosyncratic and privileged Swiss economy situated in the center of Europe. Switzerland is starting to shape a bold vision (whether it is a global digital Swiss wallet or some other), there is agility emerging (whether it comes from FINMA or the government; in whichever order), there is a customer centric shift happening (lead by IT giants and Fintechs and adapted by incumbents). 2016 is clearly a great year for LBSL or LBLS or even LSBL. One thing is clear that AFTS (Advance Finance Together in Switzerland) is happening and the FuW conference has contributed towards that direction.
This is part I of my reflections from the FINANZ und WIRTSCHAFT conference, “Fintech 2016-Advance Finance together”. Part II follows tomorrow.