At a time of increasing pressure on Swiss private banks, some are turning to disruptive technologies such as blockchain to boost their prospects. Among them is Maerki Baumann, which is fully embracing the rise of crypto assets to breathe new life into its 87-year-old model.This content was published on August 22, 2019 - 10:27
The Zurich-based private bank found itself at a crossroads having flushed out undeclared overseas assets and retreated to its core markets of Switzerland and Germany. It faced the twin challenges of growing its current CHF8 billion ($8.2 billion) of assets under management in a smaller market and rejuvenating its client base (half of its existing clients are aged over 70 and only 5% are under 40).
Maerki Baumann is banking on Switzerland’s growing blockchain industry to provide the solutions. CEO Stephan Zwahlen told swissinfo.ch that “intensive competition and margin erosion” has forced the bank to look for “alternative revenue sources”.
When news leaked out last year that it was interested in the crypto business, the enquiries started flooding in. “In our traditional business we usually have to run after each client,” said Zwahlen. “It’s hard work and rather rare for clients to just knock on our door.”
“We suddenly had 400 people wanting to talk with us. And they were exactly the kind people we had been struggling to access for 10 years with traditional private banking offerings. We found that they were typically between 30 to 40 years old, very well educated and with an entrepreneurial mindset.”
This convinced Zwahlen and his team that they were on the right track. “We have the ambition to be the go-to private bank in the Swiss crypto arena,” he said.
Another thing stood out too. Most Swiss blockchain entrepreneurs were beating their heads against the wall trying to find domestic banking services for their nascent firms. “It cannot be that innovative Swiss companies have to go to Liechtenstein for corporate banking services,” said Zwahlen. “Many of them represent a great opportunity to further develop our financial centre.”
Maerki Baumann is not the only Swiss bank looking to tap into the growing blockchain scene in Switzerland. The likes of Falcon private bank, Vontobel, Julius Bär, Zarattini and Swissquote are teaming up with crypto specialists to provide trading and asset storage options.
Others, such as Hypothekarbank Lenzburg, have announced their doors are open to blockchain firms, while a handful of budding crypto bank start-ups are applying for banking licences. But they have so far failed to plug the gap for basic banking services in Switzerland.
Maerki Baumann therefore took the unusual step for a private bank of offering corporate banking accounts to start-ups. This is the type of business usually associated with high street branches, such as cantonal banks.
In a first phase, approved by the board in March, the bank is offering business accounts and advice for start-ups raising capital via digital shares that can be offered directly to the public (so-called Security Token Offerings). At the beginning of next year, it plans to partner with cryptocurrency specialists to provide outsourced storage and trading services for the likes of bitcoin.
No bitcoin deposits
A third string, to be added later, is advisory and asset management services for private banking clients who want to invest in the predicted wave of new crypto asset classes, such as tokenised shares and other investments. The idea is that the entrepreneurs who make it big and build up a fortune will stay in-house for their private banking needs.
“I would expect over time that digital assets such as crypto/blockchain might even take on a greater significance than our traditional private banking business, particularly in terms of asset growth,” he said.
But like many traditional banks dipping their toes into blockchain, Maerki Baumann has a hands-off approach to taking cryptocurrencies like bitcoin onto its books. Quite apart from the price volatility and the tough restrictions that would be imposed by the financial regulator, Zwahlen points to his bank’s general strategy.
“Our business model already outsources all processes in trading, clearing and settlement, because they add little value to our clients. It would not be wise from a strategic point of view to start this in-house again as we have only limited trading and back office capabilities,” he said.
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