Thursday 15 September 2016

Innovation: part of the Geneva financial centre's DNA

Investing in innovation is the best response to the challenges of today

The Swiss banking sector has undergone some profound changes over the past few years, due to an unprecedented increase in regulation as well as fierce competition between financial centres in a globalized world.

The effects of this new paradigm are already being felt: a recent study by KPMG indicates that 10 per cent of Swiss private banks did not survive 2015. The consulting firm further recommends that Swiss banks comprehensively review their service offering in order to ensure they are providing additional value to clients. The report also notes that far too many financial institutions are still using older IT systems that prevent them from successfully entering the digital banking market.

In this context, Geneva banks can respond in one of two ways: either wallow in defeatist self-pity, or take the bull by the horns and make innovation a strategic priority.

Several forms of innovation in banking

Innovation in the banking industry takes many forms. One consists in adjusting the bank's service offering to encourage new approaches to client relationships. Another is to modify processes in order to better manage costs. A third is to tweak, or completely redefine, the business model.

According to this definition, innovation is what enables companies to adapt to a volatile mix of regulatory constraints, the heightened expectations of a new generation of increasingly connected clients, and tough markets conditions, including a strong Swiss franc and negative interest rates.
The Geneva financial centre’s many strengths will enable it to successfully meet this challenge.

First, Geneva has access to a highly qualified workforce. Banks can rely on well-educated, multilingual staff who are attuned to their clients' needs. This expertise has positioned Geneva as the world leader in private wealth management. Innovation in this area should target education, from basic skills to academic research as well as to professional and continuing training. The requirements written into the future Federal Financial Services Act (FFSA) will be a first test in this regard.

Second, the Geneva financial centre is at the heart of the digital revolution. In the age of "big data", Geneva’s infrastructure and experience in data management are what set it apart. The city plays host to 13 FinTech companies, according to a survey by the Lucerne University of Applied Sciences and Arts. It also boasts the first FinTech incubator. The presence of this ecosystem places Geneva at the cutting edge of technological innovation in finance and banking.

It is no coincidence that the world's largest financial services trade fair, SIBOS, is being held at Geneva Palexpo from September 26 to 29, 2016. The event will include a "Swiss Lounge" dedicated to start-ups and showcasing Switzerland and Geneva's expertise.

Regulation should encourage innovation

When it comes to products and services, Switzerland has ample scope to step up the pace of innovation in asset management.

Most competing financial centres already enjoy a regulatory framework designed to encourage the development of this sector. In Switzerland, greater emphasis should be placed on the potential for creating new financial products and boosting exports to foreign markets.

In this area more than in any other, free movement of talent, ideas, and brains is a condition of innovation. The uncertainties created by the vote against mass immigration, on February 9, 2014, must be lifted.

In the area of FinTech in particular, political and government bodies should be incited to continue to provide a determined regulatory impetus. The Federal Council recently adopted its "Digital Switzerland Strategy", which calls for close cooperation between all sectors of the economy. FINMA’s proposal to introduce a "licence light", allowing online or video identification of clients, demonstrates its awareness of the growing importance of technology.

It is in tough economic times that the most competitive enterprises are able to anticipate future trends and to innovate. Thanks to the commitment of its financial institutions and favourable framework conditions, the Geneva financial centre is ideally poised to make innovation its trademark.

This point of view was published in "Le Temps"  - "Journée des banquiers" on September 15, 2016

Yves Mirabaud Chairman of the GFC