Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in the UK and Ireland, the Continent, and beyond, produced by BI Intelligence.
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WHAT’S HOLDING SWITZERLAND BACK IN FINTECH: Financial services is an integral part of Switzerland’s economy at £57 billion (€73 billion, $82 billion) or 13% of the nation’s GDP. Further, about 5% of the country’s workforce is employed in the industry. The problem is that the country has thrived historically as a place where people can store money in secrecy. But now countries like the US are cracking down on this practice and making it more difficult for foreigners to use the Switzerland’s banking system to hide their assets. For Switzerland’s financial services industry to succeed in the long term it must reinvent itself, according to a report from Ernst and Young.
Bolstering fintech could be the answer to Switzerland’s financial services problem. The digitisation of financial services is improving the user experience as well as opening up new markets that have historically been difficult to monetise. And institutions that don’t innovate will fall behind. Switzerland boasts a number of features that make it a fertile environment for fintech innovation — economic and political stability, a highly educated population, and significant cash holdings. In fact, the country tops the Global Innovation Index published by WIPO.
But Switzerland also faces unique challenges as a fintech hub:
- Burning through capital: Starting a business in Switzerland can be particularly expensive. Salaries, rent, insurance, and cost of living are all very high relative to other markets. And because of Switzerland’s location in Central Europe, startups are often expected to launch in many markets throughout Europe almost immediately.
- Engaging young entrepreneurs: Despite being a global leader in innovation, Switzerland has the smallest percentage of young entrepreneurs (ages 18-24) in comparison to other countries competing in the fintech landscape, according to data cited by Ernst and Young.
- The offshore money isn’t going to fintech: While Switzerland benefits from troves of cash that could potentially be used for venture funding, the incubator and venture community is relatively undeveloped in comparison to other fintech hubs like London and New York.
The Swiss government could overcome many of these hurdles by taking a more proactive role in developing a fintech community modelling London. Tax breaks and other incentives could help reduce the expense of starting a fintech business in Switzerland while a more permissive regulatory environment for startups would enable fledgling companies to compete with legacy players nationally and globally.
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