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Created on 13.03.2020

“We want to launch completely new investment solutions”

PostFinance generated 224 million francs in 2019. This represents a 20% increase in comparison with the previous year. In an interview, PostFinance CEO Hansruedi Köng explains the reasons behind the improved results and also reveals which new investment solutions are in the pipeline to help the company on its way to becoming a digital powerhouse. One of the most important innovations is e-asset management.

We want to become the number one digital bank in Switzerland.
Hansruedi Köng, Chief Executive Officer

Hansruedi Köng, how was the result in the past financial year?

In 2019, we generated earnings before tax of 224 million francs. That’s 37 million francs or around 20 percent more than in financial year 2018. 

How do you explain this improvement?

As a result of adjustments to our fee structure and higher volumes of commission-based transactions, we were able to increase commission income and profit on services by 70 million francs. Trading portfolio assets improved by 56 million francs due to market conditions, and the sale of two participations and a subsidiary resulted in 24 million francs of non-recurring profit. At the same time, personnel expenses declined by 41 million francs. I remain concerned about our income from interest operations, which was down 149 million francs year-on-year. The negative market interest rates combined with the lending prohibition are hitting us hard.

Does that mean the worst is now over?

Our investment portfolio continues to include high-yield bonds from earlier investments that are now reaching maturity but which, in the current interest rate environment, we can only reinvest for very low returns. Margins therefore remain under pressure and interest income will continue to fall, although we should see the decline slow down somewhat.

One effect of the low market rates is that many banks are now charging their customers negative interest. What is PostFinance’s approach to this issue?

At present, interest rates on the national and international financial markets are negative across the board, both in Swiss francs and in euros. And the market does not seem to be expecting interest rates to rise in the medium term. We can no longer absorb the negative market interest rates ourselves, and are therefore increasingly passing them on to our customers. Our approach is to look at the entire customer relationship: customers who work actively with us and use a wide range of our products and services receive a higher threshold than customers who only park their cash with us.

Does this mean that small savers will soon also have to pay negative interest at PostFinance?

At the end of the day, the interest differential business is based on the logic that the interest earned by a bank is higher than the interest it pays out to its customers. This logic still applies in the current negative interest rate environment. The pressure to pass on a bigger share of the negative market interest to customers is therefore likely to continue growing for all banks in the coming months. At the moment, however, I don’t expect that small savers will have to start paying a customer asset fee at PostFinance. That said, nobody knows what the world will look like two or three years from now.

You mentioned the increased commission income and profit on services. With large numbers of account closures, haven’t you paid a high price?

Last year, we lost around 100,000 customers as a result of our fee increases. Although we had to expect this response, these losses really hurt us. 

Neobanks generally offer their customers a free basic service. Wasn’t that the wrong approach, raising the fees?

Digital banking is extremely scalable. To capture a large customer base as quickly as possible, neobanks tempt customers with favourable conditions. For certain customers, this may seem attractive. With these providers, however, you also quickly end up paying fees if you want to use more than just their basic service. If you are looking for a comprehensive digital product range and personal advice or support in any of Switzerland’s national languages, you are in very good hands with PostFinance, benefiting from an attractive price-performance ratio and excellent service.

So why did PostFinance still fail to convince many customers to stay?

When customers have multiple banking relationships, it’s normal for them to consolidate them if fees increase. For many of our customers, we are not their main bank. For example, they might have only a savings account with us. With secondary banking relationships like this, customer loyalty is significantly weaker than among customers who carry out their day-to-day financial transactions with us and who may also have their mortgage or investment portfolio with us. In the investment area in particular, we are launching completely new solutions in 2020, and these will also be available digitally. The aim is to develop our savings customers into investment customers.

How do you intend to achieve this?

In the current interest environment, it is more and more difficult for savers to invest their money in a profitable manner. As an alternative to conventional account-based saving, we already offer our customers a clear range of proven funds. We are expanding this range significantly in the current year and adding new digital investment solutions to our existing range of funds. The aim is to make these available to all customers directly in e-finance, or through their customer advisor if required, before mid-2020.

How does the new range differ from PostFinance’s previous approach to its investment business?

In addition to investment advice with permanent portfolio monitoring and reallocation proposals, the new e-asset management service is certainly the most important innovation. We manage and monitor the portfolio based on the investment strategy chosen by the customer. We do this by developing our own house view, which focuses on long-term asset growth for private customers. The approach we take is unspectacular, with the focus on performance after deduction of all costs. All decisions are made in customers’ interests and are set out transparently in our monthly publication “Investment compass”. Incidentally, free subscriptions to this publication are already available at www.postfinance.ch.

How do you plan to differentiate yourself from your competitors in the investment segment?

Until now, PostFinance offered only very limited investment advice and no asset management. We are therefore in a position to launch newly developed digital investment solutions independently of existing sales structures. That is a major advantage. Another plus is the low entry threshold in e-asset management. Private customers can benefit from this service from as little as 5,000 francs. And we will of course offer our customers attractive conditions.

What other innovations are planned for 2020?

Our ambition hasn’t changed. We are transforming ourselves into a digital powerhouse and aim to become the number one digital bank in Switzerland. After launching the new e-finance login with facial recognition or fingerprint last year, we are focusing this year on expanding and developing our digital products and services.

The lifting of the lending prohibition requires the consent of Parliament.
Hansruedi Köng, Chief Executive Officer

What is the current status regarding the lifting of the lending prohibition?

The lifting of the lending prohibition requires an amendment to the Postal Services Organization Act. The Federal Council mandated this at the beginning of September 2018. The Federal Administration is currently drafting a bill to be submitted for consultation and, based on the results of that consultation, the Federal Council will then send draft legislation with its dispatch to Parliament. I cannot comment on the exact timings. But what is clear is that partial privatization will be off the table if Parliament opposes the lifting of the lending prohibition. After all, nobody will invest in a bank that is not allowed to issue loans.

Is this uncertainty paralyzing PostFinance’s strategic development?

As far as the future of the lending prohibition goes, we would of course like to have clarity as quickly as possible, because this decision is key to PostFinance’s future. At the same time, it makes little sense to spend our energy on things that we cannot influence ourselves. We are therefore focusing on areas where we have matters firmly under control, which includes consistent implementation of our digitization strategy. We have made great progress with this in recent months. First, we have closed gaps between us and our competitors. And secondly, we have demonstrated our pioneering spirit and innovative strength with initiatives such as the successful launch and positioning of Valuu. These skills are crucial to PostFinance’s future success.

The current strategy period ends this year. Where do we go from 2021?

Working with the Board of Directors, the Executive Board is currently drawing up various scenarios for our strategic focus for PostFinance in the future. I can say no more at this point in time. However, I do assume that we will have set our course for the strategy period from 2021 by the summer of this year.

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