New technologies are putting pressure on the financial services industry to adapt and reinvent their business. A painful experience it shares with other industries. The demands on the companies and their typical responses are remarkably similar even if the reasons for the crises differ, says Peter Hody in a exclusive editorial for finews.first.


finews.first is a forum for renowned authors specialized on economic and financial topics. The texts will be published both in German and English. The contributions appear in cooperation with Pictet, the Geneva-based private bank. The publishers of finews.ch are responsible for the selection. Previous contributions: Rudi BogniAdriano B. Lucatelli, Peter Kurer, Oliver Berger, Rolf Banz, Dieter Ruloff, Samuel Gerber, Werner Vogt, Claude Baumann, Walter Wittmann, Albert Steck and Alfred Mettler.


«Admit that the waters around you have grown
And accept it that soon you'll be drenched to the bone
If your time to you is worth savin'
Then you better start swimmin' or you'll sink like a stone»

The words of Bob Dylan must be ringing bells in the offices of the banks across the globe. He who doesn't rid himself of yesterday's constraints will go under – the prediction of the singer-songwriter is clear enough. Dylan wrote his epic song in 1964, referring to the conservative instincts, militarism and racism prevailing in the U.S. at the time, against which the youth had risen up with their own ideas.

Banks are persisting with business models that are outdated technologically but also for regulatory reasons. The entire financial services industry is faced with a more complex world – and the tighter regulatory demands are the smaller evil.

Technological progress and new instruments for the banking sector may yet shatter the very basis of the industry, turn it upside down or even marginalize the companies we all know.

«If a company fails to adapt to change and perishes – tough luck»

If one company fails to adapt to change and perishes – tough luck. But if several well established industries are faced with being swept away by technological progress and changes within society, it's time to call it by the name: revolution. The digital revolution is the third or maybe even the fourth industrial revolution.

The banks and insurers are not alone in their fight for survival. The media, or rather print companies and newspapers, and the energy sector are equally under threat by the revolution.

The three industries are completely separate industries, yet all with important in their own right. And they are in the middle of fundamental change, with numerous similarities apparent.

The first of the similarities is inherent to these industries: all of them have been operating within a framework of very little competition. The exposure to competition within the financial services industry has led to a wave of mergers and acquisitions.

The traditional media companies are slugging it out with Internet firms – fighting for readers and advertising income. Cheap energy from solar panels and wind turbines meanwhile are leaving energy companies stuck, burdened by capital intensive water and nuclear power stations (in Germany including the coal industry), which have been rendered uncompetitive.

The second of the similarities is the most evident of them all: the crisis. All the industries discussed are restructuring, writing down billions, selling units or giving up entire businesses. The media has advanced most in the cycle, because the digital competition undermined the way it went about its business first.

The three sectors are faced by a similar phenomenon: disintermediation. The expression is closely linked to innovation, because new companies can break up the value chains with the use of new technologies and the right business model. The intermediary who previously brokered a service between two partners is being pushed aside and left to perish.

«Facebook has become the biggest media company – without even producing content»

Applied to the banking world, technologies such as blockchain or companies from outside the industry might act in this fashion. IT giants Google and Apple already have taken first steps in that direction.

Disintermediation in the traditional media world is a fact. Facebook has become the biggest media company – without even producing content.

Energy firms face a similar danger to their business model with the booming sector of renewable energies. Highly efficient generators of solar or wind power may not make the established producers obsolete but less important. The digital connectivity and management will allow for intelligent and decentralized networks to the detriment of central power and distribution networks.

It is fascinating to compare the way companies and managers react faced with the potential loss of their business. First, there is denial.

Best examples for this phenomenon are Oswald J. Gruebel and Brady Dougan, the heads of UBS and Credit Suisse when the financial crisis of 2008 and 2009 took hold. It was already evident that the times of high-risk banking would be over once the storm had blown over. But they didn't want to face up to reality and retained the capital-intensive investment banking.

Today, with the digital technologies available, the turn is on the private banks to deny: they keep believing that the advice of clients will never be replaced by technological means. The virtual wealth-management industry meanwhile keeps development.

The managers at Ringer, Tamedia and Axel Springer took almost a decade to understand just how big a threat to the print business the Internet had become.

«In the second phase, the brutal facts of reality begin to sink in»

And Swiss power companies Axpo, Alpiq and BKW only a few years ago demanded the construction of a new nuclear power station to prevent a shortage of energy. Today the production at the nuclear power stations is uncompetitive.

In the second phase, the brutal facts of reality begin to sink in. Followed by sense of powerlessness. That's when the companies turn to the state crying for help. Or the state has to scramble to bail them out. UBS had to be saved with the help of the central bank, in U.S. banks were told to get rid of their bad loans in exchange for state aid. And in Germany and the U.K. companies such as Commerzbank and Royal Bank of Scotland were nationalized.

This impulse is currently driving energy firms to call for state aid. Swiss power generator Alpiq is lobbying for the creation of a state holding to take over the unprofitable nuclear power stations. Their advisers have taken a cue from UBS and called the power companies «too big to fail» – and thus worthy for help.

The same principle applies to the media – the so-called fourth power in a state is too big to fail, with its role in informing the citizens and in watching the other powers. The existential difficulties of newspapers thus inherently leads to calls for state aid.

Bob Dylan: «You better start swimming or you sink like a stone»

The media houses themselves have asked for state interventions faced with powerful competitors such as Facebook. The European Union is currently discussing a Google-Tax to protect the fourth power.

In this context, the discussion about an advertising joint-venture between Ringier, Swiss Radio and Television Company SRF and Swisscom is highly topical. Two private media companies are combining with a state-controlled broadcasting corporation to fight off the competition from Google and Facebook.

In face of the hurricane, banks, energy companies and media houses don't just sit on their hands. In their majority, they are attempting to change – the fourth phase.

In this phase, there are further similarities to detect. In all three industries there are legacy units, or bad banks for activities that need to be scaled down or divested. Banks have pared their balance sheets by hundreds of billions in recent years.

E.on, the German energy giant, is divesting the gas and coal business. Alpiq is about to do the same with its hydroelectric power stations. And the media? Ringier has put the print unit into a joint-venture. Germany's Axel Springer three years ago sold the non-strategic newspaper and magazines business to generate the means and capacities to concentrate on digital products.

In a process of transformation, cutting back means rebuilding. The challenges are not too dissimilar. It is important to do away with things of the past and risk the new, or as Bob Dylan used to sing: «You better start swimming or you sink like a stone.»


Peter Hody is Deputy Editor-in-chief of finews.ch. He has held several managerial positions at «Cash» and «Stocks», Swiss financial news outlets. Earlier, he was a reporter at Associated Press and RTL/ProSieben. Hody studied history and acquired an MBA in Media Management at the Hamburg Media School.