There will still be banks in 2025. This is the optimistic conclusion drawn by participants of the 4th Swiss International Finance Forum, which took place in Bern on June 20. Still, while they agree that there will still be banks in the near future, participants at this year's forum also agreed that the industry will undergo dramatic change over the next eight years.
A driver of this development is digitization, said Herbert Scheidt, President of the Swiss Banking Association, referring to the dominant theme of the one-day conference.
“In 2016, FinTech went mainstream,” said Henri Arslanian, the FinTech & RegTech Leader for China/Hong Kong at PricewaterhouseCoopers, in his opening remarks, which set the tone for the conference. The push into financial services will continue this year, and inspiration may increasingly come from China, he added.
China is the global leader in many aspects of business-to-consumer FinTech, with firms such as Tencent and Lufax deploying innovative ways to deliver financial services to millions of customers. However, very few outside of China are aware of these firms and appreciate how advanced their offerings are compared to their peers in the West. Banks will increasingly face competition from technology giants, which target their most lucrative businesses. Large tech firms in Asia such as Tencent or Ant Financial are already very active in the financial services space, and many of their Western counterparts from Facebook to Apple are continuing to make inroads into financial services. Facebook has already secured more than 50 regulatory licenses in the US alone, he said. Picture Facebook entering the market for financial services. The wealth of data Facebook can tap into is something no bank can compete with. After all, Facebook probably knows you better than your mother, your husband, or your wife, he said.
The good news is that there is more than just fierce competition for banks’ traditional business models coming out of the technology corner.
Since the global financial crisis, banks have dealt with the numerous new regulations by hiring thousands of compliance officers, thus solving an important problem by adding costly headcount. Today, around 80% of the total costs to combat money laundering is headcount-related, he said. Now RegTech solutions are becoming available to help banks reduce such costs.
Reaching for the clouds
Another emerging trend is the storage of data in so-called clouds, said Herbert Scheidt. This goes beyond central data storage. Software will increasingly be managed, maintained and developed at central locations, that are no longer owned by the bank itself. “This will greatly reduce costs related to the idea of a transaction bank, or closer cooperation among commercial banks,” Arslanian said.
"Nobody wants to download 100 apps for banking services."
Susanne Chishti, CEO and founder of Fintech Circle
Susanne Chishti, CEO and founder of Fintech Circle, sang the praises of cooperation between Fintechs and established banks. Fintech companies already can offer every single service that a traditional bank like HSBC provides, she said. But “nobody wants to download 100 apps for banking services,” she added. That’s why Chishti sees benefit in cooperation, with traditional banks buying the rights to innovative solutions developed by the more agile start-ups. Philipp Hildebrand, the former President of the Swiss National Bank and Vice-President of the world's largest asset manager Black Rock, expects the size of Switzerland’s financial market to remain roughly the same as today. Don’t underestimate the Swiss financial market's resilience, he said.
What’s more, said Axel Weber, Chairman of UBS Group, Fintech companies won’t continue to grow at today’s pace forever. There will be crises and setbacks and once the sector will have reached a certain size, regulators were likely to tighten the reins and introduce more stringent rules and restrictions that traditional banks were already all too used to. In his view, this would then create breathing space for banks, and further underscore the fact that cooperation was the most likely, and reasonable, way to go.
And one thing is clear. No matter how dramatic the traditional business will change, some things will remain unchanged. Among those: Clients will always want to talk to a person when it comes to life-changing decisions, like buying a house or discussing how to pass on their wealth to their children.
Anita Greil is Head of Strategic Communications, Corporate Communications, UBS Switzerland
The Swiss International Finance Forum, founded by leading Swiss newspaper NZZ and held in conjunction with partners including UBS, has established itself as a leading international platform for the financial and capital markets industries.