ADVERTISEMENT

Zurich’s Bankers Make Way for Techies and Bitcoin Startups

Zurich’s Bankers Make Way for Techies and Bitcoin Startups

(Bloomberg Businessweek) -- On Bahnhofstrasse, Zurich’s main street, a building that once housed a private bank has been turned into a hub for blockchain development. The forces reshaping the economy of Switzerland’s largest metropolis are also exerting a sartorial influence. Fifteen years ago, “I think 80 percent of the men would’ve been wearing a suit and tie. Now it looks different,” with more people dressed casually, says Thomas Meister, general manager of Trust Square, which has 40-odd companies working on crypto applications as tenants.

The gnomes of Zurich—a slang term for Swiss bankers, who share with these mythological creatures a predilection for gold and privacy—are loosening their grip on this city of 430,000. Activity in the financial industry dropped by nearly a fifth in the decade to 2017. The shrinking share reflects more stringent regulation, management scandals, and ultralow interest rates—along with the demise of banking secrecy—all of which have sapped profits and forced a retrenchment.

Tech is starting to fill the gap. Some of the industry’s biggest names have been drawn here by a combination of favorable taxes, attractive location, and the presence of a world-class university. In a global ranking of colleges that are strong in engineering and technology, ETH Zurich appears just a few places behind Massachusetts Institute of Technology and Stanford. “It’s really a credit to Zurich itself, the region, the ETH, the location, the city, the tax regime, the higher income that makes Switzerland an attractive place to work,” says Urs Hölzle, Google’s senior vice president for technical infrastructure, explaining why the company chose to site its European headquarters here in 2004. (Hölzle is an ETH alum.)

Zurich’s Bankers Make Way for Techies and Bitcoin Startups

In addition to 4,000 Googlers, Zurich also hosts a Disney Research unit responsible for visual effects used in films like Avengers: Infinity War and Star Wars: The Last Jedi. Meanwhile, Facebook Inc. has an 80-person crew working on augmented- and virtual-reality applications and recently announced plans to double its local workforce. From 2007 to 2017, economic activity in the tech sector increased by 50%. In 2017, the most recent year for which data are available, it constituted 6% of employment.

Startups have become an important part of the ecosystem in recent years. Zurich attracted 515 million francs ($517 million) in venture capital investment in 2018, according to the Swiss Private Equity and Corporate Finance Association.

Nearby Zug has been dubbed “crypto valley” for its concentration of Bitcoin and blockchain firms, and some of that activity has started to spill over into Zurich, which claimed 114 fintech companies as of the end of 2018, up from 88 the year before. That’s a sign the city may not be slowly closing the book on banking as much as writing a new chapter.

Zurich’s Bankers Make Way for Techies and Bitcoin Startups

Zurich isn’t an ideal hub for tech businesses in every way, though. In a 2019 survey by the Institute of Financial Services Zug, Swiss fintechs said their top challenge was finding customers, followed by finding the right staff, high labor costs, regulation, and international expansion.

Its famously high cost of living can be a deterrent for some firms. Travel booking platform GetYourGuide moved its main office to Berlin in 2012 to take advantage of the German capital’s lower wage and real estate costs, but maintains an office in Zurich for engineering work, according to its co-founder and Chief Executive Officer Johannes Reck.

Switzerland’s immigration rules make it difficult to hire people from outside the European Union, which is what prevented Loanboox, a platform that connects investors and borrowers, from importing a manager from the U.S. “It hurts our ability to be competitive,” says founder and CEO Stefan Muehlemann.

Switzerland’s small population (just 8 million) and risk-averse culture are also handicaps. It’s paradoxical that in a place where companies are trying to reinvent the financial system, mobile payments haven’t really caught on and using cash remains extremely common. Philip Schoch worked at a big Zurich bank before co-founding Apiax, a startup that makes digital tools to assist with regulatory compliance. He anticipates that his 27-person outfit may eventually have to decamp for other shores. “The growth we need won’t be coming from Switzerland in the next three years,” he says, adding that at some point “we’ll have to ask ourselves what the optimal location is for us.”

To contact the editor responsible for this story: Cristina Lindblad at mlindblad1@bloomberg.net

©2019 Bloomberg L.P.