The term fintech is an acronym consisting of the terms fin(ancial) and tech(nology) and most probably refers to an article from 1993 from Citicorp’s chairman John Reed in the context of a newly founded «Smart Card Forum» consortium: «Speaking a language of cooperation between companies and across industries, (…) Citicorp has shed its historical insistence on calling its own technological tune. The harmony emanating from the Smart Card Forum has attracted about 30 dues-payers, including leaders from financial services and high technology. Another 30 have shown an interest in joining. Along with another Citicorp-initiated banking research project called Fintech, it tends to disarm any remaining criticism about Citicorp’s being arrogantly out of touch with market preferences.» (Kutler 1993).
The term fintech itself is closely related to the term financial innovation which is defined as the «(…) act of creating and then popularizing new financial instruments as well as new financial technologies, institutions and markets.» (Tufano 2003, p. 310). In general, financial innovations distinguish different categories of innovation objects (Frame and White 2014, p. 4): (1) Products and services (e.g. robo-advisory), (2) organizational structures (e.g. outsourcing of organization units) and (3) processes (e.g. online credit application and processing). Because fintech is based on IT as an enabler and can lead to new business models, these three object-related areas can be complemented by (4) systems (e.g. blockchain as a new financial infrastructure)) as well as (5) business models (e.g. crowdlending) (Haddad and Hornuf 2016) as two additional ones.
Besides this object-related dimension two other ones play an important role: The innovation degree (incremental vs. disruptive fintech innovations) as well as the innovation scope (intra- vs. inter-oganizational fintech innovations) (Puschmann 2017).
The History of Digitization of the Swiss Financial Services Industry
The use of information technology (IT) has a long history in the financial services industry. Some major milestones of early fintech development in the last century are the introduction of the automated teller machine (ATM) in 1959 in Arlington / Ohio (Barclays (BARC 172.14 -3.71%) Bank launched the first ATM in Europe in 1967 in London), the transition from physical to electronic stock trading of NASDAQ in 1971, Citibank’s and Chase Manhattan’s introduction of the first home banking in 1981, Stanford Credit Union’s launch of the first internet banking in 1994 as well as the first mobile banking from the Norwegian Fokus Bank in 1999 (Arner et al. 2015, pp. 9 ff.). But what are the phases of fintech in Switzerland? The fintech development can be split up into three phases, each of them focusing on a different area of digitization (see figure 1, (Alt and Puschmann 2016, 40), (Neukom 2004):
- Internal digitization (phase 1): The first phase of digitization concentrated on internal processes, such as payment transactions or portfolio management. The initial starting points for this development were the first telex transactions of Schweizerische Kreditanstalt (SKA) in 1951 as well as the operation launch of the first computers from Schweizerische Bankgesellschaft (SBG) and SKA in 1956. Here, banks and insurers focused on the automation of business processes like for example SBG’s introduction of the first automated teller machine (ATM) in Zurich’s Bahnhofstrasse or SKA’s introduction of the CS-Firstphone, a solution that enabled customers to conduct all basic banking transaction via phone. The first full electronic stock exchange Swiss Options and Futures Exchange (SOFFEX) is part of this phase, too.
- Provider-oriented digitization (phase2): In the second phase financial service providers focused on the integration of core banking systems. For this, they had to standardize processes and application functions which were developed from Swiss standard core banking solution providers such as Avaloq in 1996, Finnova in 2003 or Temenos (TEMN 150.10 +0.27%) in 2005. Additionally, part of this phase was the dot-com boom where several fintech innovations in banking and insurance were developed. Among the examples are Switzerland’s first internet banking Direct Net from Credit Suisse (CSGN 9.41 -2.1%) in 1997, UBS’ first mobile WAP-banking in 2000 and the launch of SwissLife’s Redsafe.com in 2001.
- Customer-oriented digitization (phase 3): This third phase of fintech application is centered around customers and their processes redefining today’s inside-out, product-centered to an outside-in logic. This phase is characterized by the adaption of new IT-developments like social media, smartphones, cloud computing etc. Early examples in this phase were the launch of Switzerland’s first peer-to-peer lending platform Cashare in 2008, PostFinance’s mobile banking app in 2010, iDirect24.ch’s online car insurance in 2012 or the blockchain platform Ethereum in 2015. In this current phase many fintech start-up companies evolve and start to offer innovative solutions aside the incumbents.
Since the first steps of fintech, the Swiss financial center has always been a driver or early adopter of innovations because it is home to many scientists and entrepreneuers. It is great, that this new blog now offers the opportunity to position the best ideas for the fintech future and continue Switzerlands fintech success story.