Robust, steady, yet adaptable: this is how Swiss retail banks present themselves. With over 1 trillion francs in mortgage loans, more than 22 million issued debit and credit cards, over 160 million monthly card payments, and more than 12 million cash withdrawals, they are a significant player in the Swiss financial market.

The auditing and consulting firm EY, in collaboration with the University of St. Gallen, conducted a detailed analysis of these banks. The study concluded that while no immediate action is necessary, the mid-term outlook is uncertain, primarily due to margin pressure, technological advancements, and increasing regulatory demands.

The Main Concern: Eroding Margins

The institutions surveyed continue to rate Switzerland as a business location as stable and attractive in the future, even in the context of geopolitical tensions. However, the theory of gradual margin erosion, driven by interest rate conditions, rising customer expectations, and increased competition due to new technologies and platforms, is confirmed by more than two-thirds (69 percent) of the surveyed retail banks.

«Keeping revenues in the interest-earning business, the core business of retail banks, stable by expanding volumes could prove to be a thing of the past. Margins could also continue to fall in the strategically important investment business and cannot be compensated for with additional volume», says Markus Schmid, Professor at the Swiss Institute of Banking and Finance at the University of St. Gallen and co-author of the study.

AI Could Intensify Competition

New technologies are less of a concern for Swiss retail banks. While all players must deal with them, real innovations with material implications for value creation are, according to the study, rare. This could change with the introduction of artificial intelligence (AI) or quantum computing.

Fintech and Big Tech companies are seen as catalysts for innovation and as embodiments of «convenience» but not as direct competitors – as long as they do not take control of the customer interface. Tech giants are currently considered uninterested in the Swiss market due to its small size. Furthermore, regulatory conditions are unlikely to encourage their market entry.

Competitors Feel Social Pressure

Trust is the most valuable asset of banks. A full 88 percent of the surveyed financial institutions state that societal and regulatory pressure remains high. Society expects a regional presence, and social responsibility is an important issue for banks, although implementation – such as in the area of sustainability – remains somewhat vague. Controversial topics remain executive salaries and fair interest rates. Additionally, demographic changes will continue to be a challenge for banks.

Regulation Is Viewed Ambivalently

Banks view legislation as a quality seal that links societal and economic expectations with operational requirements, serving the interests of the financial center and the individual institutions. However, the increased regulatory burden and cost implications, especially following UBS's acquisition of Credit Suisse, are viewed with growing concern.

Banks Feel Pushed into the Role of «Sustainability Policemen»

There is agreement that sustainability initiatives have become standard and that sustainability is only a distinguishing feature if it is evident on a regional level. However, a strong customer demand and accompanying economic added value are largely lacking, according to 57 percent of the banks surveyed.

Banks increasingly feel pushed into the role of «sustainability policemen» and are concerned about having to engage in climate policy using customers’ money.

Success Thanks to Tradition

Two-thirds (63 percent) of the banks surveyed view traditional business models as a guarantee of success. However, one in four institutions holds the opposite opinion. «Focusing on traditional tasks does not release the industry from the need for constant adaptation,» says Roman Sandmeier, Partner at EY Switzerland, study leader, and co-author. Agility is required, particularly in response to macroeconomic developments, revenue diversification, positioning within the financial ecosystem, cost management, and customer orientation.

A majority of 81 percent of the institutions surveyed also support new advisory approaches. Retail banks should be more proactive with customers, make better use of life events, and use data to anticipate needs in a timely manner. Banks should accompany customers throughout their entire lifecycle, aiming to become the trusted primary bank. «Compared to other industries, there is room for improvement, especially in the use and analysis of customer data – a treasure yet to be uncovered. It is widely known that all banks have been seeking to expand customer service and make it more customer-centric for years. «The question, therefore, is rather why this goal has not yet been achieved,» says Roman Sandmeier.