Executive Summary: ISG Provider Lens™ Digital Banking Services - Switzerland 2022
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Digital acceleration in the Swiss banking sector
In Switzerland, as in most European regions, banks have already embarked on their digital transformation journey. While the market is widely dominated by the same players, the entry of Fintech companies has made the landscape more heterogeneous. Considering the digitaloriented mindset of younger customers, enterprises are also quickly accelerating and evolving their roadmap to meet the current market requirements.
Increased competition and potential for consolidation and specialization
Switzerland’s established banking segments and core financial infrastructure providers are increasingly facing global competition from fintechs and global technology firms such as Google, Apple, Facebook and Amazon. A significant part of the market was traditionally serviced by an immutable IT provider landscape and relied on large, shared service providers for setting the technology agenda.
With the gradual closure of bank branches and consolidation, banks are actively engaging with fintechs, global technology providers and a wider IT service provider community. The success of fintechs such as Yodlee, LendingClub, FundApps or eToro is a testimony to this trend.
The intense competition also translates to an ongoing search for unique and differentiated business models. If client proximity is no longer considered a sustainable factor or a key competitive differentiator, banks should identify areas in the value chain where they can perform better. This drives the need for specialization and new digital business models.
Technology and service providers are now presented with opportunities to develop solutions that will find resonance beyond Switzerland. Their spend is being driven by the evolution of regulatory requirements – Basel 4, BCBS 239, IFRS, MiFID III, GDPR, PSD2 and ESG – and the move towards increased banking integration across Europe.
Significance of digital acceleration
Digital acceleration goes beyond data monetization, increased use of AI, platform development, and adoption of cloud. It is essentially about achieving a much higher levels of business model transformation at speed. The first wave of digital transformation focused on optimizing the customer journey, back-end integration and digitalizing entire processes. This is now driven by newer approaches involving deeper organization transformation at both process and business model levels. Thus, the new status quo for the foreseeable future is constant innovation at speed to benefit the technology and IT service provider community.
In this quadrant report, ISG identifies and assesses leading service providers in the following areas of transformation for digital banking services in Switzerland:
Core banking modernization
While global banks are generally engaged in core modernization initiatives, the requirements for a smooth customer journey and decoupled business models will drive investments in this area. The landscape of platforms used in Switzerland is fairly heterogeneous, with both global platforms and more local implementations covering large parts of the market. From a technology perspective, Switzerland is home to some of the leading core banking platforms providers.
As many global banks have successfully modernized core platforms, IT providers now possess a good understanding of the potential and limitations of technologies that enable a decoupling of key functions from core transaction systems. This presents an opportunity for global players that have already completed large engagements in this area.
Digital banking
Zurich has become a digital banking hub characterized by the startup ecosystem and the setup of numerous DigiLabs by service providers and banks. While digital banking primarily focuses on delivering a consistent and smoother customer experience – especially in corporate banking and wealth management, retail banking demands more functionalities and value.
For banks setting up their own neo-banks, new technologies and frameworks such as Mambu and Thought Machine present new and exciting possibilities. Many leading service providers have invested in their own solutions and platforms with variations in flexibility with respect to customization, deployment and commercial options.
Payment modernization
Banks and network providers have been significantly investing in the payment platforms. The road forward is geared towards Real-time payment capabilities and increased data monetization possibilities. Most initiatives are at a proofof- concept stage in this area with the use of data technologies and AI offering the greatest potential value.
The payment area is also the one of the most competitive with a large number of providers offering excellent service capabilities.
GRC
With governance, risk and compliance (GRC) becoming a priority companies are gradually moving up the maturing curve in meeting these requirements. Integrated risk platforms, ESG and associated implementation projects are seeing some traction in the market. This is also an area where AI/machine learning models have the highest maturity (for e.g., fraud analytics).
The provider landscape with respect to GRC offers an interesting and differentiated value proposition.
While global providers promote best practices from more mature markets and standardized platforms, local players provide market-customized solutions and products.
What does this mean for the vendor ecosystem?
Consulting, deep banking domain knowledge and business transformation services are requisites for banks to transforms their business models and entire process chains. These services are provided by most of the leading players in this space. Smaller vendors with local domain and consulting capacity also play a significant role.
Such transformations will require complex integrations of old and new systems and the establishment of truly hybrid technical landscape that will be more complex to manage. These engagements will favor IT providers with strong technical capabilities, solutions, proprietary platforms and a tight integration with the technology ecosystem.IT service providers have become global giants with their financial strength. As the focus remains on technology, they have a unique opportunity to establish deeper partnerships with banks and other financial service providers. In addition to their technical and consulting skills, they play a deeper role in restructuring the value chain in the market. They can provide their own capital and transform some of the traditional shared services and financial infrastructure providers.
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