Swiss fintech steps up global hub drive

Zug is taking the lead in attracting fintech start-ups to Switzerland Keystone

Switzerland has attracted another cryptocurrency start-up to its ranks, in the shape of Breadwallet, as it strives to become one of the hottest global centres of the financial technology (fintech) revolution.

“Switzerland has emerged as a hotbed of digital currency startup activity, and we were attracted by its leadership in conservative financial legislation,” Breadwallet CEO Adam Traidman said in a press release, also citing Switzerland’s “strong reputation for financial privacy for consumers” as a reason to locate there. 

The Swiss government has thrown its weight behind Switzerland’s growing fintech scene, which is centered on canton Zug. “We don’t want to see good ideas go to California,” said Swiss Economics Minister Johann Schneider-Ammann on a recent visit to ‘Crypto Valley’ Zug. “We need to have a change of mentality in this country. We need to have more courage.”

Schneider-Ammann added that he is trying to secure an extra CHF150 million to fund new Swiss higher education courses, research and professorships in the digital and fintech areas.

Switzerland has already made significant strides in the technology that promises to revolutionise financial services. Many home-grown firms have sprung up, supplemented by such foreign entrants as Monetas and Xapo – and now Breadwallet.

Piggy bank foundations

“We want companies with sustainable business models and resources operating out of the Valley that generate jobs,” Crypto Valley Association President Oliver Bussmann told swissinfo.ch. “Self-sufficiency is in Switzerland’s DNA. The decentralised hands-off approach by the authorities allows people to take ownership of their idea and organize themselves to build their project.”

Canton Zug is bending over backwards to create a fintech-friendly environment. In addition to its low tax rates, the authorities accept bitcoin for some services and will soon offer decentralised digital identities for citizens. Zurich and other surrounding cantons benefit from Zug’s initiative while Crypto Valley plans to expand its activities to other regions in Switzerland.

In the last few months the Swiss fintech scene has been boosted by the arrival of cryptocurrency foundations. These legal structures have been largely set up in Zug to house the proceeds of crowdfunding programmes that raised start-up capital for global fintech firms. Around a quarter of the $1.2 billion-plus raised by “initial coin offerings” (ICOs) worldwide in the first half of the year was funnelled into Swiss foundations.

“They are leveraging Switzerland’s legal environment, but the development and creative resources of the companies behind them are not located here,” said Bussmann. “It creates a lot of business for lawyers and other services, but we want research operating out of Switzerland.”

With this in mind, Crypto Valley is focusing its efforts on attracting cutting edge fintech research to Switzerland. The association has teamed up with Swiss universities and will hold regular conferences, bringing together researchers, start-ups and venture capitalists, starting from next year.

“Our universities are top class but they are surrounded by international companies, such as IBM and Google, which suck up the best talent,” said Bussmann. “We want to keep our talent and knowledge in the country.” To achieve this, Crypto Valley is setting up research centres – first in the Zug locality and later in the Geneva/Lausanne area and possibly in Lugano.

“This will ensure that we don’t just have companies coming here with technology that we know about,” said Bussmann. “We will already see the next generation of innovation before it hits the market.”

Banana skins

But a recent fintech meeting in Zug also threw a couple of potential banana skins for Swiss progress in the fintech sector. The first is a relatively restrictive policy to foreign labour compared to the likes of London and Berlin. Mona El Isa, founder of Zug-based asset management fintech start-up Melonport, said it was difficult to realise her ambition of basing the firm’s top talent in Switzerland.

“This is such cutting-edge technology that it is not yet being taught in universities,” she said. “There are only a handful of people in the world who are self-taught in these skills.” But the Swiss authorities want evidence of qualifications and work experience before they will issue visas, she complained.

Another issue is the lack of long-term funding for start-ups in Switzerland. While there is plenty of early stage funding for fledgling firms, that capital dries up when the company tries to bridge the so-called “valley of death” between starting up and entering the marketplace.

To meet this deficit, Schneider-Ammann has gathered private players, such as UBS and Credit Suisse, to form a CHF300 million fund to support start-ups at this critical stage.

The fintech sector

Financial technology, or fintech, is the fourth industrial revolution of financial services. It promises to bring efficiencies and savings to both companies and customers.

Fintech embraces a whole host of activities and sectors: robo-advisory for wealth management clients, automation of anti-money laundering requirements for banks, smart contracts for the insurance sector – and much more.

The advent of cryptocurrencies will make it possible to transact much faster without the need for middlemen, resulting in fewer fees and waiting periods for settlement. Ultilising blockchain technology, these digital currencies will also enable people to take control of their own assets.

The ability of blockchain to more efficiently record and transmit data has also been tipped to transform a host of other non-financial sectors, such as legal, medical and supply chain management.