In a move clearly aimed at countering foreign competition in Switzerland’s payments and securities markets, the country’s financial services industry closed ranks in early 2008 when an agreement was reached to merge three of the industry’s three key services organisations: Telekurs Group, SWX Group and SIS Group.
The result of the merger, the SIX Group, brings together expertise in payments, clearing and settlement, securities trading and market data services.
Underscoring the objective of countering foreign competition, a press release at the time of the merger declared it would enhance the Swiss financial service industry’s “competitiveness and innovative power and maintain long-term Swiss sovereignty over the country’s financial market infrastructure”.
Firmly in the hands of the Swiss financial services industry, SIX Group is owned by 160 companies in the banking industry with Swiss banks dominating; holding a combined equity stake of some 76 percent. Foreign banks have a combined stake of 23 percent.
Formerly operated by Telekurs Group, SIX Group’s electronic payments operations span the full gamut of large value and retail transactions.
One of the key roles played by SIX Group is the operation of Switzerland’s Swiss franc real time interbank payment system, Swiss Interbank Clearing (SIC), on behalf of the country’s central bank Swiss National Bank.
The SIC system serves all of the 334 independent banks and 367 local co-operative (Raiffeisen) banks in Switzerland.
The SIC system which falls under the SIX Interbank Clearing unit continues to enjoy significant growth with transaction volumes recoding a CAGR of 15 percent between 2002 and 2007.
Growth slackened in 2008 with the number of transactions settled by the SIC system increasing by 4.5 percent compared with 2007 to 372 million. The value of transactions increased by 11 percent to CHF58 trillion ($54 trillion).
The overwhelming majority of cashless payments processed by the SIC system take the form of credit transfers and, according to the Bank for International Settlements a total of 648 million credit transfers were processed in 2008. This was up from 545 million in 2000 and represented a CAGR of 2.5 percent over the period.
Also operated by SIX Group is the euro-SIC interbank payment system for transactions in euro on behalf of Swiss banks. In 2008, transactions processed by euroSIC increased by 11 percent to 3.9 million transactions while the value grew by 11.4 percent to €1.41 trillion ($2 trillion), which corresponds to some 95 percent of the total euro turnover settled in Switzerland. euroSIC serves 150 financial institutions with more than 3,200 bank branches.
SIX Group’s other major payments involvement is in credit and debit cards via its card payments processing unit, SIX Card Solutions, and its merchant acquirer unit SIX Multipay.
The pioneer of payment cards in Switzerland, SIX Multipay was established in 1976 as Eurocard.
SIX Group, which has some 4.4 million cardholders and 84,500 points of acceptance, reported 452 million card payment transactions by credit, debit and prepaid cards in 2008, a significant 42 percent increase compared with 2007.
In addition, transactions undertaken for third-party Swiss card issuers increased by 15 percent to 352 million in 2008 while transactions processed for foreign customers increased by 308 percent to 110 million.
Overall SIX Group’s payments operations enjoyed an impressive first year with total revenue increasing by 72 percent compared with 2007 to CHF324.4 million.
Within the Swiss payments market, another entirely Swiss banking industry-owned organisation, Aduno Group, numbers amongits major shareholders Raiffeisen Group, Migros Bank and Bank Coop.
As at the end of April 2009, Aduno Group, which specialises in payment cards, had 4.54 million credit cards and 7.61 million debit cards in issue and some 371,000 affiliated merchants.
Carrying the brand name Viseca, Aduno Group cards are issued under MasterCard and Visa programmes.
Another key player in Switzerland’s payments market is the state owned postal service Swiss Post which offers payments and financial services via its Postfinance unit.
Notably, Swiss Post was a pioneer of non-cash payments in Switzerland having commenced offering payments transactions in 1906, the year prior to the establishment of the country’s central bank.
Operating through 1,600 post offices Postfinance is a significant force in the country’s domestic and cross border payments market though of late growth in transaction volumes has been modest with a CAGR of 1.7 percent recorded between 2005 and 2008.
In 2008 Postfinance executed 843 million transactions, up 2.4 percent compared with 2007 while in the first quarter of 2009 the number of transactions increasing by 1.5 percent compared with the first quarter of 2008 to 209 million.
Postfinance’s operates its own central payment clearing network which is linked to the SIC. In addition, Postfinance operates Postomat, one of the country’s two interoperable ATM networks. The second, Bancomat is operated by the banking industry.
Postfinance’s consumer and business client base reflects solid growth with the number of customers increasing between the end of 2008 and the end of the first quarter of 2009 by some 30,000 since to 2.54 million. The number of accounts increased from 3.65 million to 3.72 million, while total customer deposits jumped 28 percent to CHF68 billion.
Postfinance has achieved notable success with it internet banking service, with the number of online customers hitting the one million mark in April 2009 and some 10,000 new customers still signing up every month.
Far less successful has been Postfinance’s foray into mobile phone payments, with a service launched in August 2007 that enables customers to order products and services via short message service (SMS) and pay simultaneously via their postal account. Far from a roaring success this service has, according to PostFinance, has attracted a mere 4,500 customers and 35 merchants.
Undeterred, Postfinance has made a second foray into mobile payments with the launch in April 2009 of a basic service that enables customers to transfer funds from one postal account to another using a SMS text message.
The service enables a maximum of CHF100 per recipient account per day to be transferred and is free of charge for both the sender and the recipient, except for the SMS message charge. The amount is credited to the recipient’s account within a few minutes of a SMS transfer being sent.
Mobile payments in Switzerland undoubtedly faces stiff competition from other payment alternatives including the country’s extensive network of bank branches, which including those of Postfinance total some 4,300. For a country with a population of only 7.58 million this equates to a high branch density of 1.76 branches per 1,000 inhabitants.
The internet also provides a highly convenient means to access banking and payment services. According to a study by research firm IDC Corporation, Switzerland ranks as one of the most computer-equipped countries in the world with 83 percent of people owning a computer and over 70 percent actively using the internet.
Contactless gains ground
Despite the sophistication of Switzerland’s electronic payments system, the use of cash remains high. According to SIX Group, cash accounted for 79 percent of total transactions by number in 2007 compared, for example, with 65 percent in France and 69 percent in the UK.
SIX Group believes a number of new technologies have the potential to significantly reduce cash use in Switzerland and lays particular emphasis on the role contactless payments could play.
Beyond contactless payments applications in retailing, SIX Group believes the technology could have significant potential in public transport, particularly as Switzerland records the highest utilisation of public transportation in Europe.
The company stressed that every year over CHF4 billion is spent on public transport but payment takes place either by cash at the station, on the transport itself or through pre-paid passes.
Aduno Group is another major driver of the adoption of contactless payments in Switzerland, and in October 2007 became the first issuer of contactless payment-enabled cards in Switzerland and Continental Europe. A credit card-based solution incorporating MasterCard PayPass contactless technology, the first service was launched in the Swiss city of Gossau. The maximum contactless payment that can be made is CHF40.
Subsequent to the Gossau launch, Aduno Group has gradually expanded it contactless payments programme and currently over one hundred Viseca affiliated merchants in Switzerland accept PayPass for contactless payments. Advancing the technology further, all Viseca card partner banks began phasing in PayPass as an additional function in their credit cards in June 2009.
Aduno Group predicts that by 2010 some 600,000 Viseca credit cards with the PayPass function will be in circulation throughout Switzerland.
Contactless payments is attracting other Swiss entrants including SIX Group’s Multipay division which in September 2008 initiated a pilot trial of contactless payments via near field communications-equipped mobile phones.
Other participants in the six-month trial were Visa Europe, Switzerland’s second largest bank Credit Suisse, PostFinance, mobile network operator Swisscom and Swisscard, a credit card specialist business owned by Credit Suisse and American Express.
The trial using Visa’s PayWave technology proved a resounding success, with 90 percent of participants expressing a high level of satisfaction in mobile phone-based contactless payments. The maximum contactless payment that could be made was CHF40.
Indicative of the economic gain to be had by reducing the use of cash, a study commissioned by Aduno Group and undertaken by the University of St Gallen in 2007 estimated that the use of cash costs the Swiss economy CHF2.2 billion annually.
The study also revealed that from the perspective of the Swiss economy, cashless payments are cheaper compared to cash at an amount of just CHF12 or more.