November 1, 2016
Although Switzerland does not always get appropriate attention as a global FinTech hub, that doesn't change the fact that the country has one of the most advanced economies, startup ecosystems and forward-thinking and effective governments in the world to support innovation. In fact, the Global Innovation Index 2016 puts Switzerland at the first place, holding the top position for the sixth consecutive year. Moreover, the country is also at the top position in the Global Competitiveness Index 2016–2017.
According to the GII 2016 report, in addition to maintaining its top spot in the GII since 2011, Switzerland takes the number one position in the Innovation Output Sub-Index and in the Knowledge and technology outputs pillar since 2012. It ranks among the top 25 in all pillars and sub-pillars with only three exceptions on the sub-pillar side: Business environment (31st), Education (32nd), and Information and communication technologies (39th). Switzerland, a knowledge-based economy of 8.3 million people with one of the highest GDP per capita in the world (PPP$58,551), ranks in the top 10 for all pillars with the exception of Infrastructure (15th).
Professionals suggest that the country’s high Innovation Efficiency Ratio (5th among all economies included in the GII 2016, and 1st among the GII 2016 top 10) allows Switzerland to benefit from its solid innovation capabilities and help transform its resources into high-level innovation outputs.
But the government and the startup ecosystem are not the only important elements in overall success. Supportive organizations equally contribute to the country’s global leadership. Some of the most successful FinTech accelerators operate in Switzerland and comprise the foundation of the startup ecosystem success – FUSION, LAUNCHub, Swiss Life Lab, SIX Group FinTech Accelerator F10, Kickstart Accelerator, Swiss Startup Factory, nexussquared, BlueLion and more.
Financial institutions in Switzerland are also contributing to its leading position on the global FInTech map. In March, two largest Swiss banks UBS and Credit Suisse, Switzerland's leading ICT provider Swisscom, the provider of comprehensive retirement provisions and financial solutions Swiss Life and the global consultancy firm EY announced their joint venture aimed to put Switzerland on the map as one of the world's leading locations for establishing a FinTech startup. Under the umbrella of the Kickstart Accelerator, the partner companies launched a FinTech accelerator program with an international target audience.
The country’s financial watchdog, The Financial Market Supervisory Authority (FINMA), is also spending time and effort evaluating digital businesses, FinTech and technological neutrality. In April, FINMA announced its supportive position for a new licensing category for financial innovators carrying out some banking activities, but with limited acceptance of client assets and no lending activity. Compared to a full bank, the licensing requirements would be less extensive because the risks are lower and the scope of business is limited.
As reported by Meyerlustenberger Lachenal business law firm, such reduced requirements would probably cover specific thresholds of maximum client deposits and minimum collateral requirements. In particular, such 'light' licenses would enable or facilitate market entry for providers of payment systems, managers of digital assets and crowdfunding platforms.
While Switzerland is a well-positioned to become the world’s FinTech center, a serial Web entrepreneur and FinTech investor Marc P. Bernegger fairly notes, As much as we are flattered by good rankings, it can’t be the goal to achieve top results in relevant rankings as quickly as possible. We rather must ask ourselves in what area we really can compete and on what strengths we can build upon. Because FinTech is not equal FinTech. FinTech is multifaceted and includes everything from banking infrastructure and payment solutions to lending platforms and digital currencies.
Coincidentally, there is a particular niche where Switzerland can successfully compete with the most famous FinTech hubs. Swiss government and businesses in the country have been actively opening up to the opportunities presented by the technology of the future – blockchain. The country is already a home for some of the most successful bitcoin/blockchain companies, among which are Xapo, Lykke, Monetas, Ethereum, iprotus, Shapeshift, etc.
Bernegger suggests an explanation for the country’s success in fostering blockchain-based innovation, which comes from the success of the crypto-movement in the Greater Zurich Area based on its well-known location advantages such as the long-standing tradition of privacy, the stable direct democracy and a supportive environment in IT.
Johann Gevers, Founder and CEO of blockchain transaction platform Monetas, has also emphasized the advantages Switzerland has to offer to the blockchain startups community, among which are stable, predictable, neutral political systems, a culture of financial privacy, access to talent, low taxes, public-private support for entrepreneurs and WEF’s listing of Switzerland as the most competitive nation in the world.
Given all the contributing elements, this July, the town of Zug – the cantonal capital – launched a pilot program allowing residents to make bitcoin payments for government services.
Switzerland is believed to become a magnet for blockchain startups with its 30-kilometer stretch of land from Zurich to Zug, known as 'Crypto Valley', which, as stated by CoinDesk, boasts progressive laws, a competitive hiring environment and low taxes, attracted entrepreneurs looking for a place to gain traction amid an uncertain international legal climate.
Another blockchain ‘project’ has been recently launched by Swisscom, the Swiss stock exchange, Zurich Cantonal Bank, one of the country’s largest banks, and others. Participants have formed a consortium to use blockchain technology for the facilitation of selling shares outside of a stock exchange. The goal is to produce a decentralized, encrypted platform that will enable small companies to more efficiently raise funds by selling shares outside of stock exchanges.
As the leader of the project, Mathias Bucher, commented to swissinfo.ch, The potential of blockchain technology for financial institutions is huge. Instead of passively waiting for a global standard to emerge, we prefer working towards a pragmatic solution for the Swiss financial center now.
While mentioned initiatives and hallmarks of the market are certainly advantageous in a race for the global leadership, Switzerland has a way to go. Reuters recently noted a lack of blockchain-related patents in Europe overall – dozens of patent applications have been filed in total by Goldman Sachs, JPMorgan, Wells Fargo and Bank of America for blockchain-based products, but there is a record of only one being filed by a European bank – Switzerland's UBS. While it's a positive indicator that the only European patent was filed by a Swiss financial institution, the bad part remains – Europe overall is lagging, making the whole region potentially less competitive. but, on the other hand, it is providing an opportunity to capitalize on the lack of competition.
As Simon Taylor, the Founder and Director of Blockchain at 11:FS, commented to Reuters, "The European banks are cost-focused, whereas US banks like Goldman Sachs and JPMorgan are likely trying to generate revenue because they're in different market conditions."