Shrinking margins, changing customer needs, growing complexity, new ecosystems: the challenges facing Swiss financial institutions are fundamentally the same as those facing their international counterparts. Can the existing infrastructures be adapted? Or is a radical new approach needed?
The global financial industry is facing enormous challenges. In a recently published paper, our colleagues at Zühlke UK drew parallels to the situation in the US automotive industry during the 1970s. They suggested that banks might benefit more from starting a separate digital bank from the ground up, rather than digitalising their existing processes, interfaces, and infrastructures. What is the current situation in Switzerland?
Customer-centricity and ecosystems
In Switzerland, shrinking margins in the mortgage business are posing a threat to retail banks in particular, as the interest margin business still accounts for the lion’s share of their income. At the same time, customer-centricity is becoming increasingly important in the services industry. Consumers have realised that other industries, such as retail, have been meeting their needs for years, so they are now demanding the same from their banks and other financial institutions.
Closer collaboration and links with third-party providers through open banking and ecosystems are becoming increasingly important if banks are to offer their customers the widest possible range of products and services. The partner companies also benefit from being associated with a trusted bank. And the level of trust is still high: for example, in a survey conducted by the Institute of Financial Services Zug (IFZ), 64% of respondents could envisage obtaining insurance services through a bank – but only 15% would obtain banking services from an insurance provider. Furthermore, concepts such as co-creation – i.e. the direct involvement of customers in an agile development process – could also help providers to meet the changing needs of their customers.
Pandemic as a driver of disruption
All of these challenges have been around for a while. However, the coronavirus crisis has triggered a massive surge in digitalisation and has led to a change in preferences on the demand side (i.e. among customers) in particular. The online-first approach is now also penetrating customer segments that have traditionally been characterised by more physical channels.
Challenger banks take greenfield approach
The ability to collaborate with other businesses and organisations and thereby secure a place in an ecosystem will be decisive for banks in the future. But creating the right conditions for this within the existing organisation is easier said than done: the structural, cultural, and technological deficits that exist in many areas would require enormous amounts of time and money to overcome.
That’s where a greenfield approach can make sense, as it provides an opportunity to create new and efficient structures and to foster an agile culture that is constantly questioning itself and looking to improve. Wide-scale, radical change within an existing organisation would require an enormous amount of time, effort, and expense. It is doubtful whether it would even be possible within the small amount of time that traditional Swiss banks still have left before the pressure from new market participants becomes too great to bear.