Swiss Fintech Study 2022: Fintech Sector Rebounds After Decline in 2021
After a market slowdown in 2021, the Swiss fintech industry rebounded in 2022, with an increase in the number of companies operating in the sector, increased investment and established banks stepping up their digitization game, a new report from the Lucerne University of Applied Sciences and Arts’ Institute of Financial Services Zug (IFZ) says.
The annual IFZ Fintech study, released earlier this month, presents the current state and progress of the Swiss fintech sector, examines trends and shares predictions for the year ahead.
Results from the research show that the Swiss fintech sector grew considerably in 2022, rising from 384 active companies at the end of 2021 to 437 fintech companies a year later. The figure – a new all-time high – represents a 14% growth in the number of fintech companies active in the country year-over-year (YoY).
A breakdown by product area shows that growth in 2022 was led by an increase in fintech companies operating in the investment management segments, which added 21 companies (+14% YoY), as well as banking infrastructure, which added 20 companies (+16.4% on annual basis). These two categories have historically been Switzerland’s most developed fintech segments.
A breakdown by technology area shows that distributed ledger technology (DLT) had the largest growth in 2022, with 22 companies (+19.5%).
Number of fintech companies by year, and by product area and technology category, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Fintech investment remains strong
Despite the global downward trend, fintech funding activity in Switzerland remained strong in 2022. Against all odds, Swiss fintech companies secured a new record of CHF 605 million last year, up 36 years.
Fintech funding growth in 2022 was driven by early stage startups and seed rounds, which totaled CHF 120 million across 45 deals. 2022 was also marked by a mega round of CHF 100 million and above. The deal, which was secured in January, was executed by SEBA Bank and involved a series C of CHF 110 million.
VC activity in the Swiss fintech sector, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Despite growing fintech funding, access to finance remains a barrier
Although data show that Switzerland largely escaped the global funding downward trend, access to financial resources for fintech companies was perceived to be more difficult last year than the previous one, results from a survey carried out as part of the study show.
The survey, which surveyed more than 160 fintech companies, found that the biggest year-on-year changes were recorded in access to funding, which increased the most in urgency (+17%), followed by the challenge of finding customers (+8) .
At the other end of the spectrum, the impact of COVID-19 recorded the largest decrease in urgency (-28%).
Year-over-year change in average values for selected challenges in the Swiss fintech sector, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Swiss banks are increasing their digital efforts
Another survey conducted as part of the study, which surveyed 61 Swiss banks, found that financial institutions are increasing their information technology (IT)-related resources in 2022.
These resources are now increasingly being invested in transforming the banking business, including the digitization of business processes, and less in the pure maintenance of day-to-day operations, the results show.
In particular, 52% of Swiss banks said they invest most of their IT costs in “change-the-bank” activities, while 48% invest most in “run-the-bank”. These findings indicate increasing innovation in the banking sector, says the report.
Percentage of IT costs related to running-the-bank and changing-the-bank, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Sustainable fintech wins
Another trend highlighted in the report is the rise of sustainable fintech. These companies aim to contribute to sustainable development by offering innovative products, services and processes in the financial industry.
The study identified 32 Swiss-based sustainable fintech companies by the end of 2022, suggesting that 7.3% of the country’s fintech companies fall into the category. The figure represents a larger market share than the previous year, where sustainable fintech companies made up just 4.4% of the total industry.
As sustainable fintech continues to grow and develop, new business models and opportunities are expected to emerge in the near future, the report said.
Cumulative number of sustainable fintech companies by year, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Crypto trading volumes are falling
2022 was a turbulent year for the cryptocurrency market, with the total market capitalization losing two-thirds of its value.
This so-called prolonged “crypto winter” has affected trading activity, especially indirect products on crypto. In 2022, the total monthly trading volumes of indirect investment products in Switzerland, including exchange-traded products (ETPs) and open-end funds, fell significantly.
As of December 2022, the total market turnover was CHF 52 million. Compared to the peak figure of over CHF 1.2 billion in February 2021, this represents a 96% decrease. Total annual trade volume reached CHF 2.1 billion, down 76% from 2021 with CHF 8.6 million.
Market turnover on the SIX Swiss Exchange by month, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Direct investments in crypto, especially through centralized exchanges, also fell significantly in 2022.
In December, centralized exchanges cleared CHF 1.6 billion in spot trading, a figure that is about ten times less than the record month of May 2021, when they cleared about CHF 17.1 billion.
Monthly spot trading volume on centralized crypto exchanges from Switzerland, Source: IFZ Fintech Study 2023, Institute of Financial Services Zug (IFZ), March 2023
Featured Image Credit: Edited from Freepik
