The Swiss online bank has suffered a profit setback and is nevertheless building a good basis for the future. Only fintech companies that have developed a plan for bad times can survive in the long term.
Measured by profit, Swissquote recorded its third-best semester ever.
With Bitcoin and Tesla stocks to the moon? The motto, which was still popular in 2021, brought huge losses to legions of small investors in 2022. Cryptocurrencies and tech stocks have suffered sharp losses due to the turnaround in interest rates and the nasty economic climate.
It is logical that the providers who helped the neo-traders with their bets and benefited from last year’s hype are also suffering. Both the share prices of Robinhood, a controversial American free broker, and those of the Swiss provider Swissquote have fallen by more than 40 percent since the beginning of the year.
Nevertheless, the two companies represent a different type of fintech company. Some providers are more robust and can deal with downturns better than others.
Questionable sale of customer orders
Robinhood is an extreme example. The company, which was listed just over a year ago, benefited enormously from the trading fever that gripped US retail investors in the first half of 2021. The case is correspondingly deep: Robinhood just recorded a quarterly loss of almost 300 million US dollars and will lay off a quarter of its workforce, around 1000 employees.
The US Securities and Exchange Commission could also restrict or prevent the controversial way in which Robinhood monetizes its free customers: Shares can be traded for free in the USA via its platform, but Robinhood sells the order book to third parties. They can exploit the knowledge advantage, de facto to the detriment of Robinhood customers. All of these changes are affecting the fintech company: Within a year, Robinhood shares have lost more than 80 percent of their market value.
The situation at the Swiss online bank Swissquote is different, as shown by the half-year figures presented on Wednesday. The broker also has to cope with losses: the pre-tax profit fell to 90.7 million francs (previous year: 135.2 million francs) because customers traded less. Swissquote made a lot less money, especially in the cryptocurrency sector. That’s no wonder, since the prices of the leading currencies Bitcoin and Ethereum have fallen by more than half since the beginning of the year.
Nonetheless, the online bank still had its third-best semester ever in terms of profit. Swissquote gained 34,000 new customers and reported an impressive CHF 3.3 billion in new money from organic growth. (In addition, there are CHF 1.7 billion in customer deposits from Keytrade Bank Luxembourg, which has taken over Swissquote.) This enlarged customer base can lead to higher profits if the situation on the financial markets improves.
Cost control is important
And although Swissquote now has 1,040 full-time jobs, 15 percent more than a year ago, operating costs have fallen by almost 18 percent to CHF 106.4 million. The bank has a large capital cushion and is trying to further diversify its income. In September, Swissquote opens its own crypto exchange for its customers. In addition, the Yuh app, which was set up in cooperation with Postfinance and is used to encourage young customers in particular to save and invest, is to continue to grow.
In detail, it is debatable whether Yuh or the crypto exchange Swissquote will be as successful as the services in stock and currency trading: Yuh has to assert itself against a number of other, similar offers. Experience has shown that this puts a strain on the advertising budget and does not guarantee success. Whether the Swissquote crypto exchange takes off depends heavily on the further development of digital currencies. Nobody can predict this.
But the will to diversify and careful handling of costs set the online bank apart from numerous “one-trick ponies” among fintech companies. They believed they had discovered a new normality in the boom year 2021 and have since gotten into serious trouble.