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As with its neighbours in the DACH region, Switzerland has long been a lover of cash payments. However a popular domestic payments scheme has pushed the country increasingly towards digital payments.
Situated in the Alps and surrounded by the EU, Switzerland has established a reputation for financial services and banking, but interest tends to remain firmly in the wealth management space.
Unlike most of Europe, it did not implement the Payment Services Directive, as it is, nor was it bound by EU law.
And yet, like its neighbours, payments in the country have been a rapidly evolving landscape.
"The most impressive thing in payments has been the growth of electronic payments,” said Christoph Baumgartner, payments consultant at retail company Coop. “The whole market has become highly developed.”
The ep2 payment standard, a common solution used by the Swiss payments market, has been able to define standards not only in Switzerland but in the likes of Slovenia and Austria by acquirer Worldline.
"Switzerland is like Germany and is very cash friendly. Yet, the digital revolution has been big,” said Carlos de March, fintech consultant at B2Cfintech.
For example, in the Swiss National Bank’s (SNB) 2017 survey on payment trends, 70 percent of respondents said they preferred to settle non-recurring payments in cash. By 2020, this had reduced to 43 percent.
Contactless card payments have also become widespread in Switzerland, the SNB found in its 2020 survey. A total of 92 percent of all respondents held a debit or credit card with the contactless payment function, with 60 percent of debit and credit cardholders stating that they always or usually pay using the touch-free function.
Part of what has spurred this digital revolution is a payments platform called TWINT.
Founded in 2014 as a subsidiary of state-owned PostFinance, two years later it merged with its competitor, the SIX/UBS-owned Paymit.
By the end of 2021, TWINT had reached an active user base of 4m, which is almost half the population of the country.
"In Switzerland, I TWINT you is a verb. Everybody uses TWINT and COVID-19 has accelerated that effort,” said de March.
The SNB said in its 2020 survey results that mobile payment apps were experiencing “robust growth” in the country.
According to the central bank, mobile payment apps have recorded a sharp rise in ownership since 2017, from 11 percent of the population to 48 percent. At the same time, their usage in terms of volume and value has increased from virtually 0 to 5 percent and 4 percent respectively.
TWINT’s rise
Although its beginnings were hindered by a complex payments process, TWINT has since reached a deal with Apple that has seen the latter avoid a trial with the country’s competition regulator.
Previously, it was possible for Apple Pay to throw TWINT customers out of the payment process when making payments at cash-register terminals.
“From the tech point of view, this was pretty complex, and from the user side, it was not reliable,” said Samer Alshamkhany, a payments specialist based in Zurich.
As with other payment service providers, however, TWINT does not have access to Apple’s near-field communication and instead relies on QR codes for payments processing.
According to de March, the app is part of an effort to ween the public off of Mastercard and Visa. “Switzerland is not as digitally advanced as other European countries, so we are lagging in that sense, but TWINT has had huge adoption."
There are even rumours that TWINT may end up being part of the European Payments Initiative, a project that has been predominantly spearheaded by banks and payment service providers in the eurozone.
As with TWINT, it has been talked up as a way to increase autonomy in the digital payments sphere.
“There are currently no concrete plans for cooperation,” a TWINT spokesperson told VIXIO. “However, TWINT is open to any opportunity that creates value for our users and the TWINT ecosystem.”
For now, regulatory reasons mean that TWINT can only be used in Switzerland and the neighbouring micro-state of Liechtenstein.
Yet, this is something that TWINT is working on changing for its users.
TWINT is a founding member of the European Mobile Payment Systems Association (EMPSA), an organisation that was founded in 2019 by several payment system providers across Europe with the goal to establish interoperability across national borders.
“More specifically, the goal of this project will be to enable TWINT users to use the app to make payments in other European countries as well, and vice versa for the users of other EMPSA payment providers in Switzerland,” said TWINT’s spokesperson.
This will make travelling abroad much easier and more comfortable for our users, who will be able to use their trusted TWINT app to pay across many European countries, the spokesperson said.
Already, the first successful interoperability tests were completed in early 2022 and the EMPSA project will soon enter what TWINT’s spokesperson referred to as a friends and family testing phase. “We look forward to our millions of users soon being able to use TWINT in a whole variety of European countries.”
Elsewhere
In spite of the success of TWINT, market participants have said that other payments trends that are developing elsewhere in Europe have not quite caught the attention of Swiss consumers.
"BNPL hasn't taken off in Switzerland yet,” said Alshamkhany.
At the moment, the main player in Switzerland’s buy now, pay later (BNPL) market is Klarna, but it is considered more of a next big thing than a product that already has momentum, according to sources.
“Consumers already have 30 days to pay with payment slips, a popular method of payment. These are used by people who'd like to see the product first,” commented Alshamkhany.
One fintech, in particular, has so far been able to disrupt the Swiss market, according to de March. “Revolut has been a bonanza,” he said, echoing sources in Ireland and the UK, where it has so far had most traction.
“Banks charge big fees to customers, and Revolut came along and was free of FX rates. It swamped the market, and people saw it as a holy grail, especially the young,” he continued.
In comparison, the adoption of crypto has been slow, according to Alshamkhany, who pointed out that the country is a friendly region for the asset. “A lot of payment terminals could be crypto enabled,” he pointed out.
Switzerland was an early leader for crypto in commercial and regulatory circles. Some have even said that it is emerging as a regulatory model for digital currencies, striking the right balance between regulatory controls like the travel rule and the ability of businesses to innovate.
The Swiss Financial Market Supervisory Authority (FINMA) published guidance on the use of initial coin offerings (ICOs) as early as 2018, and the country has been keen to establish itself as a global leader in this field.
In September 2020, for example, Switzerland passed the Distributed Ledger Technology (DLT) Blanket Act, which adapts ten existing federal laws.
Also in 2020, the canton of Zug began to allow its residents to pay their taxes in Bitcoin or Ether.
“Zug has become the crypto valley,” said de March.
A lot is happening but it is more of a place for holding crypto, he pointed out. “Switzerland is used as a base, and there is not as much engagement with NFTs or crypto payments.”
“Switzerland has traditionally been a wealth management centre, and Switzerland opted for crypto innovation after the bank secrecy laws were overhauled as it provided anonymity. People saw crypto as a solution,” he suggested.
