Fintech: Higher investments, reluctant customers

2019 was another record year for the Swiss fintech industry. At the end of the year, a total of 382 fintech companies were legally incorporated in Switzerland, which corresponds to an annual growth rate of seven percent. This growth rate, however, is clearly lower than in the previous year when the market increased by 62 percent.

Besides the increase in the number of companies, the sector continued to mature in 2019, a development which is highlighted both by the increase in the average number of full-time equivalents employed at Swiss fintech companies, as well as their total funding. «This development is not least due to the excellent conditions that fintech companies find in Switzerland», says Thomas Ankenbrand, study lead and lecturer at the Lucerne University of Applied Sciences and Arts.

While almost 70 percent of Swiss Fintech companies provide solutions in the product areas of investment management and banking infrastructure, the most frequently applied technologies are those related to process digitisation, automatisation, and robotics, as well as the distributed ledger technology (e.g., blockchain).

Tendency towards «Tech» business models

Seven BigTechs are included among the ten largest companies worldwide (measured by the market capitalisation as of 2019). This underlines the relevance of technology-driven business models, which is also mirrored in the results of the analysis of the revenue models applied by Swiss Fintech companies. They show an increased tendency towards the application of revenue models typically employed in the IT industry. Over half of the Swiss Fintech companies apply licence fees and/or Software-as-a-Service (SaaS). This leads to conclude the increasing importance of IT-typical revenue models compared to those from the traditional banking business. Nevertheless, the commission model is still the most frequently applied model by Swiss Fintech companies.

Swiss banks: Only a few pioneers taking the technological lead

The main goal for entrants into the saturated Swiss financial market is to create additional value for the users. This can be achieved, for example, through a price or cost reduction, and/or increased convenience. Many Fintech companies, however, are struggling to find clients. The distributed ledger technology, as an example, has not yet been able to demonstrate its relevance through the first widely used applications in the financial sector.

The results of the study indicate that Swiss banks are reluctant to engage in «change-the-bank» activities and assign a low priority to the implementation of fintech solutions. However, with the first group of challenger banks emerging in the Swiss market, these pioneers could be key in pushing to bring technological innovation into the financial sector. This development, together with the increasing offer of financial services by competing BigTech and fintech companies, could reinforce the innovation pressure on traditional financial institutions in the future.

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