In general, there is an ongoing and visible shift in client demands and affinities with regards to services: More and more people are using the internet not only to buy goods, but to buy services as well. Banking has been affected by this trend for a while – the past decade has seen the rise (and sometimes fall) of a number of attempts to provide clients with banking services through the internet. While standard e-Banking services – i.e. payments services, and reporting - are common in retail and private banking today, there still is movement and potential in such fields as trading services, mortgages …..and private banking!

Wegelin & Co. recently have taken up the lead to enhance traditional private banking services by an internet based offering - Nettobank – which addresses their clientele with a fully internet based advisory process, innovative pricing models, a simple and understandable investment approach and – maybe less visible but nonetheless crudial - the consistent industrialization of their processes.

In our video interview, Dr. Stefan Jaeger, CEO of Nettobank, talks about the rationale to establish the bank, their strategy and business model, and shares some insights into the principles Nettobank’s offering is built on. Enjoy this interesting interview!

(The interview is held in german, for an English translation see below)

Interview translation:

[Michael Stoeckli] In today’s interview we are talking to Dr. Stefan Jaeger, CEO of Nettobank. Nettobank is a private bank serving their client through the internet channel exclusively. It is fully owned by Wegelin & Co. and currently unique to Switzerland.
Dr. Jaeger today will provide us with insights into business model and strategy of Nettobank.

Let me start with a fundamental question: why have Wegelin & Co. started Nettobank in the first place?

[Dr. Stefan Jaeger] Wegelin & Co. have the idea to provide this model to the growing number of customers who want to access private banking services online. Wegelin consider Nettobank a challenge project, they want to offer a lean form of wealth management to the clients. Thus, Nettobank was given the task of providing cost-efficient private banking services to their clients.

[MS] Which are the dependencies from Wegelin & Co., i.e. how does Nettobank benefit from its ties to Wegelin? And how to clients eventually benefits from these ties?

[SJ] Nettobank strongly builds on existing customer trust in Wegelin as well as Wegelin’s experience, to ensure the success of this start-up. In a world full of uncertainty as we observed it in the past few years, clients wish to be provided with a culture of trust and experience. Wegelin offers this, most of Nettobank’s employees actually spent some of their careers at Wegelin and have benefitted from this culture. In addition, Nettobank’s organizational structure is strongly tied with Wegelin, and we benefit from the mutual development of know-how. We also benefit from operational services offered by Wegelin, such as trading services, execution and platform development.
Clients themselves are offered discretionary mandates over the internet – Nettobank is not a trading application, but we literally focus on investing money on behalf of our clients. Clients are provided with a set of mandate types, which are proposed after an online assessment of the clients preferences and a risk analysis. Client can adapt a given mandate and change its risk structure. Nettobank provides periodic management of the investments, which can be tracked, analysed and assessed online by the clients. Our offering also differentiates by our focus on ETFs , which are cost-efficient, index-oriented and thus very liquid. Through this, clients are provided with lower overall costs as well.

[MS] Do your strategy and business model allow for an enhancement of the product offering?

[SJ] In Switzerland, we have not seen to much direct banking approaches up to now (in contrast to Germany), the reason for which probably is he fact that several direct banking project implementations failed at the beginning of the decade. Now, several direct banking offers are on the rise. There are offerings in trading, payments, there are also ideas to develop such an approach in the mortgage business. We focus on wealth management and discretionary mandates – it’s possible that we will come up with an offering in the area of 3a pension products, where it is possible to provide certain innovative approaches, also on mandate basis. In addition to that, it is not our goal to offer trading or savings products.

[MS] Nettobank offers an innovative fee model. Can you talk about this?

[SJ] We have two fee models. One of the models is the flat fee model, which includes a fix cost factor, containing of administration fee, custody fee and transaction / brokerage cost. The second fee model is the “surplus” fee, which is set up after the motto “earn or relinquish”, i.e. Nettobank relinquishes their fee if the client does not have an absolute surplus on his investment. This aligns Nettobank interests with client interests. Nettobank earns money if there is an absolute surplus fort he clients, based on a watermark value during the year.

[MS] How does the bank protect itself from having to relinquish too heavily?

[SJ] Of course, the bank has to consider the fact that it will not earn money through certain phases, such as financial market breaks. We assume that only about one third of the clients choose the surplus fee model – since it is only available from one hundred thousand Swiss francs upwards – and there is also a certain diversification through the fact that clients started their investments at different points in time. Thus we think that this levelling of the revenue structure will provide a certain protection.

[MS] A final question: How does Nettobank differentiate from today’s private banks, and in what respect does Nettobank provide an offering additional to what’s currently available?

[SJ] From a client perspective, we differentiate by offering our services by interfacing with the clients through the internet exclusively – which leads to lower cost and time consumption for the clients. From an internal perspective, all processes and structures are standardized and automated. This give us the opportunity to keep our material costs low – and to pass the cost advantage on to our clients, though lower fees and more innovative offers through the online channel.

[MS] Many thanks for this interview and the insights into Nettobank.

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