Open banking in Switzerland? Not so fast!

Beitrag auf finews.ch vom 07.10.2020

The brakes are still on open banking in Switzerland. Examples in the EU and UK show that smart regulation releases enormous potential for banks and fintechs. Two experts from Swiss IT firm Ergon explain.

A fresh breeze of change is blowing through the Swiss financial sector. Fintechs, neobanks and non-financial service providers are meeting customers where they are now, inspired by the regulated open banking movement within the EU.

In a number of member states, industry associations uniting software and banking have pushed financial institutions to open up their client interfaces, and have facilitated standardised access for third-party providers.

Openness = strength

The greatest challenge is to change the mindset in Swiss banking, which has built its reputation on discretion. Open banking encourages banks to open up their business models and bring in these third-party providers.

While this means potentially giving up the bank’s own client interface, it opens up opportunities to generate added value for those clients by embracing innovation, or to bring a better service portfolio to market faster than ever before and therefore boost competitiveness.

The bank’s image also benefits when clients see it acting like a start-up and continually providing attractive new digital services.

Bubbling with innovation and agility

Within this new paradigm, third-party providers can offer highly specialised services that respond to client needs as they are right now, often satisfying them in a more efficient and user-friendly way than the banks themselves. They profit from a whole new partner ecosystem rich with new income streams. The banks of tomorrow should be attracting clients with a business model that bubbles with innovation and agility.

E-banking security mechanisms cannot be applied 1:1 to open banking, because entire companies have to be authenticated, not just individual users. In other words, internal IT infrastructures must be equipped for these interfaces, IT security must be assured, and liability issues concerning third-party providers clarified. 

Searching for the sweet spot

There are also risks, of course. Banks want to control their core businesses, and clients want to decide for themselves who has access to their data, and for what purpose. Swift, secure and straightforward client applications are major factors of success. Fintechs want to use as many of a bank's basic services as possible to generate added value for themselves.

We have yet to find the sweet spot where banks can also achieve maximum returns. The standardised development and definition of interfaces for third-party providers is a plausible approach to releasing the innovative potential of Switzerland's financial sector.

Liability issues still unresolved

Third-party providers’ rights and obligations have yet to be determined. In the EU, liability lies entirely with the banks. Unsurprisingly, Swiss financial institutions are pushing back against that rule being applied in adapted form at home. It is the main reason that the brakes are still on open banking here.

The UK, meanwhile, offers an exemplary model in which the open banking API standard extends beyond payment transactions to benefit other client-related services. This has created a regulated ecosystem of 200 entities, from third-party providers to account providers and major banks. The high level of user acceptance is visible from the figures, with 1.25 billion API calls in 2019 alone.

Close collaboration between the regulator and market participants was the key here. This strong public-private partnership enabled the UK to declare a single technical standard as mandatory, to great success. No EU country has been able to do the same.

When will the Swiss financial sector catch up?

Switzerland still lags some distance behind the UK. It is clear that opening up voluntarily offers enormous potential to play a proactive part in shaping the market for financial services. Some banks have recognised this potential and already put it to work successfully. Some third-party providers are doing similarly well, their progressive services having already proven themselves on the market.

In combination, both look forward to more efficient ways of working, satisfied customers, and profitable income streams. All while enjoying a trailblazer image, naturally. So what are Swiss banks and third-party providers already doing on the open banking front?

Click here for an overview (in German).

Adrian Berger is a member of the Executive Board of Zurich-based IT firm Ergon, and Marc Bütikofer is its Head of Innovation, Security.