10# INNOVATION INSIDER SWITZERLAND' FINTECH ECOSYSTEME

What is happening today in the fintech Ecosystem in Switzerland? We all know that Switzerland is recognized worldwide as a trustworthy, reliable and innovative financial center. A long experience in the banking and insurance sector linked to technological know-how as well as an extensive infrastructure offers the ideal environment and an excellent ecosystem for the Fintech sector. The Swiss regulator, thanks to a flexible and clear framework, has also enabled a good number of companies to set up or prosper in Switzerland. To better understand this high potential ecosystem, here is an overview made by Anne Marion-Bouchacourt, Group Country Head for Switzerland and Chief Executive Officer of Societe Generale Zurich, Deia Markova, Head of Trade Commodity Finance of Societe Generale Zurich, and Isabelle Salomone,?Deputy Head SGSS Switzerland.

Switzerland, world’s champion on innovation??

Ranked first by WIPO in 2020 as the most innovative country in the world, Switzerland is also in the 3rd position in term of competitiveness in the IMD business school ranking.?

Among the 363 Fintech active in Switzerland, the largest part - and the biggest growth in 2020 - concerns the area of investment management and banking infrastructure. In parallel, on the technology side, the process digitalization and automation through AI represents 40% of the start-up solutions.

So, what brings this innovation leadership? There seems to be two main reasons:

A very supportive regulatory environment: Understanding that Fintech could not develop under the strict regulations financial players are governed with, the parliament amended in 2017, the Banking regulation in order to facilitate Fintech creation, removing entry barriers such as license requirement for the first 60 days to allow the testing of the concept. In 2019, a next facilitation step led to the creation a specific fintech license within the Banking Act, allowing fintech start-ups, under some conditions, to hold public money up to 100 CHF Mio.

Furthermore, the DLT framework, voted by the parliament in September 2020, has defined a concept of digital securities, as well as -lighter- requirements for their custodians. This law has established as well a new specific license for trading venues specialized on digital assets.

A highly qualified workforce: Four Swiss universities are represented in the top 100 best institutions worldwide. And in the category Engineering and technology, the Swiss Federal Institute of Technology (ETH) occupies the third place, just behind MIT and Stanford university.

Such an attractive framework and workforce have also attracted the world technology leaders who have located their European headquarters in Switzerland, such as for example, Google in Zurich and Libra Association-renamed recently to Diem Association- in Geneva. Both cities are, without surprise, well placed in the top ranking of the Global Fintech Hub Report (2020), Zurich moving up to the 4th place in Europe.

SWITZERLAND’S FINTECH: INTERMEDIATING FINANCING TO THE PUBLIC SECTOR THROUGH A ONE STOP SHOP PLATFORM

Loanboox, winner of the Swiss Fintech Awards in 2018, has kept expanding providing innovative financing solution to the public sector (SOEs, Municipalities, Cantons, ….). With 3’500 financing requests for a total volume of 55 bn CHF since its foundation in 2015, the Zurich-based start-up successfully finalized in 2020, the first Swiss digital green bond for Axpo, leading utility provider in Switzerland, in partnership with Société Générale Zurich.

Efficient one-stop shop?

Loanboox, which positions itself as in intermediary between public players looking for financing and financial institutionals looking for secure and profitable investments, likes to define itself as Simple, Transparent, Cost Efficient and Secure with an interactive real time platform.

The journey starts with a platform, on which the potential borrowers and lenders meet. The start-up claims to have in Switzerland a pool of 500 institutional lenders (pensions funds, insurances, etc.) and, on the other side, more than 2000 public (cities, municipalities, etc.) and private sectors entities (utility, healthcare, etc.) as borrowers. Participation is subject to registration and verification by Loanboox.

Once the counterpart has been approved, the borrower can start the process by specifying the financing need: size, duration, and coupon are obviously the main indicators.

Then the interest of the lenders can be tested. The later can express their preference on the parameters and indicate the size they would be ready to finance. Having access to a rather large pool of potential investors/lenders, the borrowers can reach more easily the requested amount. As an example, the Axpo green bond of 133 mio CHF was shared among 35 different investors, with an initial demand for 100 mio CHF.

After the appetite of the investors has been tested, the real deal closure can start online. The process works like a stock exchange order book. In several cycles (runs) and over a limited, pre-defined, timeframe. In real time, the investors can confirm and adjust their offer. The borrower is also informed permanently about the order book development. Transparency implies that every investor sees in real time the appetite of other lenders,and can act accordingly. Finally, in the latest run, the intentions become binding offers. If the size requested by the borrower is reached, (in case of Axpo, the interest went far beyond the initially requested amount), the borrower concludes the transaction by selecting the final issuance volume. Based on that the final spread and interest rate are determined.?

The services of the company include the automatic generation by the platform of the term-sheet and the draft prospectus.?

The product can then be created and eventually listed on the Swiss exchange, the platform not only intermediating the lender and the borrower, but also the relation with the paying agent and (if applicable) the listing agent. Taking again the example of the Axpo, Société Générale Zurich has been assisting the issuer in both functions. Through SGSS, the bond could be created in the CSD (Central Securities Depository) system, the payments and the order flows booked on the issuer account and, finally, the product listed on the Swiss Stocks Exchange.

All this service is available for loan size starting from CHF 50’000 and with a competitive pricing.

Loanboox does not limit its activity to the Swiss territory. The start-up expanded its coverage to Germany, Austria, Lichtenstein, the Netherlands and France. The newly appointed CEO, Philippe Cayrol, has joined Loanboox from a senior position in a French success start-up: BlaBlaCar. Shortly after this appointment, several French public entities (Limoges, Chaumont, Carbon- Blanc, Aude, Vaucluse) financed their projects using the Swiss platform. With 260 users on the French territory, this development will be further supported by the recent partnership with La Nef, which grants to Loanboox the exclusivity on green financing.?

SWITZERLAND’S GREEN FINANCING IN THE COMMODITY FIELD THANKS TO TECHNOLOGY

Green finance is a movement that has been building in the financial sector for many years. However, what is really driving this movement are the corporates looking at how they can change the way in which they trade, source and produce, and this has been driving the demand for more sustainable trade.

Switzerland is the number 1 place for commodity trade finance:?35% of the crude oil exchanged in the world is bought or sold in Geneva; 60% of the world trade of base metals is handled from Switzerland, 30% of the cereals, 50% of the sugar, and 60% of the coffee are managed by companies based in Switzerland. Switzerland is also among the pioneers when it comes to Blockchain and cryptocurrencies with its Crypto Valley and Geneva as a home to Facebook’s Libra.

In this context we are seeing the acceleration of digitization of trade commodity financing, with more transparency and better ways to verify data in a trusted way. It now allows to view transactions in real time, with a tracking of the goods from production to destination: from the physical traceability of products, the identity of producers and the trade documents for each transaction. And this now allows a bank to structure a financing linked to sustainable business practices.?

One concrete project, which we are currently testing with a start-up company, using big data and AI is to measure the CO2 emissions of the different trade flows made by our clients thanks to a mapping of all steps of the trade flows. The ability to do this mapping, offers then, both our clients and ourselves, a better understanding of where their business stand today in terms of carbon footprint at each steps of a transaction (in the warehouse, at the port, on the ship ….); with this we are able to move towards choosing the right logistics routes and transportation means in order to minimize the carbon footprint, but also to finance only those flows which are greener.?

This type of application also permit to check which fuels are used: advanced biofuels made from plants that aren’t grown for food, with then, little to no fertilizer (which is a big emitter of GHG), others made from agricultural byproducts, used oils or pulp, or rather standard ethanol.?

Over the years, global trade has lifted millions out of poverty and has accelerated innovation. And now thanks to technology we see that it can even go one step further reducing it carbon footprint alongside continued growth. International trade with it is heavy use of transportation is a big carbon producer and it has become a central part of the solution to the environmental challenges we face. And Switzerland with its unique position in between, its trade commodity hub, its ecosystem of startups and?its close link to the key impact funds (Blue Orchard, Symbiotics, Responsability, …) will be the main driver towards the re-shaping of the trade activity and will allow it to contribute to the global ambition of a zero-carbon world.??