Switzerland’s Digital Banking Revolution with CEO of Neon, Part 1 (#13-1)
Episode Highlights
Dive into this episode of How It Ticks, where Jörg Sandrock, CEO of Neon, shares his insights into the evolving Swiss banking landscape and the role of challenger banks in reshaping customer experiences. We explore Neon’s journey, its unique approach to digital banking, and the impact of generative AI on the financial industry.
Key discussion points include:
• Why Switzerland has lagged behind in adopting customer-focused digital banking solutions.
• How Neon balances simplicity with innovation while keeping fees low.
• The role of generative AI in transforming banking operations and customer service.
• Neon’s decision to focus solely on Switzerland and resist the pressure to expand internationally.
• Strategies for maintaining relevance and growth in an increasingly competitive market.
Meet Jörg Sandrock: CEO of Neon
Jörg Sandrock is the CEO of Neon, a pioneering digital-first bank that is revolutionizing the Swiss financial industry. With a deep understanding of finance and customer-centric innovation, Jörg has been instrumental in establishing Neon as a leader in the country’s digital banking space.
In this episode, Jörg delves into the challenges and opportunities of running a challenger bank in Switzerland. From leveraging generative AI to enhance customer service to maintaining affordability without compromising on quality, Jörg offers a behind-the-scenes look at how Neon operates and thrives in a competitive market.
Full Transcript of the Episode
Access the complete transcript of this insightful conversation with Jörg Sandrock, CEO of Neon. Learn more about the inner workings of Neon, its unique position in the Swiss banking industry, and its vision for the future.
Mike: [00:00:00] Jorg, welcome to How It Ticks.
Jörg: Mike, thank you very much for inviting me. Looking forward to be part of your show.
Mike: Thanks. I thought it would be an interesting question to start would be What does the typical day in the life of the CEO of Neon look like at work?
Jörg: I have maybe two different types of typical days.
One day is maybe when I’m in Zurich, which is typically three days a week. I start rather early. I would say I’m maybe around eight in the office. I try to. Of course, when I’m in Zurich, I try to communicate with others in personal meetings. Nevertheless, I also try to do some of the stuff by my own during the day.
Typically, I would say three to five meetings maybe a day. And in Zurich, I work pretty long. When I’m not in Zurich, I live in Munich. I had to start also earlier, but it’s always [00:01:00] video calls or more remote work. So that’s the different types of how I schedule my week. Thank you.
Mike: How much of your time goes towards internal team focused work versus external investors, speeches, presentations, that kind of thing?
Jörg: We haven’t done any funding around in the last two years, I would say. I managed the board, which is investors and internal founders. We meet rather often once a month, I would say. So it depends maybe 20 percent of my time over the last 12 months was more. With external work, the rest is more like in product or team stuff and so it’s rather not that external or that the share of external work is maybe not that high.
Mike: Okay, so it’s not going to dinners every second night with different investor groups.
Jörg: Maybe I should have done that more often, but no it’s [00:02:00] not. And also I don’t follow too many events like conference. Some of them I like, but most of them I, I rather do not attend.
Mike: So I imagine you would get invited to many of them though.
I guess there aren’t so many tech startups that are Zurich based and neon, one of the standout ones, you guys must be invited to plenty of different events.
Jörg: Maybe, but honestly, I think it’s a rather small numbers. There are a few events I really enjoy. But we belong to the startup group.
There are also a lot of banking events in Zurich, of course. But we are maybe not really part of the banking group or so there are some tech events, but also maybe dominated already by other companies. Even larger firms like Google, I think it was pretty, pretty visible in Zurich. So yeah, I think again, 80 percent of, or maybe 75 percent of the [00:03:00] work is more internal.
Mike: I guess that’s probably what you want. You were working for, in consulting for quite some time before you decided to join what made you decide to leave and join your own company, start your own company?
Jörg: I think it’s very difficult to predict the future in terms of you make one decision and it will be.
For instance, changing the job or selecting the, your university careers or whatsoever and really predict the results for your personal life or honestly before for work, when you starting in a company or making a larger project as a consultant, you do a lot of planning. For my personal decision, it’s I tend to.
Or maybe surprisingly, I’m a little bit less structured. I had a good feeling by I think about, Hey let’s try to start my own company if it’s not that successful, there will be other [00:04:00] doors. If it’s successful, maybe it’s fun. So that was a little bit of the thinking and it was not my plan when I graduated from school or university to say I’m going now to 10 or 15 years into consulting.
And then I start my own company was more a little bit opportunistic. We had a project in, in, in Zurich in, I would say 2015 around for another bank, understanding the Swiss retail market quite intensively. One of the co founders, Simon he was also with me on the same project. He was very clear by saying he doesn’t want to live or work as a consultant anymore, live as a consultant, maybe.
So that was maybe a little bit the trigger. And then we seized the opportunity and stepped into it, but it’s honestly a different. Way to work and to live maybe even
Mike: so it was the desire to change the style of work came [00:05:00] before identifying the problem that you wanted to solve.
Jörg: No other way around.
It was I was happy with my consulting job. We did that project for a bank a year later and the bank decided not to implement it for various reasons, different reasons, actually. And a year later we thought, Hey, that was a pretty good idea. They didn’t go in that direction. Why shouldn’t we try?
It was really more opportunistic in terms of we saw the problem. We saw nobody really. Tackles it. There is some opportunity. So let’s go for that and try it. I would not gone into, or it was not the idea for us to say, Hey, let’s go and have a startup men. Let’s seek the market or the problem or whatever we want to tackle.
It was really more or less right in front of us. And we decided to take the chance to and To start up with a neon, yeah.
Mike: Do you, in your view, how well does the, how well does consulting [00:06:00] prepare someone to lead a startup?
Jörg: I think it’s a very good let’s say school or it’s a good preparation. For reasons like starting your own company is probably a very challenging exercise, very. A lot of different topics popping up and consulting makes you, on one hand, it gives you the ability to manage complex tasks and then size it and then slice it into subtasks and then to finally to solve the problem.
It helps you structuring these problems, solving them looking into different industries or topics or challenges one after another. Also helps you maybe or it gives you maybe a little bit the culture. How you want to set up the firm while being aware that you’re not in consulting anymore.
You, when you work in consulting for a little bit longer [00:07:00] time, you’re used to people who join the project or who join the company, the consulting company directly from university universities or they’re talented, but maybe not that knowledgeable in that specific field. So that’s another aspect. Also, maybe discussing with investors and making nice presentations and pitch books.
That’s something very helpful. On the investor side, sometimes it has maybe, or it had the reputation of a firm founded by consultants is maybe also critical in terms of it’s they are too generic, they know how to run a presentation, but not to implement whatever they want to do. But I think in our case, we.
Mike: What specifically was the problem that you wanted to solve?
Jörg: It was the Swiss retail banking market, and that’s maybe a surprise, but of course, when you [00:08:00] look from outside, Switzerland is known for its banking industry. Clearly, it’s I think still one of the largest or At least the largest European offshore market, meaning private rich individuals have their accounts with Swiss banks while they’re not living in Switzerland or whatsoever.
So it’s, Switzerland is dominated also by the banking industry with respect to their overall economy. So it’s a very important industry clearly. On, in contrast to that, when you look at retail banking. Which is maybe the everyday banking, when you do your payments, when you do maybe your simple mortgage, maybe you’re a little bit of investing the, this country was, maybe it’s a hard word, but maybe a little bit under developed in, in terms of, I think that’s fair to say.
Mike: I don’t think that’s a shock to anyone.
Jörg: [00:09:00] Maybe not. I don’t know. But yeah, when you looked what happened after 2008, for instance, in the UK banks really, or in Spain is a very prominent country. The banks really changed their operations, changed their digital offering, changed their organizations like BBVA in 2010 or something was very well known in the industry.
And new competitors came in like Revolut in, in the UK maybe Monzo, maybe N26, but also local banks like in Denmark or in Sweden or in, in Spain. So there was a lot going on based on that crisis, based on new competition, based on, on, on the ability to offer banking products in a more digital way.
Industry changed. But not in Switzerland, because the banks didn’t really pick that up and as long as there is no competition and no other offers people were used to what they know. And we [00:10:00] saw that as a big opportunity. We started one simple example was, when we started, no other bank, I think, was really pushing the so called digital onboarding.
So people were forced to go into a branch between probably nine to five. And of course not over the weekend and they couldn’t open their bank account. We launched a product in beginning of this year. It’s the ability to have. One account together with your partner, we call it joint account.
And I think still we are the first bank in Switzerland that offers to open a bank account digitally for two person for all other banks, to my knowledge, you have to go to the branch, which is hard to believe, but it seems to be the case. So that was, maybe a little bit detailed question to answer to your question.
Yes, I think the bank industry was low on the digital side, very expensive for the client. Also very costly in terms of their own [00:11:00] production, own operations, and that’s what we want to tackle.
Mike: And why had no one else tackled this problem before? If Neon started, what’s 2015, 2016?
Yes. Yeah,
Jörg: very good, but also question, but also very obvious answer because it was just very profitable to run that in that operation, when everyone has a very high price and has also high costs, but still has a very positive margin. Why should anyone in that club start to change? Every Swiss retail bank is profitable.
Mike: But in terms of, if it’s a very capitalist country, you’d think people are always on the lookout for opportunity, is it because it doesn’t have a huge startup culture in the fintech scene?
Jörg: Maybe. And maybe one note first I accidentally said and then falsely said we are a bank. We are not a bank.
It’s important to know, but maybe Being a startup and start to challenge the other [00:12:00] banks is bold, maybe, I don’t know. It’s not that you start, Hey, I have my very innovative AI solution. Nobody else has in that market. But it’s rather really competing with the incumbents. It’s more it’s really tough competition, maybe in terms of size, of course, but and maybe for startups, it’s easier to.
to go into the, to in a market that is growing or in, or is maybe evolving or new, but banking is very traditional market. Of course, there’s no growth in the market in coming out of the market in terms of they see that we have 7 million next year, we have 8 million clients in the Swiss market.
That’s not correct. So maybe that’s why people didn’t start earlier than we did. Nevertheless, there were some initiatives. Which are involved in different directions, in a way, I would say, in the beginning.
Mike: Would it also be that the way Switzerland [00:13:00] is set up, in terms of regulation, difficult to do it’s Yes, yeah,
Jörg: of course. When you start N26, for instance, they started in Germany, but With the passporting within the European community, more or less, they could go into other markets, which is of course, at least from the investor perspective, very attractive. Switzerland is of course not part of the European community.
You cannot do the passporting, at least the theory. And it’s a different currency, three or four languages you should support. And of course the size is when you just look from an investor’s perspective, The pure size in terms of people living in Switzerland is comparable to the greater London area, but those people in Switzerland are very wealthy, they enjoy banking, so it, we saw some also advantages by focusing on this rather smaller market, but we have [00:14:00] some barriers from outside that people, or that other banks from Germany or UK could not To passport into Switzerland, so that was a limitation for competition, which we somehow benefit from.
Nevertheless with the recent news of Finmar, I’m not sure if this. Going to, or if these barriers are going to be lowered over the next, let’s say years.
Mike: Going back to when you were, first had the idea of NEON, how much of a product did you develop before taking this to investors?
Jörg: We had nothing in the beginning as the product, just the idea, the market analysis We needed to have partners. Our partner for the, on the banking side, it’s Hubert de Carvalhensburg, HPL. And based on their intention to set us [00:15:00] up and based on our ideas, we started with a funding for us, or for me, at least was the most critical and risky thing for the reasons we, we just mentioned.
Because you need some VC money to, to start that. And. Giving the size of the market and the limitation to expand that was the biggest challenge for us. And as a result, we always, or we ended up by a nice and strong investor base, but all of them are from Switzerland. So we never managed to get any significant European We see in our cap table,
Mike: and my understanding is your strategy is to stick within Switzerland, right?
This is something that’s, when you have different levers to pull in terms of the direction you go, why, when you’ve got competitors such, like you said, Revolut, to have a more of a global impact. Why the decision to stay within Switzerland?
Jörg: I [00:16:00] think that’s least, could regret it from two perspectives.
One perspective is, I think it’s. We are successful in the market because really focus on it. For instance, this may that the banking product in Switzerland is still national. You have e bill, you have certain payment formats. You have your pillar three, eight solutions. People outside Switzerland probably don’t even know that this exists.
So there is one thing on the product level that’s really. Country specific. We support also the language when you open the Neon app and your language is set to German. I think it’s sometimes that you even have some Swiss German greetings in the app. So it’s a little bit also from let’s say language and culture.
Our service is in the market and also all the data stays in the market. In Switzerland, which is and it’s protected by, let’s say, the Swiss banks. And so there is some aspect of why it’s nice [00:17:00] to be in the market from the other perspective, I think, in other markets, as I said, in the beginning, competition is already advanced.
So we would. Not have the same impact if we would start now in another country in Somewhere in Europe because I think there is always already a better or a better offer and hence competition is A little bit more advanced and it would be more difficult for us. So we will stay in Switzerland for sure
Mike: In terms of competition, it seems like over the last I’ve been living in Zurich now for four years, and it seems since then, more every year, a new traditional bank is now releasing their own digital arm in competition, to NEON.
How have you seen the landscape change over the last few years?
Jörg: It was interesting from our perspective when we [00:18:00] started, we were in the very beginning, more or less to our knowledge, the first, then there was another initiative from a incumbent bank Chuck, which was, I think they had in the very first year, smaller lines than we had.
It was a different offer, digital only. They claim to have an attractive pricing, which was actually not the case. And That was the appeal in, in, I would say 2020. I think we managed to be successful in that space. And then CSX kicked in, which was maybe less successful. I would say they claim to have after a couple of months, a hundred thousand clients, but those clients were not new clients.
They just migrated some of their existing base to that solution. And then the biggest change I think was you. You is a been off funded by PostFinance and [00:19:00] SwissQuote and they made, they started a little bit differently compared to, to, to our development. They focused in the beginning on trading brokerage, a lot of cryptos because also because of their strong connection to SwissQuote.
And based on that, they started to develop their offering and also provided banking services and simple service like Apple Pay, stuff like this. Right now, Neon and you are probably the two strongest Swiss challengers in the banking scene. While CSX and the others I mentioned are probably not relevant anymore.
In the retail banking,
Mike: I struggled a bit to understand the economics of a bigger bank releasing a digital arm and being competitive because I guess comes across as low to no fees for the end user. [00:20:00] And to be profitable, I guess with something I would imagine demands you to be an incredibly lean organization.
Jörg: Yes. That perspective is correct. Nevertheless, banks also earn at least in, in the current environment just with the deposits of the clients. So you have two aspects of the banking industry and it’s the product. How do you generate revenue? How lean are your operations? We have currently 58 FTEs, which is already quite big for us, but compared to our 230, 000 clients, it’s still, I think, a very competitive ratio, but as the bank, as I mentioned, that is one, let’s say dimension.
How lean are you? How much is your profit contribution? Into it into your p& l the other aspect is how much Could you generate with the deposits of your clients? Of course people or banks pay a low [00:21:00] Interest back to their clients, but they have also here a positive margin. So that is something that is well that Was or is more important since the since the banks or the and the other central banks started to change their interest.
Rates, I think end of 2022 banks also due to the inflation or the central banks increase the interest rate, hence banks profit now from the deposit. That’s a very important factor when you look on profitability on banks.
Mike: Does this make it difficult then, if one of the main ways to generate revenue is to manage money and ultimately the, your customers are individuals? Individuals. Would you say that your customers are the people, relative to the big banks, the people without millions and millions of money to manage?
Jörg: We, our customer base is average [00:22:00] age 39, 60 percent male, 40 percent female in all regions of Switzerland current deposits of Neon, or of our clients are 1.
2 billion. 1. 2 billion is of course a very huge number. If you compare it with a Swiss bank of that size, there is still some potential that people transfer more money to, to the Neon account. It’s also because we are in the market now for five years. So average client age is less than two years in terms of client age in terms of how long has they been with the Neon.
So there is a lot of potential. Okay. Of course we do not target the very rich people. It’s really just more or less average. people, every population we have as our client space.
Mike: I read that although digital banking is becoming more mainstream, those aged 18 to [00:23:00] 29 still prefer to consider opening an account with their traditional bank, which really surprised me.
Why do you think that is?
Jörg: Honestly yes, these news popped up that there is now the movement of in the, from my perspective, younger generation to. Or there’s a share that is a little bit focusing more on the non digital world right now. I like the idea because of course digital consumption is sometimes even for the younger generation, maybe too dominant.
And so it’s good to see that movement. But in figures the age of 25 to 34 is the largest group on our, in our client segment. They are the most active clients. So I think it’s both, there might be some percentage of people who want to have no offline banking [00:24:00] and then traditional banking and then going into a branch and sign a contract based on paper, while still the majority is more seeking for digital solutions.
It was never the aspiration or the, our assumption that a hundred percent of the population would would open a digital account.
Mike: Did you see any changes or impact due to the collapse of Credit Suisse in the industry?
Jörg: There were two, three larger let’s say events in the last years, one was Corona and maybe now they changed from negative to positive interest rate. On the CSX side, we saw only a very short term impact because it was very prominent in the media and also social media. People started to complain why CSX is not going to stay.
And some in the social media I moved my account to Neon because it’s a nice bank and, [00:25:00] but it was of course for us a big surprise and we didn’t react immediately in our marketing or only did a very small campaign. So on that side, we didn’t see too much impact. Corona was not a big impact, neither the share of online and e commerce payment was already very high in our client base.
And on the negative interest rate to positive interest rate, it was a was a big impact in terms of after we agreed with our partner bank to have a positive interest rate, you saw a massive income or inflow of new deposits.
Mike: That’s it for part one. Part two will be out soon, so keep an eye out for that. If you follow or subscribe to the show on your preferred player, you will be notified when that episode is out. Plus, it really helps me grow the show. And also don’t forget to check out the new website, how it Ticks ch, where you will [00:26:00] find episode details, links, transcripts, and a place to share your feedback.
I would love to hear from you. See you in part two.
