Comparison websites, financial platforms, digital business models and rapid advances in technology are having an impact on customer relationships and are changing them permanently.
The economy enjoyed an unexpectedly rapid recovery in 2021. The financial sector also faced higher dynamics among mortgage brokers as well as financial and real estate platforms.
Challenging economic situation
as recovery gets under way
The last two years saw considerable uncertainty owing to the coronavirus pandemic and the associated collapse in the economy. This unaccustomed situation was a challenge for business and society. It is therefore all the more pleasing that the economic situation in Switzerland largely returned to normal in 2021. The economy got back on the growth track. By the end of 2021, the gross domestic product (GDP) had reached the level it was at before the pandemic started. The powerful recovery also had a positive impact on equity markets. The Swiss Market Index (SMI) gained 20%.
The flip side of the strong economic recovery and rise in demand for goods and consumables was a sharp uptick in inflation. Ongoing supply bottlenecks and rising costs of materials and transport accentuated this trend. From the middle of last year, US inflation shot through the 5% mark, and Europe too saw price rises exceed the 2% target of the European Central Bank by a substantial margin. The Swiss National Bank (SNB) is assuming that in the medium term the rate of inflation will remain below the 2% level. Long-term mortgage rates are likely to rise moderately from where they are today without breaking out on the upside and stay relatively low.
The SNB's benchmark rate remained at –0.75% in 2021. Real rates are set to hover in negative territory for some time to come, so savings will lose value steadily. Retail banks' core business remains under pressure due to the low interest rate margin, and diversifying into commission business continues to be necessary and important. The sustained pressure on interest operations means that the threshold for passing on negative rates has declined once again. In Switzerland, only one bank in ten (previous year: 21%) categorically rules out introducing negative interest rates.
Impact of Covid-19
The coronavirus pandemic has accelerated the digital transformation in the Swiss banking market and changed customers' expectations of how banks provide services. Even the preferred ways of making payments are being affected. There has been a sharp fall in cash payments over the past two years. Use of digital funds, by contrast, like contactless payment using credit and debit cards, Apple Pay, Twint and other digital banking services has increased considerably. Regardless of where the Covid-19 situation goes from here, use of digital channels (and mobile banking in particular) is set to carry on rising. Many competitors have announced or already launched digital offerings and services in all sorts of business areas.
Demand for private residential property was up because of the change in the way we work – especially with working from home. The result was a further increase in the prices of apartments and single-family homes. The financing hurdles would-be buyers need to overcome are higher than they were just a few years ago.
develop new sources of income
When it comes to financing residential property, Raiffeisen's key competitors are domestic banks, especially cantonal banks and regional banks. As part of the shift towards a cross-industry business model, however, an increasing number of companies from outside the sector, fintechs and start-ups are becoming established.
The arrival of insurers and pension funds in the mortgage business is further increasing the intensity of competition. Real estate platforms and mortgage brokers also saw the pace of change step up in 2021. Several large banks and insurers entered into new cooperations or financial investments in the housing business, underscoring the great strategic interest in new ecosystem approaches.
Higher customer expectations in
digital investing and saving for retirement
There is a rising need for simple and transparent solutions. The Swiss investing and saving for retirement market continued to grow in 2021 with the launch of new, mostly mobile first offerings. Digital pillar 3a solutions are increasingly becoming standard. It is therefore an ever longer and more difficult process to establish new offerings and services in this market. Greater transparency, the ability to compare financial services and products, and the ease of use of digital solutions are making customers more price-sensitive. They are also more willing to buy financial services from someone other than their main bank. In addition, both customers and society increasingly expect companies to be able to demonstrate visible and credible initiatives in corporate responsibility and sustainability. This includes transparent communication on the use of data and algorithms.
New technologies as a driver
The strongly technology-driven digital players set a high benchmark when it comes to digital customer experiences. This tendency is raising the pressure on established banks to make their business models more customer-focused. Swiss banks are increasingly reacting to new players and fintechs by showing a willingness to add digital solutions to their own offerings. Until recently, the field of digital fintech solutions in the Swiss SME market was a nearly blank canvas, compared to other countries. Now the first start-ups are focusing intently on parts of this value chain and banks' customer interface. The digital transformation is fundamentally changing banks' business models and requiring them to come up with new solutions and services.
Changes in regulation
Increasing changes in regulation require additional expertise and resources. Regulators are constantly tightening liquidity, compliance and capital requirements for banks. Raiffeisen is subject to additional requirements as a systemically important bank. The Raiffeisen Group is very well capitalised. It exceeds both the current regulatory standards for systemically important banks and those that will apply from 2026, primarily with the highest quality of capital.