The contrast between heavyweight wealth manager UBS and a nimble Swiss regional lender in digitizing their businesses illustrates the pitfalls of transforming to remain competitive.
The hire of Ralph Hamers last February sent a strong signal through hidebound UBS: the 54-year-old Dutch executive didn't shrink from job cuts – 7,000 in total – during a transformation at ING. The Swiss bank could be more efficient digitally and more responsive to its clients' needs, he said.
The first leg of job cuts – 700 in Switzerland – is underway as part of a two-year plan to save more than $1 billion in spending, as finews.asia reported last month. The Swiss lender hasn't denied a calculation that its job cuts will ultimately tally several thousand.
Digitization Reality
Hamers is forcing UBS to face a cultural and organizational reality that digitization is sparking for the finance industry. Large parts of banking – such as wealth management – have been slow to adapt, arguing that their value lies more in personal advice.
Upstarts like digital retail banks or robo wealth advisers are undermining this stance. If UBS and other banks in Switzerland were until now reticent to adapt, signs are mounting that many of them are transforming their business models. Banks which have swung into action enjoy healthier market valuation as well as more solid revenue, according to a recent study compiled by Accenture.
Numbers Speak Volumes
The improvement in their spending coupled with an advantage in winning revenue translates to an increase in operating income to 1.47 percent in 2019, measured per dollar of asset, from 1.22 percent ten years ago, the consulting firm found in surveys of 11 countries not including Switzerland, and interviews with 1,100 executives.
Swiss players have not stood out for their digital savvy thus far: open banking is still in its fledgling stages, and the practice of opening APIs (application programming interfaces) in order to cooperate with third-parties isn't regulated, unlike in Europe. While Swiss finance is cooperating like never before, open banking and ecosystems are more fashionable buzzwords than tangible action so far.
Zero-Sum Game?
Hypothekarbank Lenzburg is a notable exception: a regional lender mainly focused on retail, mortgage, and small businesses, «Hypi» has invested millions in digitizing and specifically in opening banking in recent years under CEO Marianne Wildi.
Wildi has thus far not been able to illustrate the fruits of those investments: Hypi's recorded profits of 21.6 million Swiss francs ($24 million) in 2016, and 18 million francs last year. To be sure, revenue rose 15 percent during the same time period, but spending rose by far more (15 percent). Digitization as a zero-sum game for traditional players like Hypi?
Hidden Benefits
The issue warrants a second look: Hypi built up a licensing business around Finstar, a banking system which it sells licenses for. The bank, which traces its roots to the mid-19th century, also earns revenue on open banking services, such as with digital bank Neon.
Hypi hiked its net revenue by more than half between 2016 and 2019 – inroads which haven't trickled through to its bottom line yet due to costly investments in Finstar and other digital projects initiated by Wildi, a 56-year-old former computer programmer.
Creating New Jobs
She told finews.asia that she expects more scale effects from Hypi's open banking business in coming years. «We've also made considerable progress in changing our business model,» she said. Specifically, the Swiss bank hopes to tap new sources of revenue by expanding its advisory business and by offering open banking services.
That makes Hypi's transformative journey, which began more than five years ago, more of an investment push than an efficiency or cost-cutting effort. Wildi has not cut jobs – in fact, Hypi has 20 percent more staff than it did in 2016.
UBS, with its rampant complexity, needs a different recipe: before it can invest in transforming itself, it needs to save money – and to do so in Switzerland means cutting jobs. Only after that can the wealth giant embark on a hiring effort aligned with Hamers' new, more digitally-focused vision.
