COMMENT - Life is good in the shadow of UBS. But Swiss banks are in danger of becoming victims of their own success

Two years after the demise of Credit Suisse, UBS dominates the public perception of banks in Switzerland. The debate is heated: it is about the future regulation of the bank and how strict the additional requirements of politicians and authorities should be for the additional equity of the last remaining major bank.

These are golden times for competitors. The loud debate about equity capital is about foreign holdings by systemically important banks - and this is not an issue for the domestically oriented cantonal, regional and Raiffeisen banks, which make up the majority of the local financial center.

Life is good in the shadow of a UBS that is primarily concerned with itself and politics. Many domestic banks have achieved record results in the past two years. Customers' money seemed to simply flow to them without them doing anything. It was as if nothing had changed since banking secrecy was abolished. This makes you fat, but impotent, is a legendary saying by the late banker Hans Bär.

One thing is certain: a lot of money and business has moved from CS to other banks. The cantonal banks have benefited from the uncertainty of CS customers - as a haven of stability including a state guarantee. Almost more relevant, however, was the strong tailwind that the financial institutions received from the interest rate turnaround by the Swiss National Bank (SNB). The banks have earned more thanks to the increased interest rates.

For the moment, that seems to be enough for them. In the first few months after the collapse of the major bank, some banks did hire additional staff to open new accounts for disappointed CS customers. But there have been no major strategic offensives by banks that specifically want to challenge UBS for CS's market share.

Even in the area of ​​corporate financing – entrepreneurs had feared a credit crunch – little has changed: there is occasional competition in the sector from foreign financial institutions, especially from France and Germany. But even large domestic banks such as the Zürcher Kantonalbank (ZKB) and Raiffeisen Schweiz, which have the capacity to do so, do not want to continue investing on a large scale here.

It seems that their success has made the banks comfortable and sluggish. For years, many have failed to diversify and reduce their dependence on the central interest business. For example, through innovations. With the exception of the Twint payment app, the local financial sector has hardly attracted attention in recent years with innovations that offer real added value for customers.

What is sold to customers as innovative is often just a readjustment of existing products. Or they do not meet their needs, such as the instant payments launched last year. These allow transfers between banks to be made in a few seconds and no longer take a working day as they used to. But that costs money. Depending on the bank, fees of between 2 and 5 francs are charged. Many bank customers would rather accept the extra working day or continue to twin their money as before.

The suspicion is obvious: it could be the staff that is making it difficult for banks to innovate. Boards of directors and management teams are often not made up of digitization experts, but rather people who learned their trade at a time when postal payments were the norm. Perhaps this is why they find it so difficult to meet the actual needs of their customers and those of the market.

One example of this is sustainable investments. For example, the Basellandschaftliche Kantonalbank (BLKB) wanted to benefit from the trend with its digital bank Radicant. But the cantonal bank miscalculated. Radicant was launched in 2023 - less than a year later, the state bank had to make a write-off of 22 million francs on its subsidiary. Today, the fintech is focusing more on ordinary banking services and is no longer promoting sustainability as aggressively as it once did.

But the cantonal bank was not the only one to invest a lot of money and a lot of marketing effort in this trend and to sell it to its customers as innovative. But the vast majority of its customers did not allow themselves to be pushed into these products. The strong growth of sustainable investments in Switzerland has recently leveled off.

There are many reasons behind this. Not only the strong countermovement in the USA, which was further strengthened by the administration of Donald Trump. For example, the promises of effectiveness of many of these products are controversial. But the truth is probably simpler: for most private investors, their own wealth is more important than supposedly doing good.

Better to be comfortable than innovative. This is an attitude that you have to be able to afford. But this is also the fault of the bank customers. They have a high tolerance for mediocre services. It takes a long time for Mr and Mrs Swiss to change their bank. In addition, the much-cited threat to the banks' business model from fintechs and neobanks such as Revolut has largely failed to materialize.

What's even worse is that, from the customer's perspective, the impression is created that many banks do not have a basic grasp of their IT. This is a key area for financial institutions. Their customers' money is at stake. That's why there is zero tolerance here. You might think so.

But Switzerland's largest cantonal bank has experienced a number of mishaps in recent months: a year ago, for example, the ZKB paid 30,000 employees in the city of Zurich twice their wages due to a technical error at a Swisscom supplier. Even more embarrassing for the bank was that in June, ZKB customers were able to view other customers' account details via their e-banking app. The Financial Market Supervisory Authority was rightly interested in this.

Last autumn, Raiffeisen Switzerland even had to stop the launch of its new app. One year of testing was not enough to build an app that was stable enough for the bank's two million customers. For a fintech, that time would have been enough to bring several versions of an app to market. Not so for Raiffeisen: the launch of the app was postponed indefinitely. As a result, the bank's IT manager had to leave. The project is likely to have cost the bank several million francs.

UBS cannot afford such a debacle. It is facing the most difficult part of the integration of Credit Suisse. In the second quarter, the major bank plans to begin migrating the Swiss CS accounts to its own platform. For technical reasons, all CS customers will receive new IBAN account numbers. This is a risk for the major bank. The annoying bureaucratic effort could frustrate CS customers. Anyone who has to set up numerous transfers and specify a new salary account at work may well change their bank altogether.

UBS' competitors know this too. But there is currently no sign of euphoria among Swiss banks. On the contrary, the mood is much more subdued. The SNB's key interest rate cuts are putting pressure on banks' interest margins, but also because the institutions have to implement the "Basel III final" regulations. Among other things, this stipulates that banks must back financing with more capital.

In addition, it is currently difficult for financial institutions to access customer funds. One reason for this could be that customers prefer to invest them when the stock market is rising rather than leaving them in their bank accounts. This makes it more difficult for financial institutions to refinance themselves and issue more loans again.

This makes it all the more important that banks try to diversify more and also differentiate themselves more aggressively from one another. Otherwise, they actually risk becoming victims of their own success. Because what if the big tech companies finally venture into the banking business with a super app that can do everything? From payment transactions to lending to investing - inexpensively and supported by AI. Then even traditionally sluggish customers could suddenly get a taste for it - and turn their backs on the good old Swiss bank.