The Swiss banking industry has been a key driver of Switzerland’s economy and continues to face wide ranging and well known challenges, such as rapidly evolving customer expectations, emerging disruptive technologies and new digital-bank competitors as well as leveraging robust but inflexible legacy systems that worked well in the past but may not be fit for the future. The large Swiss banks continue to dominate the market, with digital challenger banks slowly making inroads. As the banking industry gears for the technology driven changes of the future, the traditional incumbent banks need to consider how fast and in which direction they would need to move. Should they seek change that is piecemeal, transformational or greenfield?
The Swiss Banks have traditionally focused their investments on optimizing capital and cost savings as well as in meeting emerging regulatory and compliance challenges. A key shift in the market place has been the emergence of digital players such as Fintech start-ups or ‘big data’ technology giants such as Apple and Google offering financial services. Customers have started embracing new banking models, which are decentralized and driven by compelling digital user interfaces, more aligned to their needs and lifestyle choices.
Alongside changes in customer expectations, banking regulations such as the ‘Open Banking’ directive require incumbent banks to open up their systems and data to third party market participants. Banking supervisory institutions are also pushing for banks to provide more frequent and real-time reporting of key risks and organisational changes impacting the banking industry.
Switzerland’s banks are of course investing in their futures, recognizing the need to drive innovation, enhance agility and become more customer centric. But for too many investments are focused on incremental change and patchwork upgrades to legacy systems. Even ambitious system upgrades are unlikely to produce sustainable competitive advantage over the long term. New digital challengers are able to design agile business and operating models from scratch. This is a luxury most established financial institutions do not have and greatly compounds the disruptive effect of the new digital market entrants.