Simon Sineck says that you always have to start with the “Why”. True, but for the digitization of financial services, we have already answered the “Why redesign financial services”. The “Who” and “How” is a work in progress. The “Paradeplatz meets Silicon Valley” event in Zurich last week, organized by RFS, was an opportunity for me to think around this multi-faceted topic. My insights today are by no means an attempt to cover it all but to shed light and a few noticeable trends.
This is Switzerland, the small country in which Swiss banking contributes around 80billCHF to the Swiss GDP. This includes banks and insurers, that account for nearly 10% of GDP. Despite the fact it has been declining, it is still much higher than several G20 countries.
As I reflect on whether Swiss Banks and Insurers, are the ones that are taking the lead in redesigning their businesses; the answer is that they are not. This is in alignment with the fact that Swiss Banks and Insurers understand their businesses very well but only Backwards (as Dan Kimeling, of Deciens Capital said). They are not those that foresee and shape the future of their businesses. They are not pushing their own thinking and challenging their current offerings like Google X does. They are trapped still in the mode of growing their market power by acquiring more assets to manage. They are not in the mode of acquiring human resources, IP, and investing heavily in being in the flow of innovation wherever it is happening, in whatever way. There is no Goldman Sachs in Switzerland. Meaning, there is no boutique, brand investment bank, that is in the flow of it all. With Marcus, with Honest Dollar, partnering with Betterment, investing in Kensho, with and Circle & Poloniex. There is no BBVA here. There is UBS and SwissRe, but not as aggressive and with no sense of urgency.
Switching over to the firms that have been in the financial software business, like Salesforce, they are the ones that are powering the Software as a service (Saas) model and becoming platforms which integrate the scattered Fintech innovations. They are the ones that have the distribution channels and can “save” their clients (the banks and insurers) the resources and time, needed to integrate. Switzerland does have a Salesforce and a Finastra of its own. Temenos and Avaloq are the ones that redesigning financial services. At “Paradeplatz meets Silicon Valley”, Francisco Fernandez, co-founder and ex-CEO of Avaloq reminded me of several Fintech innovators that are already integrated on their core banking.
Avaloq’s app store and developer portal, is already 3yrs old and includes over 90 apps or Banklets as they call them, for a diverse use (PFM, payment mgt, alternative investments, asset & market info, etc) and through their recent strategic investment in Metaco, they also offer custody solutions for crypto assets that can be integrated in a bank’s core system (SILO). Will the clients rush and buy from such Saas providers? The signs here in Switzerland are not that encouraging. The offering is there, it is a work in progress but the buyers have to make the strategic decisions. The bottom line issue is that IT people in banks and insurance companies are not the majority on the Boards or at high-level management. Martin Naville, CEO of the Swiss-American Chamber of Commerce, highlighted this issue when he was discussing on stage the successful case of Swissquote. This is a 30yr old Swiss listed company that merits to be called a Fintech focused on online financial and trading services. With robo-advice, e-mortgages, e-forex, and crypto offerings, Swissquote is the leading online banking /trading platform in Switzerland and has even established partnerships with banks that are white labeling their technology (e.g. Postfinance e-trading powered by Swissquote). Their annual conference in collaboration with EPFL is a unique combination of academics and startups. What is the main reason that a 30yr Swiss bank, is an unstoppable leading innovator in online financial and trading services? It is a business founded and managed by engineers.
Technology and data parlance is built-in organically in their board meetings and amongst all their decision makers.
If you come from that angle into today’s reality, then you can cannibalize your business offering; you can even “hire the young to teach the old”. Anyone 35yrs and up, can qualify as old actually and can benefit hugely from being mentored by the young. Young people get it, how Revolut is acquiring 10,000 customers a day and is only 2.5yrs old. I get it too, because it took me a few minutes to open a business account on Revolut this past weekend which is open 24/7.
RFS by Who? – (Redesigning Financial Services)
Here in Switzerland, it is the seasoned financial services businesses that are overweight engineers that are pushing the status quo to change. The redesigning of financial services can happen from the Avaloqs or the Swissquotes. These are those transforming into Saas platforms for B2B penetration or those growing fast their digital offerings for B2C and at the same time white labeling their technology to other players (B2B2C) and revenue sharing.
However, if the banks don’t “buy” into all this, then these offerings will be exported and German or African or Middle Eastern banks and insurers will digitize faster than the Swiss. At the same time, there is still one major factor that the Swiss ecosystem has not leveraged enough, and which may turn all the above into a tale much like Aesop’s “The Tortoise and the Hare” race. What is this underutilized X-factor?
Swiss data protection laws, coupled with the unstoppable Transparency trend
Regulation has more or less shaped the dominant technology, in all innovation cycles (inspired by Guenther Dobrauz, PWC partner).
The place to Open Transparency centers that enable international stakeholders to review the vetted offerings, is Switzerland.
With the toughest data protection laws, quality control is essential. At the end of the day, this is how the Crypto ecosystem scaled in the Alps. One of the tipping points was when foreign businesses moved here.
Financial services will become invisible and intertwined with IOT. Whether you enter and exit a parking lot and payment is done; whether you send money or borrow money with an SMS; or your online financial advisor keeps you intact with your long term goals; or your insurance claim processing is done with two swipes; it will be all about Data quality and trusting the code that connects behind the scenes the devices and the service providers. IOT and invisible finance, is no utopia. It is happening as we speak. Switzerland can be the home of Open Transparency centers for all data used for the networks that will link invisible finance via IOT and make it all a reality. Regulators and entities like governments, agencies or corporates will be able to review and monitor these invisible business processes (data & code).
It was Kristine Braden, the country officer of Citibank, that opened her keynote with the FT headlines about “Spying fears prompt Russian software company move to Zurich” at the RFS event in Zurich and highlighted Kaspersky’s decision to move to Zurich and open a Transparency center for their antivirus software. This is a facility where trusted partners and government stakeholders can review the Kaspersky products’ source code as well as the tools they use.
Robert Ruttman, founder and CEO of RFS, and head of Customer Insights for FS at the Institute of Customer Insights at the University of St. Gallen; is always smiling, full of energy and a host on stage. As I walked out if the Aura hall at the end of the first day of the RFS event, I thought:
RFS by Who and How?
Secure invisible finance in an IOT environment hosted out of Switzerland! The locals don’t see it yet. Maybe the “foreigners” do and will start moving here and that can turn Switzerland into the hub for secure, transparent centers because everybody gets it: Tough data protection can work magic within a transparent environment.
Efi Pylarinou is a Fintech thought-leader, consultant and investor.
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