Banking and Competition Survey Shows Swiss FIs Playing to Win on Cross-Border
A few months ago, Bottomline launched an extensive global survey to uncover the priorities banks have set out as the keys to that competition. Called “The Future of Competitive Advantage in Banking & Payments,” digital transformation was the top priority for the global results, with 64 per cent of all respondents ranking it as their biggest competitive focus. Real-Time Payments ranked as the second-highest focus, with cross-border payments 3rd. Those are the global results. And while individual countries largely followed that trend, Switzerland showed some very telling differences in competing priorities.
The country over-indexed on two issues: cross-border payments and real-time messaging and technology. While the rest of the world focuses on digital transformation as their top priority, Switzerland’s priorities are slightly different. Cross-border was the top priority, followed by real-time payments and, subsequently, digital transformation. Those results will present important realities about the Swiss financial picture as the new year kicks into action.
The first is digital transformation. Why did the Swiss responses move that to the number three priority when it was a clear number one globally? It’s reasonable to surmise that digital transformation has been a focus for Swiss FIs for quite some time, and that is indeed the case. In fact, an EY.com report singled out Switzerland as a leading country in overcoming the pandemic disruption due its digital investments in recent years. And its consumers have been faster than the rest of the EU to use digital banking.
In its latest available data for Switzerland, Eurostat reports a 73 per cent usage rate for digital banking compared to 55 per cent for the rest of the EU. Switzerland may prioritise cross-border and real-time payments because its regulatory and advisory agencies, including the Swiss National Bank, believe that digital transformation is essential to competing on a global scale, even before the pandemic.
This leaves us at the number one concern, cross-border payments. Without solving for digital transformation, cross-border competition is weak for any FI. But Swiss financial executives singled out cross-border payments for a reason, and several market dynamics offer an explanation. First, Switzerland is a global leader in wealth management, and that wealth is coming from existing and new markets. According to a recent report on cross-border wealth management from BCG, investible assets from high-net-worth individuals (HNWI) reached a peak in 2020 despite the pandemic and is likely to continue rising up to 2025.
Switzerland processed more cross-border transactions than any other country in 2020. In fact, it was the largest cross-border booking centre in 2020. According to BCG, Switzerland’s cross-border assets under management will see modest growth over the next three years. However (and here’s why cross-payments are so crucial to the Swiss), new growth market flows represented 59% of Switzerland’s cross-border assets in 2020 and is anticipated to represent 61% by 2025. So cross-border regulations, payment systems and technology are critical for its short-term revenues.
Real-time payments and settlements are then a rational number two concern. Called instant payments in the EU and Switzerland, the country is not unlike the US in that a major player is likely to step into the market, in this case, the Federal Reserve with its FedNow real-time payments platform. For the Swiss, the most important payments processing platform is the Swiss Interbank Clearing (SIC), which is monitored and steered by the Swiss National Bank (SNB) and managed by SIX. At present, the Swiss National Bank is working closely with the SIX to introduce a new instant payments rail, the SIC IP Service. This initiative is on the back of SIX upgrading its payment. infrastructure to SIC 5, a completely new technical infrastructure that jointly supports Real-Time Gross Settlement (RTGS) and instant payments. SIX recently announced that instant payments will be operational in August 2024 for the first eligible banks, and RTGS on SIC 5 will follow shortly after.
Further down the line, in a bid to increase the resilience of the SIC financial system against cyber risks, the Swiss National Bank (SNB) and SIX plan to launch the Secure Swiss Finance Network (SSFN). The SSFN is a new SCION-based technology (scalability, control, isolation, and next-generation) that will, in time, replace the current Finance IPnet network for processing payments.
I think it’s fair to say that the EU payments landscape is complex, with its mix of new technology, new payment rails, upgraded messaging formats (such as SWIFT CBPR+ or ISO 20022) and many acronyms like SEPA and Target 2 consolidation to manage. For Switzerland, however, simplicity is easier to achieve because it falls outside the EU. Nevertheless, it is still part of the global financial system, so it’s safe to expect cross-border and instant payments will be a top priority for financial institutions over the next three years.
‘But nearer term, what should we expect of 2022?’ I hear you ask. On that front, there are a number of dynamics that demand significant attention from fintech and financial services in the year ahead. To provide some insight, we asked 12 of our subject matter experts to offer their take on several trending topics across the globe. The “Bottomline on 2022” examines these in more detail.
Note: Original Article is in german.