Switzerland’s PostFinance is in trouble. Once a pillar of parent company Swiss Post’s earnings, a politically imposed ban on offering loans and mortgages (to create a more level playing field with private sector competitors, ed.) is causing the bank ever more problems. Unable to recycle its big retail deposits into lending, customer savings must now be invested on the money markets, where returns are much thinner – and unlikely to fatten soon. PostFinance has been forced to react. In summer 2018, it announced 500 job cuts – roughly 15 percent of its workforce – because of lower profits and limited growth.
Partial privatization of PostFinance hasn’t worked
The government knows about PostFinance’s problems. In autumn 2018, it proposed dropping the ban on loans and mortgages – alongside part privatization. But it ruled out a complete sale, with Swiss Post (and behind it the state) remaining majority owner. However, a limited sell off to private sector shareholders is not enough to compensate for lifting the ban on lending: if most of PostFinance’s share stay in public hands, it simply creates another fully fledged state bank alongside Switzerland’s 24 existing cantonal institutions.
Apart from the lack of justification for having yet another state bank, the government’s plan would not solve the competitive distortions of having one more institution that is “too big to fail.” Although explicit state guarantees were abolished in 2017, PostFnance enjoys that advantage implicitly as long as it remains mostly in state hands.
Full privatization of could kill two birds with one stone: the problem of the implicit state guarantee would be eliminated, removing what is becoming, in today’s interest rate environment and the ban on lending, a growing risk for taxpayers. And PostFinance would gain the political independence and entrepreneurial flexibility it desperately needs to compete in a rapidly changing financial sector.
No threat to public service
Historically, state banks may have been justified: the cantonal banks, for example, were created partly to address regional credit shortages. But such arguments for public sector participation in banking are all but irrelevant today. Switzerland’s financial system is highly developed and private banks are just as up to the job as state ones. With UBS and Credit Suisse, the cooperative Raiffeisen Group (which with more than 900 branches has the densest network in Switzerland) and around 60 regional banks, there is no longer any danger of inadequate local credit.
Anyway, the ban on PostFinance lending makes the supply of credit argument irrelevant. There is good reason to doubt whether a federal bank is necessary to ensure basic payment services either, given that Swiss Post itself is obliged by law to ensure nationwide basic coverage of opening and maintaining payment accounts, cash withdrawals, deposits and transfers.
PostFinance undoubtedly has an impressive position in payment transactions, with 2.9 million customers undertaking some 1.1 billion transactions at home and abroad each year. That corresponds to around 3 million transactions a day – or roughly 60 percent of the payments market. The other 40 percent of transactions are processed by the Swiss Interbank Clearing (SIC) system, operated on behalf of the Swiss National Bank. So the country currently has two well-functioning systems, leaving no reason to fear abolition of PostFinance’s basic service mandate would harm services.
Indeed, Switzerland’s basic service mandate for payments is unique in Europe – apart from Liechtenstein. Nor does the corresponding EU legal rule – the so-called Postal Directive – say anything about payment transactions. Such functions today are performed as standard by every commercial bank, with no evidence of any need for a state role.
Functioning cash supply
Looking ahead to a cashless society, the basic service mission also appears increasingly anachronistic. At the turn of the century, there were about 850 million cashless transactions, involving credit or debit cards, bank transfers via e-banking, or mobile payment systems and the like, being processed each year. By 2015, the total had reached around 1.8 billion – an annual growth rate of just under 60 percent.
Cash remains important and popular for payments in Switzerland. But eliminating the basic service mandate would not cause problems: by international standards, Switzerland has one of the densest bank branch networks in the world. The Federal Statistics Office says cantonal, large, Raiffeisen and regional banks together had almost 2,600 branches in 2016. That averaged 1.15 branches and more than three ATMs, per municipality.
Further information can be found in the study “Universal Postal Services in the Digital Age”.
