Trends, Challenges, and Opportunities in the Fintech Ecosystem

by Christian Hoffmann

Trends, Challenges, and Opportunities in the Fintech Ecosystem

by Christian Hoffmann

by Christian Hoffmann

The Swiss ICT Investor Club (SICTIC), a non-profit association that connects smart money and angel investors to Swiss early-stage tech startups, hosted its flagship event yesterday on December 4, the Swiss Fintech Investor Day. In 2018, it was ranked one of the Top 30 Fintech Events in DACH Region and the largest Fintech Investor Event in Switzerland. Last year’s edition gathered over 230 attendees, mostly investors, and after a short series of talks and training sessions, 12 fintech startups presented their projects (out of which 5 received funding within 6 months). 

This year, I had the pleasure and honor to participate in a panel, discussing challenges and opportunities of the Swiss Fintech Ecosystem together with my fellow panelists including Andreas Iten, Managing Director and Head of Fintech Ventures at SIX, as well as Guido Bühler, CEO at SEBA Bank AG.

In this short article, I would like to share some questions that were discussed and answers I provided.

Q: Why do Swiss fintechs struggle with challenges such as scalability or the cultural gap between start-ups and corporates?

CHO: Indeed, scalability and cultural gaps are issues that particularly Swiss startups suffer from. In terms of scalability: The Swiss market is small, multilingual and, once we widen the horizon, the number of languages in Europe not only becomes larger, but we also have to deal with many jurisdictions. Now compare that with the huge and homogenous market in the US or China. And the same culture-wise: I have observed that market participants in Switzerland (clients, financial institutions, traders, service providers, etc.) are notoriously skeptical regarding innovations and reluctant to adopt new ideas which would require them to incorporate changes into their ecosystem of well-established and well working structures. Especially so, when the technology in question is not easy to understand and lacking transparency. However, scalability and cultural gaps do not need to be disadvantages. Rather, disadvantages and advantages are two sides of the same coin, and startups that managed to overcome those difficulties proved valuable skills which make them more resilient.

Q: What needs to be improved in the ecosystem and who are the actors that can spark the necessary improvements?

CHO: An ecosystem consists of many different components such as startups, corporations, investors, acceleration programs and so on. Just let me briefly comment on one layer. Namely let’s take a look at politics or the state which is responsible for setting up general conditions and the framework. Two comments:

(1) Switzerland’s reputation in the world stems from, among others, its political stability. Accordingly, it should remain politically stable and involved in major international political decisions which goes hand in hand with

(2) regulating softly, not abruptly when it comes to fintech. When it comes to the financial industry in general, overregulation is a burden. And Switzerland is here at the forefront as regulatory model state. International agreements such as Basel III are implemented rigidly whereas other parts of the world (especially the US or China) are more reluctant or flexible (to put it nicely). This gives their banks a competitive advantage and distorts international competition. It is important to see that this curtailment of economic freedom heavily affects Swiss startups too. If regulatory costs are high for Swiss banks, then their ability to invest into innovation and partner up with startups is diminished. In short, preserve more economic freedom!

Q: Focus on the entire ecosystem: In which regards is the fintech ecosystem doing well at the moment? Which trends are facing the right direction?

CHO: Switzerland is globally known for its highly developed financial system. But, I think , in 20 years there will be no more financial centers and “leaders of finance” in the world. The financial system will be one big digital network driven by technology clusters. The good news about it is that Switzerland is also known for its excellence in research and education. Switzerland should keep its leadership role in science and technology and the trend of fostering industry academia collaborations and transfers are very welcome (e.g. in the shape of programs by Innosuisse, SNSF, Venture Lab, Gebert Rüf foundation and so on).

Q: Which value proposition can Switzerland and our ecosystem offer for companies to come here?

CHO: To put points I already made in a nutshell, 1) political stability, 2) on an international scale high economic freedom (which, however, should be further increased especially by avoiding overregulation), 3) the very high level of research and education which allows companies to hire talents. 4) For international startups that wish to come to Switzerland, they find a fragmented market characterized by small and medium-sized players which comes with shorter decisions times and flatter hierarchies when those startups look for partner firms, pilot projects, etc.