This is a tale of two economies. One economy is local and super conservative, small but profitable. The other economy is global, thinking big and outside the box like Silicon Valley. Both are fertile grounds for entrepreneurs, but they are not just a little bit different, they are mirror images of each other.
Today is Swiss National Day. I feel very fortunate to live in this lovely country, which I have been coming to since I was a child (because my father was a keen skier and I inherited that passion). With my professional hat on, this post offers my perspective on how Switzerland as a home for Fintech has changed dramatically since the Global Financial Crisis.
The super conservative local economy
If you look at Switzerland from the point of view of a company planning a big global rollout, you see a market that is:
- small. On the IMF list of GDP by country, Switzerland is ranked about 40. You can quibble with stats, but any list puts Switzerland way down the priority list in a global rollout.
- complex. With 4 official languages, super localised democracy, so many rules and regulations that even people who have lived here all their lives can get it wrong, the headaches in your go to market plan multiply.
- full of super conservative consumers. Switzerland is close to perfect, which is a problem if you are an entrepreneur looking for problems to solve and adventurous consumers willing to give something new a try.
- consumers who like to buy Swiss made. In some markets there is a disconnect between patriotic calls to buy local and self interest. When the British car industry was in terminal decline in the 1970s, British consumers mostly ignored patriotic calls and bought Japanese cars. In markets where the Swiss make products – think food, watches, banking, chocolate etc – try persuading them that a foreign product is better and you will have a hard time.
- consumers with enough money. Switzerland ranks 10 in GDP per person. If you deliver a product/service that Swiss people want, they have the money to buy it.
These attributes make Switzerland a good market for entrepreneurs who want to build something that is local, relatively small but very profitable. The market is ignored by big global players for a long time, so you have time to build a profitable business. You won’t get on any big global lists or interviews on global media, but you will have a substantial and profitable business.
In the digital realm, consider Comparis. As a search service, Comparis won’t rank well on any global lists, but try living in Switzerland and not using Comparis… I know it as user and not as a business, but I assume it is very profitable because everybody uses it.
The techniques you use to build this sort of local business are 100% different from the techniques you use to build a big business in the the aggressive global Crypto Nation economy. They are not just a bit different they are mirror images of each other.
The Crypto Nation journey from 2008 to 2018
Switzerland has emerged as a Crypto Nation during the last 10 years in the wake of the 2008 Global Financial Crisis (GFC) in 4 phases
- Phase 1: Crawling from the wreckage of the GFC. This is about from 2008 to 2011. Switzerland was less blown up in this phase than London or New York, which were the twin epicentres of that earthquake, but the two big global banks – Credit Suisse and UBS – were impacted and each took radical measures to recover.
- Phase 2: The FATCA and GATCA blows to Traditional Swiss Finance. This earthquake hit Switzerland directly as it impacted Private Banking, where Switzerland was/is the top country. This phase is about from 2011 to 2014, but a lot of the impact is still to come.
- Phase 3: The early days of Swiss Fintech playing a bad game of catchup. Daily Fintech started in 2014 and when we went to those early Fintech MeetUps, everybody was looking enviously to the entrepreneurial dynamism of London and New York and the idea of beating Silicon Valley at its own game was too ridiculous to contemplate. This all changed when Crypto Nation emerged as a major player, during what I call the long hot summer of ICO in 2017.
- Phase 4: Crypto Nation. This got going in the long hot summer of ICO in 2017 and has many years ahead of it.
Crypto Nation not Crypto Valley
There is a branding issue around the term Crypto Valley. It is too much associated with Johann Gevers, Monetas and Tezos and that branding now has some association with hype – and Swiss people don’t like hype. Precision is a value that the Swiss love. Branding through look and feel and user experience is is a value that the Swiss love. Hype is not.
However, there is no doubt that the real activity in the Crypto Nation is in the Zug Zurich corridor more than the Geneva Lausanne corridor (which has many other appealing characteristics). So the notion of Crypto Valley has some validity
Whether from Zurich or Geneva, all roads lead to Bern! I moved to Bern for lifestyle rather than professional reasons, but Bern is handily between Zurich and Geneva location wise and the home of the regulator (FINMA). If anybody wants to organise Fintech MeetUps in Bern please get in touch with me (bernard at daily fintech dot com).
The Zug Zurich corridor has the two attributes that Paul Graham (of Y Combinator fame) said were what you needed to get an entrepreneurial economy like Silicon Valley to flourish – rich people and nerds:
- Rich people. You cannot swing a cat in Zug without hitting a billionaire with a Family Office, and Zurich has plenty of rich bankers in those fancy restaurants.
- Nerds. In Zurich/Zug you have to differentiate between ETH the great University and ETH the cryptocurrency that is associated with Ethereum (whose Foundation is in Zug).
Switzerland is legally a multi-currency country
This was a lightbulb moment when I first heard about it at a MeetUp in Geneva in March 2015.
What? We all know Switzerland is multi-language, but we also know the famous Swiss Franc. It turns out that there is an alternative currency called WIR that was set up in 1934 that is quite legal. The WIR was set up by people wanting to create an alternative to a financial system that had failed so dramatically in 1929. Sound familiar? WIR accounts for a tiny % of Swiss GDP but it is real and legal. So the idea of adding another legal currency was not too big a stretch. That is why you can pay taxes in Bitcoin and buy Bitcoin at any railway ticket machine in Switzerland.
FINMA regulates 3 different types of Token by use case. One of them is a Payment Token (aka a Currency); the others are Utility Token and Asset Token (the latter is similar to Security Token in other jurisdictions).
This clear legal framework makes Switzerland a good jurisdiction for a crypto venture, along with two other legal and cultural attributes
Two other legal and cultural attributes of Crypto Nation
Apart from the MultiCurrency legal status and the number of rich people and nerds, there are two more legal and cultural attributes that make Switzerland into Crypto Nation:
- Switzerland is a decentralised country with governance power devolved to the most local level. There are 2,222 “municipalities” (German: Gemeinden, French: communes; Italian: comuni; Romansh: vischnancas) within 26 Cantons in a country with about 8.5m people or about 0.11% of the global population. Voting is face to face in these municipalities. Power flows up from this hyperlocal level to Cantons to Federal (not the other way around that is the norm in most other countries). This decentralised governance fits the crypto decentralised model.
- Data privacy legal framework. This is stricter even than EU and way stricter than US. This fits the crypto world where user control over data is the target. If you run a business where you want to guaranty data privacy, your jurisdiction matters and Switzerland fits the bill.
Traditional Finance in Switzerland maybe flying too low
In the classic Icarus tale, we are cautioned not to fly too high. As Seth Godin tells us, the original tale also cautioned against flying too low. Traditional Finance in Switzerland maybe flying too low.
Bankers breathed a sigh of relief when citizens voted no to Vollgeld. They also escaped the worst of the 2008 GFC. This may lead to some complacency aka the boiling frog problem. Data from McKinsey should give bankers some agita. This is what we identified as the Wile E Coyote moment, which we can see playing out on the streets of Switzerland with branch closures or dramatically shortened opening hours with far fewer staff. Those famously high Swiss salaries mean that the numbers look very bad in the face of the digitisation truck. To see signs of this pain, go to Inside Paradeplatz (use Chrome if you don’t speak German).
In short, Crypto Nation in Switzerland is a disrupt before being disrupted story.
Bernard Lunn is the CEO of Daily Fintech and provides advisory services to companies involved with Fintech (reach out to julia at daily fintech dot com to discuss his services).
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