The 1st of January, 2024, marked five years since the landmark Fintech License article came into effect. This new legislation has enabled a new wave of innovation across Switzerland's established financial landscape. With this initiative, Switzerland solidifies its position as a global frontrunner in financial technology, demonstrating a commitment to foster the sector's evolution, Mihkel Vitsur writes in his article for finews.first.
finews.first is a forum for authors to comment on economic and financial topics.
As of March 2024, five fintech licenses are active:
- Yapeal AG, a neo-fintech with a Banking-as-a-Service offering.
- Klarpay AG, a global payment infrastructure for cross-border corporate payments.
- SR Saphirstein AG (Fiat24), a Web3 fintech leveraging blockchain technology.
- SWISS4.0 SA, a challenger to the Swiss private banking experience.
- Relio AG, provides payment accounts to B2B customers.
All the companies are modernizing finance within their respective niches.
Switzerland's fintech regulatory framework offers a distinct advantage over its European counterparts. The Swiss model allows licensed fintechs to adopt bank-like internal structures including a notable advantage of safeguarding client assets directly with the Swiss National Bank. Such provisions not only offer immediate advantages but also lay the groundwork to evolve into a fully-fledged banking institution.
«Finma's technology-neutral stance further strengthens the environment»
However, fintechs remain restricted from engaging in lending activities and face a 100 million francs cap on public deposits. This stands in contrast to Electronic Money Institution licenses found in the EU and UK, which lack comparable benefits.
Finma's technology-neutral stance further strengthens the environment, ensuring regulation focuses on financial services' function and impact, not on technology.
This approach, coupled with an open regulatory dialogue, enables fintech companies to manage the regulatory framework efficiently, driving technological integration and fostering growth within the Swiss financial ecosystem.
Despite the benefits offered by the Swiss regulatory framework, fintech company management must encounter the following challenges:
- The Fintech regulatory framework is not widely understood, neither within Switzerland nor internationally. Its approach to regulation, which includes a few broad clauses in banking law and its differences from banking regulations while also depending on the established rules for banks, can be confusing for most people, especially those unfamiliar with Swiss banking laws. While «Swissness» can initially attract interest abroad, be prepared to explain the regulatory framework to maintain that interest clearly.
- The current regulations prevent fintech companies from offering interest on public deposits. While this wasn't a problem when interest rates were negative, it could become today a significant competitive drawback if no other USPs prevail.
- Trust and stability are crucial in the financial sector. While fintechs offer innovation, the public could perceive them as more vulnerable than traditional banks. A deposit guarantee scheme, like the robust esuisse system, could bolster consumer confidence. This would be unique in the light bank regulatory environment, and it has the potential to position Switzerland as a vanguard in fintech regulation, setting a global precedent for responsible innovation. Currently, this is not available and should be communicated clearly to clients.
- The 100 million francs limit on public deposits could constitute a significant challenge under the current Banking Act, with provisions allowing Finma the discretion to adjust this threshold. However, the uncertainty surrounding such adjustments poses risks for fintech firms nearing this limit, as they may find themselves compelled to turn away deposits. This situation could negatively affect their market standing. Moreover, this cap casts a shadow on fintech valuations. Investors evaluating a fintech's scalability and future revenue potential could view this deposit limit as a direct constraint on growth.
- While there is a defined pathway for licensed fintechs to transition into banks, the process lacks predictability, precedence, and clear milestones. Additionally, the long-term viability of a fintech failing to obtain a license raises questions. These uncertainties must be addressed with investors.
The Swiss fintech license heralds a transformative shift in integrating innovation within the nation's banking sector. Finding an equilibrium between innovation, regulatory oversight, and financial system stability remains a central concern for Finma and fintechs alike.
As the landscape matures, sustained dialogue and regulatory refinement will prove essential. Only through these efforts can Switzerland secure its position as a fintech leader without jeopardizing the security and resilience of its financial system.
Mihkel Vitsur has been an internet entrepreneur since 2005. He co-founded a retail brokerage, which reached 1.5 million users worldwide and successfully exited it in 2019. Currently, he is developing a Finma-regulated fintech that is creating a modern payment infrastructure to meet the demands of globally transacting businesses.
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