Swiss retail banks: earnings could fall by up to one-third by 2030

Traditional Swiss retail banks primarily serve private customers and SMEs and primarily offer standardized services - from paying, saving, and investing to financing. Besides the two big banks, the cantonal and Raiffeisen banks are the dominant players in the market. Compared with their European competitors, the Swiss retail banks operate in a very attractive market environment. A characteristic feature is the robust and stable domestic market, which only accepts far-reaching changes with long lead times.

Peculiarities of the Swiss market will increasingly disappear

As far as the different historical development of Swiss and European retail banks is concerned, three core factors stand out: First, the high business volume of around 150,000 Swiss francs per customer, which leads to an annual operating profit of a whopping 550 Swiss francs on average - also per customer. In a European comparison, the total business volume per customer ranges between 30,000 and 60,000 euros, and the operating profit is between 150 and 350 euros. The second factor is the boom in the Swiss mortgage market, which has provided Swiss banks with consistent revenue growth over the past two decades. The third differentiating factor of the Swiss retail banking market is the high level of brand loyalty among customers. Customers have built up a close relationship with their respective house bank and are hardly willing to change it.

However, as the study by the audit and consulting firm Deloitte shows, these factors are changing and will lead to major challenges in the Swiss retail banking market in the medium term. In view of the current uncertainties and changes in the Swiss banking center, the willingness of bank customers to switch is tending to increase - an opportunity for retail banks that are now acting quickly.

Structural changes jeopardize retail bank earnings

"It is becoming more difficult for Swiss retail banks to maintain high levels of profitability and growth," Cyrill Kiefer, Head of Banking at Deloitte Consulting Switzerland, is convinced. He sees reasons for this in the conversion of society and the economy to "net zero" emissions, the higher maturity of the market, the increasing saturation of the residential real estate market, the aging of the customer base, and the growing demand of customers for functional "end-to-end" solutions of the banking services offered.

Neo-banks, challenger banks and non-banks get on board

Another challenge is posed by the emerging neo- and challenger banks. With their sophisticated digital banking models, they offer a better customer experience - and at lower cost, too. Well-funded non-banks (NBFIs) are also increasingly becoming serious competitors for some core banking services. These include, in particular, insurance companies and pension funds. Various NBFIs have entered the attractive mortgage business for retail customers in recent years and are working with independent brokers and providers of lending platforms for this purpose. NBFIs will also seek to increase their market share in other financial services such as financial advice and asset management.

New "open banking" ecosystems compete with the traditional banking model

The traditional business of Swiss banks is facing fundamental change. The magic word is "open banking. This will make it possible to combine separate services from banks and other service providers on digital platforms and offer them to customers as a complete package. The development of these new ecosystems is being driven primarily by agile FinTech companies that collect, process and make available content and offers.

"In light of changing customer needs and expectations, new interaction models, the increasing decomposition of value chains, and technological advances, retail banks need to develop new strategies for dealing with and positioning themselves in emerging ecosystems," Kiefer elaborates, adding, "Banks should move away from traditional strategic planning and think much more in terms of scenarios. This is the only way they can survive in the long term."

Measures help retail banks cope with the future

Depending on the scenario and their position in it, Swiss retail banks have to make important strategic decisions quickly. In doing so, they basically have two options: They can either develop and offer innovative and attractive products or focus on managing customer channels and relationships. They also need to think about how to merge the elements of traditional banking with services from a broader ecosystem.

"To increase business agility and drive innovation and growth, retail banks need to look from the inside out. They would be better off focusing on external partnerships and collaborations rather than internal practices and policies," advises Kiefer. Digitalization will also be an indispensable success factor in the current decade, he adds. And he adds, "But this requires more than keeping up with current technological trends. After all, customers today expect the best of both worlds: a personalized interaction coupled with the benefits of a digital offering."

Source and further information: Deloitte