At the same time, Singapore has cultivated some of the same niches in the traditional financial services sector as Switzerland, notably wealth management, while its fintech sector is even larger and more internationally oriented than Switzerland’s.
However, when one takes a closer look, it becomes clear that the two countries are taking different approaches in the same segments of financial services due to their respective market positioning and different risk tolerance.
Safe Havens For Wealth
Switzerland has long been the world’s top wealth management market. It managed about US$2.6 trillion (CHF2.4 trillion) in international assets in 2020, followed by the United Kingdom and the United States, according to Deloitte’s most recent report on wealth management centers. Switzerland was also ranked top in terms of competitiveness.
In its “Global Wealth report 2022,” the Boston Consulting Group found that Switzerland’s total financial assets rose 5.5% to reach US$4.1 trillion (CHF4.3 trillion) in 2021 and predicts the sector will grow to US$4.6 trillion by 2026.
However, Switzerland faces some challenges in maintaining the top spot. It has some differences with the European Union on their framework agreement, complicating market access discussions. Further, it needs to be more aggressive about developing digital platforms for serving clients as well as improving product offerings.
While Switzerland is the market leader in Europe trying to safeguard its leading position, Singapore is ascendant as a wealth management hub in Asia and may surpass Hong Kong as the top one in Asia eventually. Deloitte’s report notes that Hong Kong’s international market volume (IMV) grew more expeditiously than Singapore’s from 2010 to 2016, but slowed down to 3.2% from 2017 to 2020, while the city-state’s expanded at 5.7% during the same period.
It is clear that political tumult, first due to protests and then policies enacted by the Hong Kong government to control the spread of the coronavirus, have adversely affected the former British crown colony’s attractiveness as a wealth management hub, especially for wealthy mainland Chinese for which it previously held pride of place.
Case in point: Chinese-owned family offices are becoming much more common in Singapore.
Financial Times notes that Singapore’s family offices grew from 50 in 2018 to 700 by the end of 2021. By the end of 2022, that figure may have grown to 1,500. IQ-EQ, an investor services firm, reckons that about 40% of that total are mainland Chinese.
Both Singapore and Switzerland have thriving fintech scenes. In Switzerland’s case, research by Deep Knowledge Analytics shows that it has more than 355 fintech firms and total investment in Swiss fintech startups rose to more than US$3.3 billion in 2021. Switzerland is also close to large European markets like France, Germany and Italy, which gives fintechs headquartered in Switzerland convenient access to many customers.
That said, Singapore enjoys the advantage of being near some of the world’s most dynamic emerging markets, from Indonesia and the Philippines to Vietnam and Thailand. For that reason, and because of the city-state’s robust legal system and pro-business ethos, many fintechs with regional ambitions base themselves in Singapore.
When it comes to overall fintech investment, Singapore has performed extraordinarily well given the small size of its domestic market. In the first half of 2022, Singapore's fintech funding hit a three-year high for with deals totaling US$2.14 billion across venture capital (VC), private equity (PE) and mergers & acquisitions (M&A), according to KPMG.
Crypto Policy Divergence
Looking ahead, one area of fintech in which we expect Switzerland and Singapore to take markedly different approaches is cryptocurrency. The Monetary Authority of Singapore (MAS) has put its foot down about crypto retail investing, for better or worse, and we would not be surprised if it proceeds cautiously with institutional crypto investors as well.
In an October 2022 statement, the MAS acknowledged banning crypto is not feasible for the city-state, but warned that trading in decentralized virtual currencies “is highly risky and not suitable for the general public.”
The MAS has also proposed to ban crypto firms from lending out retail customers’ digital tokens, which has generated pushback from the industry. The Blockchain Association of Singapore describes the proposal a “overly restrictive” and argues that it may cause crypto retail investors to lend out their tokens to unregulated offshore firms.
In a nutshell, Singapore will never be keen to serve as or be seen as “the Wild East” for crypto, no matter how many crypto bros wish things could be different. Of course, many of them never saw China’s crypto crackdown coming either, so go figure.
In contrast to Singapore, Switzerland has a more relaxed approach to crypto, with much greater tolerance for its use in payments – McDonald’s began accepting bitcoin payments in Lugano, Switzerland last October – and retail investing than Singapore. In February 2021, Switzerland passed the “Blockchain Law” which laid the groundwork for a fully regulated digital assets sector. Further, Switzerland has licensed two crypto banks to operate in the country, launched a digital stock exchange, and approved a crypto fund.
Despite the doldrums the crypto industry has been in over the past year, Switzerland has shown no sign of changing its approach to decentralized virtual currencies, while Singapore has become increasingly tough about digital assets as the industry’s failures have grown more frequent and catastrophic.
Although their industry focuses and competitive advantages vary, both Switzerland and Singapore have positioned themselves well for the future. Whether wealth management, crypto, or something else are the future of fintech, having a solid regulatory environment as well as technology and business infrastructure has made both countries fintech centers.
The real risk for both is how fast other countries progress. Both markets are relatively small in terms of native population, but have benefited from having companies that want an easier jumping off point into surrounding markets. However, as regulations become clearer and infrastructure better in neighbouring countries such as Indonesia, that competitive advantage will dissipate rapidly.
Only time will tell how that plays out.