Martin Huldi, CEO
Conrad Auerbach, CFO (right)
INTERVIEW WITH CEO/CFO
We want to keep up the fast pace of growth.
The Aduno Group can once again report an excellent result for 2016: what were the reasons for this good business performance?
Martin Huldi: The operating result of CHF 137 million is indeed a very good result for the Aduno Group, particularly if we remember that this challenging year for currencies and interest rates was also dominated by rapid developments in technology. The Payment business in particular posted an excellent performance, growing almost seven per cent in Issuing and over five per cent in Acquiring. Such growth figures are not often seen.
Conrad Auerbach: Two factors determined our success. Firstly, and this cannot be denied, we benefited from a certain base effect. 2015 was a year of weaker growth, burdened by the scrapping of the fixed euro-franc exchange rate. And secondly, the growth was mostly due to the strong increase in card sales, and a higher number of issued cards automatically translates into a higher turnover. Also, the trend of using cards instead of cash is ongoing.
How did the market environment change in 2016?
Huldi: The Payment business benefited from the stable economy in Switzerland and good consumer sentiment. This is seen in Issuing, where domestic volumes increased much more than foreign volumes. The food and beverages and entertainment sectors in particular did well. The growth for contactless payment is impressive. By now, 24 per cent of our customers’ POS payments are contactless.
Auerbach: The picture is different for Consumer Finance. The prescribed reduction in the maximum interest rate in the middle of 2016 really rattled the market. At the beginning of the year, other providers started using aggressive pricing tactics to force volume growth, which put pressure on the market. This calmed somewhat in the second half of the year, but prices still dropped substantially.
The increase in the operating profitability is very noticeable. What contributed to this growth?
Auerbach: The operating profitability of the Aduno Group has been around this range for many years, but prices and margins are trending downwards. The maximum interest rate for the personal credit business was reduced in mid-2016 and the interchange fee also dropped dramatically. After the first reduction in 2015 to 0.7 per cent, the fee will be reduced further to an average of 0.44 per cent in mid-2017. So far we managed to compensate the interchange fee reduction – for a part – with higher volumes. But profits will be affected if volumes should stagnate or decline in future.
Are there no other options for compensating the lower interchange fee?
Auerbach: We are working on our efficiency, of course, and we have also implemented other measures to support our margins, such as increasing some of our fees. We are also benefiting from the low interest rates. The environment is positive for refinancing transactions, on which we are strongly dependent.
Huldi: Our customers are probably willing to accept the fact that some fees are higher because we did not just increase the prices, but also substantially expanded the services for credit cards. Extended warranty periods for products bought with the credit card, improved medical assistance and travel insurance cover – all these services bring added value for customers.
In contrast to previous years, the volume growth for the Payment business was mostly generated in Switzerland. Are the Swiss doing more of their shopping locally again?
Auerbach: Yes, compared to 2015, people are spending more of their money in Switzerland again. This is reflected in the figures for our Issuing business. The Swiss also prefer spending their holidays locally, which could be related to the political uncertainties.
Huldi: In Acquiring we can see that more foreigners are coming to Switzerland again. The strong franc was a serious hurdle in 2015, but the situation eased in 2016.
Digital Payment Services were expanded further in 2016. What were the priorities?
Huldi: These days, everybody is talking about digitisation. The Aduno Group shifted its focus to digitisation many years ago and constantly made the required investments. For example, our customers can now use Viseca Masterpass, a leading international solution for internet payments. Viseca Masterpass is a digital wallet that can be used to make payments easily and securely, everywhere in the world. We expect strong growth for this segment in the coming years, as the credit card is predestined for such distance transactions.
The VisecaOne app is a success story, as this is the most downloaded iOS and Android app in its category. Why do customers love this app so much?
Huldi: VisecaOne is really a huge success. More than 500,000 customers have downloaded and are actively using this free app. Together with Viseca Masterpass, they benefit from a simple but very secure authentication process for internet payments. With the app they can call up all transactions on their smartphone in real time. They can check their invoices and receive a push message for every transaction. With this, we are offering our customers an innovative and forward-looking service.
What were the other highlights for the Payment business?
Huldi: Contovista, a company in which we bought a stake in 2016, offers our partner banks a first-class personal financial management solution. With this product, customers have an overview of all their credit card transactions in their protected e-banking portal. Three banks have already integrated this service into their e-banking environment, and another twelve will do so shortly.
Auerbach: This solution benefits not only the customers, but also the banks. Our partner banks have understood that a banking relationship is incomplete without a credit card. The full picture is only given if the credit card transactions are linked to the customer’s account.
The guarantee deposit business is a relatively new field of business for the Aduno Group. How has this business developed?
Auerbach: We have strengthened this business by buying another company, SmartCaution in Geneva. We have integrated all processes, strengthened the organisational structures that were introduced at the end of 2015 and invested in market development by talking to our partner banks and entering into cooperation agreements with real estate companies. The result is not yet what we want it to be, but we are convinced of the potential of this field of business.
Huldi: A rental deposit guarantee is attractive for customers, as it protects their liquidity. They do not have to block one to three months’ rent, but can use this money for other things. This option is very popular in French-speaking Switzerland, where a guarantee deposit is taken out for every second rental apartment. It will take some time for this practice to establish itself in German-speaking Switzerland.
How satisfied are you with the personal credit business?
Huldi: The personal credit business has become even more challenging in the wake of the reduction of the maximum interest rate. Falling margins are increasing the competition for market shares. Against this backdrop, cashgate did very well: portfolio development is good, and we are growing more strongly than the market and quite profitably, too.
Auerbach: We are, however, benefiting from low interest charges. If we wish to cope with higher interest rates in future, we will have to implement additional measures to cut our costs. This will be the focus for the next two to three years.
Huldi: It was a smart move to introduce an attractive interest rate of 4.9 per cent for owners of real estate, who represent a really small risk. This gives cashgate a three-level interest rate model, together with the interest rates of 7.9 and 9.9 per cent. This ensures an equilibrium between the different risk categories and helps to maintain margins.
cashgate’s own channels – branches, direct and online business – posted a solid to good performance, while the third-party channels did not do quite so well. Why?
Auerbach: This is because other providers mainly fought their battles for market shares via the intermediary channel. This channel can be influenced in the short term, but only by offering higher commission and accepting more risk. This volume growth is expensive, and we did not wish to take part in this battle.
Huldi: In addition to our own channels the bank channel is also attractive, both with regard to customer quality and commission. While the banks are the most important and strongest sales channel for credit cards, they are still holding back from the personal credit business.
Auerbach: In Switzerland, a personal credit still has a difficult image. It is easy to understand that we do not like this, but we, together with the entire industry, first have to make sure that this image changes. Because the product is better than its reputation.
The leasing business is even more challenging, with new volumes declining further in 2016. Is this business still enjoyable?
Huldi: Yes, we had to accept a decline in new volumes compared to the previous year. The problem is that cashgate’s approach differs very much from most of its competitors: cashgate runs the business to earn money with the leasing rates. The car manufacturers’ leasing companies have instructions to boost sales with aggressive offers.
Auerbach: Yes, in spite of the difficulties it is still enjoyable. Even with low interest rates, the leasing business offers solid returns for a low risk. This provides a good balance to the personal credit business where the returns as well as the risks are higher. And finally, the leasing business brings us closer to other companies, as almost half of our customers are corporates. This is an important market for the Aduno Group.
What are the priorities for the Aduno Group in this year?
Huldi: First, we want to keep up the fast pace of growth. Cashless payment is becoming ever more attractive, and the Aduno Group does not want to miss out on this. We are in an excellent position and ready for digitisation, and we have to cement this position. For example, we will make VisecaOne even more customer-friendly by integrating the surprize rewards programme into the same platform.
Auerbach: We will continue to keep a close eye on developments regarding digital payment. Our strategy of focusing on several roads with different products is certainly the right one, as it is not currently possible to judge which solutions will survive. The interesting thing is that new digital payment solutions come on the market almost every month. We must be agile enough to anticipate these.
And the financial priorities?
Auerbach: In a market environment such as this one we have to focus on operating efficiency. Workforce growth will slow down substantially in 2017.
Huldi: We will nevertheless invest the same amount of more than CHF 30 million as in the previous year. This money will be used for innovations and strategic projects that will make life easier for our customers by offering added value.