A new breed of digital financial services firm is lowering costs for high street bank account holders. Among them is a Swiss start-up called YAPEAL that also promises to transform the way people manage their finances and interact with their bank.
Zurich-based YAPEALexternal link wants its customers to help build their bank of choice from the ground up by outlining exactly what services they would like. To this end, it is building up a community of so-called “Yapsters” to play a hands-on role in the bank’s creation.
This might include accounts for children that parents can switch on and off at a swipe or robo-advisory services for checking accounts. “If you see a nice piece of furniture in a shop window or a new TV, your app can tell you if it’s a good decision to buy or whether you are best off putting some more money in your pension,” says co-founder Andy Waar. Other suggested services are an intelligent app that tunes in to the lifestyle and habits of users or a feature to easily split restaurant bills.
Waar is one of a team of former bankers and technology experts who have left comfortable jobs for the start-up. YAPEAL will charge transparent flat fees rather than a plethora of hidden costs. It also promises not to invest or loan clients’ money unless they specifically request that to happen.
Need for change
It will run on a digital ledger platform inspired by blockchain that automatically does the book-keeping by building up an indelible history of transactions. But unlike decentralised blockchains, this ledger will be centrally administered by the bank.
“We are introducing a completely different style of banking,” says Waar. “I’m not even sure if you would call it banking – we don’t want to be put in the same frame as traditional banks. We will provide intelligent financial services that fit in with clients’ lifestyles.”
“The need for change in the Swiss retail banking sector is even more urgent now than ever,” independent fintech adviser Urs Bolt, told swissinfo.ch. “Switzerland is in many ways lagging behind other leading financial markets such as Britain, Spain and Germany. Swiss clients still have to pay substantially more for basic banking services which in other countries are included in the overall service or even for free.”
Bolt believes the Yapeal model could be just the ticket for shaking up the incumbent banks, but only if it can generate a big enough community base to get off the ground. “I strongly believe in a model of community-driven banking,” he said. “Yapeal will hopefully create enough awareness to the retail customers to start learning how they currently overpay for mediocre online services.”
Yapeal is not alone in trying to breach the Swiss retail banking market. British challenger bank Revolutexternal link is growing in Switzerland but is still trying to get a Swiss IBAN number. German outfit N26external link is also sniping around the fringes but has not made much of an impact to date.
Both these services, plus many others, promise more convenience for users and a reduction in fees, particularly when using credit cards abroad for different currencies.
But Patrick Hunger, CEO of Saxo Bank Switzerland, said the likes of Revolut are offering efficiency gains on traditional bank services, not a new way of banking. “What we are seeing is still banking – not more and not less,” he said at a recent event in Zurich on digital disruption.
Hunger labelled such services as “radical next” as opposed to than “radical different”. “As long as we only see “radical next”, traditional incumbents [well-known high street banks] have the technological means to act and react,” he told the audience. “What is really dangerous is if we see ‘radical different’, when the physics of financial services shift. Then we are not going to be prepared.”
As if to highlight this point, many Swiss traditional high street banks are developing their own fintech solutions or partnering with start-ups. Payment app Twintexternal link, developed by PostFinance, the financial services arm of the Swiss post office, is now widespread among many high street banks.
Neon’s approach might be the only way for challenger banks to make headway in Switzerland, according to Michael Schneebeli of KMPG Switzerland. “At some point in time, challenger banks will need a banking license and this will drive up costs significantly,” he told swissinfo.ch. “The larger banks are investing heavily in digital technology which is reducing the potential market share of challengers. The answer may be for fintechs to partner with larger institutions.”
Barriers to disruption
The barriers to new entrants are relatively high in Switzerland, according to Schneebeli. Retail banking is a crowded market and most institutions have already developed e-banking and mobile banking models. Furthermore, there is less urgency than in most of Europe to introduce new consumer-friendly regulations.
For some observers the Swiss market, with a total population of eight million, is too small to support a radical new business model. Bank customers are also thought to be too well off to shop around for lower fees. A handful of so-called “challenger banks” are willing to test this theory – and perhaps prove it wrong.
But perhaps the biggest challenge will be to persuade bank customers to change their habits.
“Challenger banks predominantly focus on more user-friendly convenience banking in the payments area,” says Schneebeli. “But Swiss clients are seeking other services, such as retirement planning, investments or taking out mortgages, which are advisory focused. There is still the need for physical branches with staff that can advise clients. A lot of clients have an attachment to their individual bank.”