What can Swiss financial services companies do to win in the market? - Banking blog

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Over the past decade, Swiss financial institutions, banks, insurance companies and asset managers have been facing challenging times, and this has resulted in the number of key performance indicators deteriorating. In parallel to this, a number of new entrants came into the market: Fintech, Insurtech, new banks which have grabbed market share from the traditional players in order to gain market share. Watch Deloitte Switzerland’s Financial Services Industry leader Jean-Francois Lagasse’s video statement to find out how financial services companies need to embrace change to win in the marketplace and read this blog post for more detailed information.

Currently, all of the sectors are being transformed by an array of forces in:

  • Digitalisation
  • Governmental and public pressure on Environmental, Social and Governance (ESG) concerns
  • Changing consumer and employee expectations transforming the ways in which society wants things to be done
  • COVID-19 is proving cataclysmic and a catalyst, significantly accelerating the pace of change as many aspects of work, education and social interaction are carried out using new technologies or the far more widespread dissemination of existing ones.

A few financial services examples of such acceleration have been seen through cashless payments, digital insurance products or digital credit offers. As technology opens up new possibilities, it also creates new competitors. Neobanks, Fintech, Insurtech players and big tech companies are gaining market share in financial services.

The need for change and key developments

Clients’ needs have been changing and the clients themselves, with new generations becoming even more important segments. Employees are changing, too. They expect new ways of working: agile and fluid organisations and a focus on creating and maintaining an inclusive and diverse working environment. As well as regulators have proven to be major drivers of change since the 2008 financial crisis, and they remain a significant influence on the evolution of financial services as well as a stakeholder in them.

Behind this lacklustre performance lie two key developments. Firstly, banks, insurance companies and asset managers have struggled to contain the erosion of structural fee margins in the industry. Clients have become more cost-sensitive and they are increasingly ready to switch to more cost-attractive products or providers. Clients also demand easy interaction with their financial services providers. This is being brought to them, often by the new players in financial services, in the form of more tailored products and services as artificial intelligence and data analytics help institutions better meet their clients’ needs.

Secondly, new cross-border rules, the tightening of prudential requirements and a range of other regulations have pushed up traditional institutions’ cost base and created inefficiencies. The traditional players need to improve the efficiency of their risk, regulatory and compliance processes.

Swiss financial services companies are facing challenging times and there is a need to embrace change to succeed

All of the described change comes on top of a perennial challenge for Swiss financial services providers: returning to profitability while generating shareholder value. The financial performance of many Swiss financial service providers has been lacklustre over the past decade. Taking banks as an example, bank shares have fallen by over 30 percent since the 2008 financial crisis while over the same period the Swiss Market Index has risen by around 30 percent. Banks’ average return on equity has also been declining substantially since 2007, to around 5 percent today, while the sector’s average cost of capital significantly exceeds this rate of return. Shareholder value has therefore suffered a process of destruction, year by year. On top of this, the Swiss banking sector has destroyed 18 percent of its jobs over that same period.

What need traditional players, banks, insurance companies and asset managers do now? Jean-Francois Lagasse sheds light on the topic and is asking institutions in his video to embrace change in three ways:

In order for financial institutions to regain market share they need to embrace transformation in these three ways:

  • First, the use of new technology, leaving behind legacy systems in order to become more agile, to better serve their clients and improve operational efficiency.
  • The use of artificial intelligence and data analytics to provide more tailored products and services to their clients.
  • Finally, the use of ecosystems to increase revenue generation and to outsource non-core processes.

Conclusion and outlook

We remain very optimistic about the future of the Swiss financial services industry. Many players are global or national leaders in their sectors and they have started to embrace change. By accelerating this process, banks, insurance companies and asset managers can increase their competitiveness and regain market share.

Over the coming weeks, we will be publishing position papers that set out a bold vision of the long-term future of the Swiss financial services industry with a particular focus on its four main sectors: retail banking, wealth management, investment management and insurance. Over the next ten years what will be the major change drivers, how will the financial world look in 2030? Who will be the winners of the future? We hope you will enjoy the reading and we look forward to further engage with you.

 

Key contact

JFL1

Jean-François Lagassé - Financial Services Industry Leader

Jean-François is the Swiss Financial Services Industry Leader and a Partner within Deloitte Switzerland's Financial Advisory business. He also leads our Global Wealth Management segment and is a member of the Swiss Executive. He has more than 25 years of professional experience in the field and has worked in the United States, Canada and Switzerland. Jean-François has successfully completed numerous M&A advisory and valuation mandates in sectors such as financial services, consumer and TMT.

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