How fintechs are disrupting Switzerland’s traditional banking market: Q&A with Radicant

The Swiss banking market is traditionally dominated by strong, established institutions, which has held back the growth of challenger banks and fintech companies. Could that be about to change?

Radicant is one of a number of players aiming to finally disrupt the market. Founded in 2021, the digital bank is appealing to customers through its focus on sustainability and user experience.

To find out more about the challenges and opportunities for challenger banks in Switzerland, we spoke to Radicant’s co-founder and CFO, Roland Kläy.

Q. Can you please tell me about Radicant and your business model?

The company was originally set up as a challenger bank and we have a full banking license. So our existing private clients are banking clients. Then at the end of last year, we merged with accounting firm Numarics which also had SME clients. 

The idea of the merger was to build up the SME business together with the private client business, because in Switzerland SME clients in particular need faster, easier, digital connections to their bank and that’s what we want to provide. The aim of the merger is to offer a full and digital integration of financial services with accounting and trustee business for SMEs (smart banking).

So we have SME clients from the old Numarics business and we have private clients from our bank business, but in future, they will all be clients of the bank.

Q. Are you looking to make more acquisitions or create partnerships?

From time to time, yes. The market for digital banks in Switzerland is very segmented. There are a lot of new digital banks or rather fintechs, and we think there will be several mergers in the next couple of years because the market is not big enough for that number of players.  

We need to watch the market and if we see any fintechs that fit with our strategy we will investigate and look at M&A. That’s something our shareholders want us to do.

Q. Is the Swiss banking market similar to the UK, where we have the likes of Monzo and Revolut?

I don’t think it is overall. Banking has always been big business in Switzerland and that means we have very strong, established, traditional banks that want to defend the sector against challenger banks like us. Banking is still very traditional. Only in the last 3-5 years has there been movement in the market. That’s why Revolut has only just gone into Switzerland.

The Swiss market is still a bit of an island, including from a regulatory point of view. In the last couple of years, a lot of new players from other sectors have tried to challenge the existing banks but the market is not quite ready. We don’t have any really strong digital challenger universal banks at the moment but there are three or four up-and-coming players: we’re one and Revolut is another.

The traditional bank banks do offer e-banking and digital access but their IT structures are very old-fashioned, so we think that, in the next couple of years, they will be challenged. Because they won’t be able to change that infrastructure to offer the same closeness; the fast, customer-oriented, digital service that we can. 

They would have to invest a lot of money and have to adapt their business processes from the ground up to make that happen.

You still have to invest a lot to build a bank like us but we believe that it’s easier to start a new bank with new IT infrastructure, processes and a new culture than to change an existing traditional bank. So it’s a very different market, but there is a lot of movement around digital banking in Switzerland now.

Q. What is the fundraising environment for start-ups at the moment? Is it becoming harder or easier?

It’s definitely getting harder. Because money is no longer as cheap as it used to be a few years ago, and that’s down to economics and current interest rates.

You have to be really convincing with your strategy, your vision, and your technology. It is still possible to find bond ventures or VCs willing to invest in a bank like ours. But it’s not just finding a VC, it’s getting much harder to find one that will commit a large sum to a single investment. You can still find VCs that believe in your model or your vision, but they won’t invest more than a set amount anymore. You need to find more investors because it’s very expensive to set up a bank with all the regulatory requirements.

So it’s definitely harder, but if you have the right business model, a good strategy and vision, then it is still possible to raise funds.

Q. In the longer term do you think that fundraising and support for start-ups will get better? If interest rates come down and the economy picks up, how will things change?

My feeling is that things haven’t changed that much from where we were a few years ago. You always had investors with a time horizon when they wanted to realize a return, deinvest and look for alternatives. 

But the costs of fundraising are higher now, and also you have to make that much more effort because the competitive situation is fierce, especially in the financial sector, and interest rates went up. They have come down, but the risk premium that you have to pay is quite a lot higher than it was before.

Q. How does Radicant differentiate from the other challenger banks? How are you winning market share?

I would say there are three things.

Firstly we can do things fast, fully digital and at the customer’s level. We think you need to be close to the client so they feel their banker understands their problem, rather than being a guy in a tie discussing something he doesn’t understand. We believe that it’s important to show you are like the customer, rather than making them feel you know more, are smarter, or earn more money than they do.

Secondly, we believe in sustainability. Not just investing in green technologies or green investments, but also cultural values and other aspects of sustainability like choosing which companies you want to invest in and what values you have as a company.

And thirdly we believe that today’s customer wants fast, digital banking available 24 hours a day. He doesn’t want to have to go into a branch, he wants to use his mobile or his laptop. If he needs an advisor he can talk to one but he wants to do everything else himself using the best technology. 

He wants to feel that his bank understands his business and that he can do everything, including all his banking, investments, budgeting, financial planning, and pension, in a fast, efficient way that he can understand. He wants to do all this on one site and digitally. That’s what Revolut is doing, and that’s the approach that we take.

Q. And on that sustainability point, is ESG still a key consideration, do people want those green investments?

I don’t think it’s a differentiator any longer, it’s more a precondition for doing business today. Some clients are still very much asking for this and see it as very important. Others just regard it as the standard way to do business.

But I think it is a differentiator if you do more than just green investment and take a more overall approach to sustainability. That includes how you speak with clients, whether the client can contact an advisor, and if that advisor is going to try and understand what the customer really needs rather than just try and sell him a bunch of financial products.

We believe that customers need more than just the right products and services, they also need a relationship with the bank that works, not just digitally but also personally.

And what are the cultural values of a bank? In Switzerland (and probably elsewhere), people tend to think that bankers earn a lot from other people’s money and they only care about what’s best for the bank and for their profits, with limited interest in what’s best for the customer. 

We believe that understanding is part of an overall approach to sustainability. And we are convinced that this is also very important to the clients.

Q. So is the digital usability/sustainability aspect part of the offer to small businesses as well?

Yes, that’s exactly what we wanted to do. In Switzerland, it’s really difficult for SMEs to build a new company even once they have a bank account and a relationship with their bank. 

It’s something we believe can be done more easily and faster if it’s done digitally and fully integrated, with fewer questions and formulae to complete, so the customer or the SME can focus more on building his business.