Monday 04 July 2016

FinTech will not replace personal relationships

The word FinTech is on everyone’s lips, and the Geneva financial centre is at the forefront of this revolution.

The digital transformation of finance is a reality. Banks are no longer just adapting to the digital transition but also actively shaping the digital future. The first steps in this direction were taken in the early 2000s, with the introduction of online banking. Today, financial services have moved beyond online and mobile banking, making payments from a smart phone possible. Tomorrow, data management – from storage to secure transmission of information – will be a crucial differentiating factor. How is the Geneva financial centre positioned to face this challenge, and what are its main strengths?

Recent studies show that the financial centre innovated in several areas long before the term FinTech was coined. The World Economic Forum (WEF) and IMD Business School rank Switzerland among the world’s most competitive nations. The WEF Global Information Technology Report 2015 places Switzerland in the top ten in terms of technological readiness, thanks in part to substantial investment in digital networks. A recent Ernst & Young study indicates that banks have fully integrated the digital revolution in their priorities. Lastly, the Lucerne University of Applied Sciences and Arts counted 162 FinTech companies active in Switzerland in 2015, up from 24 in 2010. Thirteen are based in Geneva, which also boasts the first FinTech incubator. The presence of this ecosystem places Geneva at the cutting edge of innovation in finance and banking.

Geneva is at the cutting edge of data management

These new technologies have brought about a series of changes. However, unlike Uber for taxis or AirBnB for rental properties, the financial centre comprises many different activities. Consequently, the development of FinTech is unlikely to result in an ‘Uberisation’ of the banking industry. The aim is not to create FinTech banks but to incorporate FinTech into banking.

Geneva excels is in its infrastructure and experience of data management. In the age of ‘big data’, Switzerland remains a location of choice for data management and protection. Thanks to its favourable legal environment and framework conditions, our nation is uniquely able to offer the high level of data protection essential for many FinTech companies. Mounting pressure on encryption further reinforces Switzerland’s potential in this area.

The emotional dimension is central to client relationships

The structural changes brought about by the digital revolution have also impacted banking activities.  The digital transition has led to changes in products and services, as well as in the way banks communicate with clients.

New service offerings have emerged, especially in wealth management. Risk management technologies enable banks to generate proposals for asset allocation optimisation.

One thing is certain: the use of digital channels is on the rise. However, although opening an account no longer requires a trip to the bank, and computer programmes do a good job of monitoring portfolios, personal relationships are still essential. A fully automated finance will never be able to completely grasp clients’ specific needs. They want to be able to choose the form of interaction that suits them. This is where analysts will continue to add value, by fine-tuning the selection of stocks and products. Moreover, there is an emotional dimension to client relationships that only Humans can truly comprehend. Digital technology is therefore simply a tool that enables client advisors to focus on the heart of their profession.  

Regulation should encourage innovation

In the United Kingdom, regulatory authorities have taken a proactive approach: the Financial Conduct Authority plays a key role in promoting economic development by supporting FinTech companies through its ‘innovation hub’ programme.

In Switzerland, the Federal Council recently adopted a ‘Digital Switzerland Strategy’ calling for close cooperation among all economic sectors.  The FINMA, meanwhile, has decided to authorise online identification of banking clients, an important development for an international financial centre like Geneva, and one that is likely to benefit both retail banks and institutions specialising in wealth management.

These are promising first steps. But we can rightfully expect our government and political leaders to provide a determined regulatory impetus, in order to give Switzerland a legal framework that supports the development of FinTech and does not discourage innovation.  

This point of view was published in "Le Temps" on July 4, 2016

Yves Mirabaud Chairman of the GFC