Crypto & Banking in Switzerland: A Case Study in Innovation

Transcript

Let's jump into what Jerom has been already painting for you. Uh it's a case study in innovation on crypto and banking. And uh I would like to welcome on stage Alessandra Fuza from crypto finance, Peter Hubli for from the Tuha Canonar Bank. And the fireside chat will be moderated by Nikki Chani, the executive director of this entire CVA, this entire event and the and the Crypto Valley Conference in June. Please welcome on stage.

I'll take this one and then you can grab one of the mics. Well, thank you for staying in the room. Um, I hope my microphone is on. Yes. Okay. Um, so I have the pleasure of welcoming one of the largest banks in Switzerland, largest bank and the second largest banks in Switzerland, Surirk Canon Bank and their trusted partner, Crypto Finance. um to dive into one of the case studies or we call it a case study but I would like to call it a success story um that we are very proud of um to showcase in Switzerland and of

course to the global audience as well. Um in 2024 September, so just six months ago, um Zetkab has launched its crypto offering to its retail clients and uh their B2B clients offering Bitcoin and uh and Ethereum. And um we're here to dive in. We only have 15 minutes, so I don't really want to take a lot of time. Um I would like to start with a question um to both of the parties about what do banks have to gain? um by implementing digital assets and offering it to their clients or let's be a bit more cheeky and play devil's advocate. Um what do they need to what do they lose if they don't? And let's start with the lose. Um

Pedro, would you like to take the lead in here? Uh yes, thank you. Um I guess I guess there is a customer need for uh investments in digital assets in almost every bank but uh most likely um most of them don't know it. So um same happened to us and uh what we did is we traced the outflow the outflow to crypto exchanges from our customers excluding we we were fair excluding Swiss quote and revolute and we did the period of uh end of 19 till mid of

2023 and we were totally shocked as we have seen we ended up in an amount of almost 600 million Swissy outflow to crypto exchanges. Um it was quite interesting that the money came back to us. So what we have see that's the reason why we find it out. Um because our compliance get crazy about the incoming flows. Um so it was interesting to see that our clients sent the money to the Baltics. Coinbase for example um made their trades there, closed the trades and sent the money immediately back to their safe heaven bank in Switzerland. So uh they

were they want to make uh crypto investments but the trust level with the exchanges abroad was not that very high. That's really good and thank you so much for the insight. First to share the number with us which is astonishing and then also to see that there's a really really high level of trust that's still in the business. People want to make money. They want to implement digital use digital assets but at the end of the day they will still want to be want to feel um comfortable and secure to know where their funds are sitting. So thank you for sharing the insights. Alandra, what's your opinion? I think to start, I can only echo what uh Peter mentioned.

Um I think the concept of outflows is one that is gaining more and more popularity. Uh I think depending on the type of bank, whether it's a retail bank or whether it's a private bank or some sort of form, it actually takes a different form. Obviously, the nominal amount is something that normally can um can stand out. But generally what we also see is that the growth at which the outflows change over the years is also significant and many banks also can choose to embrace it. I think that's also fair especially if the nominal amounts aren't excessive. Having said this, let's put ourselves in the shoes of a private bank which is generally dealing with a higher concentration of wealth and fewer customers. Losing the assets to potentially a competing player

which has decided to step into the space might not be an issue when it comes to crypto but obviously opens up the opportunity to lose other types of businesses. Right. And one thing which is also not normally talked about, it's the additional risk exposure which a bank that decides not to offer crypto assets is also exposed to by having its customer base bring their assets to other types of venues, whether they're unregulated or simply exotic marketplaces. So, you know, it's always funny sometimes when um back in the day when the ETFs in the US got first approved, a lot of the conversation was, oh, it took him quite a bit. And what was staggering is that the regulator, which is generally focused on protecting

the consumers, actually took so long to allow a regulated structure to give exposure to those customers, which up until that point were bringing their money on exchanges like uh like um Peter mentioned. So risk exposure is definitely something that you're exposing yourself to and the outflows not just a nominal amount but also the um the growth is something to consider and this derivative risk is I mean you know like this is not something that you would instantly think about um but it's a really really good point and I think it's very valuable information for those of the banks who are sitting in the room uh considering um entering the market offering digital assets hopefully these insights are very useful to Quick thing. I don't know if there's a

lot of risk teams here, but the risk is still there, right? But you're not reaping any benefit by not offering the asset class. So, obviously, this is not a one solution fits all, but it's still something to keep at the back of your head. That's nice. And you said you measured u between 2019 and 2023. Um, is there any insight in there about fluctuations? Was it like a growing trend? Is there any data to share there? That's useful. You mean after 2023? No, between the two between 2019 and 2023.

Um, was it an exponential growth that you've seen or was it a slow and steady? It was driven by the market, you know. Uh, for sure we see this the same right now. It's really driven by the market. Uh, and especially driven by Bitcoin. Um, so if Bitcoin is going higher then we see more interest. uh if we reach like like this 100k or something like these points then for sure we have a strong interest from our clients and and they most of them follow our buy and hold strategy. Okay. Yeah. There's that Bitcoin greed index which is very fun to watch. Um so we talked about what banks do have to lose if they don't uh offer

digital assets. Let's talk about what do they have to gain. Um where do you see the biggest benefit? And of course now you have six months with um of data to look at. I guess first of all we are uh we believe in the new the blockchain technology and we believe in uh the upcoming shift from traditional to digital assets. So I guess it's absolutely necessary that you are prepared for this uh moment. Um so anyway you have to move at some point as a bank on your journey and what we see is that for sure um clients coming back to us uh as since the last six months we have incoming flows we have clients which did the

transactions somewhere else and now they do it uh via us as well as we see that uh a lot of new clients which did not use us for investments use us for now for uh bitcoin investments. Right. So, and from your end of the table, what do you see when of course I'm sure you have this conversation on a day-to-day basis with banks. What do they have to gain? I think there's a number of things and yes, the conversation is very common. One is just education, right? Uh they develop in they develop or they pick up information that they can ultimately leverage in the future. Even if their interest, for example, is on the tokenization side of things, right? in

using blockchain technology without necessarily the crypto as an asset class starting point. Um so there's a concept of future proofing. Um one thing that was mentioned by Fritz earlier in the previous panel is this concept of cross-selling which is very popular. I think this is especially true obviously when it comes to uh retail banks that are targeting slightly more digital savvy slightly younger audiences. There was a number that was mentioned and I wouldn't be surprised if this was also the case for for Tet Cab. Um, and to add maybe a little bit of spiciness to the argumentation, revenue is an important one. There's all sorts of ways of ultimately having a very compliant setup which today can still be generating quite a lot of fees. in the starting

position of most banks where you're enabling uh buying, holding, selling without inkind deposit and withdrawals, it can net quite a bit. Um what we normally see in the market for a full loop on-ramp, off-ramp and especially with FX, we're potentially talking about 3 400 bips, right? So these are still exotic asset classes. you can still margin quite a bit u with the most regulated, most compliant and most secure type of setup. This is also true by the way of exchanges, right? Um so this is definitely something that's driving more and more and uh whether it's the outflows analysis or whether it's simply looking at the market and

making some good assumptions the business case generally is there and there's plenty of examples like the one in Z cab that new banks that are looking into coming into the space can simply look at copy paste and adapt of course. Great. So now that you have six months of experience and I think you're gonna sort of put numbers behind what Alessandro just said and and give give quantifiable measures. How is it going so far? Um what are the takeaways sort of do you have any metrics for us that you can share regarding you know the volume? Who are the users that are um mostly using the the services? Um I'm very curious

and I'm think I think everybody is very curious in the room. Yeah, usually usually I have a slide and I can read it from there. So now I have to take it from this paper. Um yeah, it it's it's funny um and make sure you have your pens and papers out so you can take notes. So, um it's really funny, um because a few weeks ago, the University of Lucern released this, uh study about the typical average, um crypto investor in Switzerland. And they said it's a this is a male um and it's around 20 years old and he invest around 1,000 Swiss into a ticket uh to buy cryptos. after six months uh we see it a little bit

different. So our average crypto client is also male but is uh much older is between 30 and 50 years old and the average ticket size is almost 15,000 Swiss. So we have much higher ticket sizes as expected much higher ticket sizes as uh in our business case uh which is which is very good. Um so what we see is that not only retail clients jump into this train it's it's also um clients from the private banking and that was a big surprise because uh the our private banking team said oh no our clients are not interested so it's more from the from

the retail side and what we see now is oh no no it's coming from the from the private banking side therefore we have the higher ticket size. Were you happy to prove them wrong? Sorry. Were you happy to prove the private bankers absolutely say I told you so? So what is also very interesting is that uh we at the moment we offer only two currencies. We have Bitcoin and Easter and uh but for our clients uh more or less only Bitcoin exist. So we have a ratio from almost 88 to 12. Uh our clients 88% of our investment is in Bitcoin and only 12 in Ether. And um the most interesting part is

that from the clients which buy cryptos with us 40% of them 4040 40% of them did not have uh a security account with us before. So they only hold cash with us and we tried to sell them funds. We tried to sell them bonds and equities and everything but they did not want but they jumped now uh on the Bitcoin train. That's really interesting. It's 40% is a is a really high number. I heard it is something similar with other banks. So it's quite interesting that you can uh attract so many people to invest in Bitcoin which did not do any investments

before. That's very interesting. And I think you told me that um the notifications like on the banking app get clicked way more often for crypto offerings than other That's really true because most of you um did not know that uh that we offer such services because we are not allowed to make a a big marketing campaign like others. We have no perfume or something like that. Um unfortunately uh so um what we were allowed to do was only to do it on our mobile banking app as you mentioned Nikki and that was really um crazy to see how often the the customer clicked on this on this message and went to go through the full message. So aren't

aren't these facts very powerful? I hope that you agree with us that getting insights into such a project after six months I think is really validating. Of course, you know, we are called the cryptoval association. So, you know, our sales pitch, but um but the point of this conference is to bring together the traditional banking industry and the traditional financial services industry and our digital asset ecosystem and show you that our industry is maturing that we have institutional great service providers like crypto finance and many others who you have seen today on stage.

Um, and it is true that people are interested in getting on board, maybe with a small ticket item, maybe not. But it looks like the clients are driving the change for the banks. Um, we only have a minute left. So, I want to ask two quick questions from both of you. One of them is, um, are banks who are not yet offering or not working on an offering yet, are they late? Should they hurry up? I'll maybe start that one. I don't think so. Uh again, there's not that many banks that are alive today. There are probably closer to 40 to 50 at a European level, many of which as we know are here in Switzerland. But compared to

the past, there's also newer solutions that allow to get to market faster by checking all the boxes. Um an example, Clear Stream launched last week um an offering for all their clients to do crypto custody, right? So that's just an example. So you can leverage a lot of the connectivity more and more easily as the market progresses. I guess it's not too late but uh for sure you should as a bank uh you should deal with the topic and I see more and more that it take part in in the upcoming strategy. So I think it makes sense that you mention it in the strategy especially if you have strategy for the next five years or something it must be there. I love the must part. And then the last question is what would be

the three tangible actionable advice you would give to banks like three tips um for this journey of on boarding digital assets. If it's okay, I'll condense it to one. Yeah. Start simple but start. Yeah. Tip number two, call me. Uh the best way to do it. Um no, it it takes time. uh for sure we will support you in many ways but it takes time. It's less a technical issue to onboard that you can offer such services to your to your customer. It's more an administration hustle uh contract negotiations especially the FINMA application takes time. Thank you so much. I really appreciate your time and sharing your

insights. Um please give it up to these two wonderful gentlemen and uh find them um after our session. I hope you stay around for the networking oper so you can chat with them later on. Thank you.