A woman walks past a Bank Of Ireland ATM in downtown Dublin.
NurPhoto | NurPhoto | Getty Images
DUBLIN – The composition of Irish banking has changed drastically.
In just a few weeks, Ulster Bank owned by NatWest announced that while he was suspending work KBC Ireland has begun negotiations to sell the loan book and make an exit.
The moves could ultimately leave only three banks in the Irish market – the two main players in the Bank of Ireland and the AIB and the Permanent TSB – ringing the alarm over the state of banking competition in the country.
All this time fintech (financial technology) started with incentive financing of venture capital, such as Revolut and N26, accelerating the market. Revolut boasts about 1.3 million users in Ireland, while N26 has about 200,000 users.
Adrienne Gormley, CEO of Germany’s N26, which is itself a fully regulated bank, is aware of the drastically changed market.
“First of all, we look at it as an opportunity. Although the news about Ulster Bank has probably been on the charts for some time, I think people were surprised by KBC’s announcement,” she told CNBC.
It may present opportunities, but the question also arises as to what challenges and problems are so present in the Irish market that two big banks would wash it up and leave?
“While assessing what’s going on and why others are leaving, we still need to look at our customers with very clear eyes and focus on what customers need in the market. Obviously we need to take a good look and see, why are others leaving? Is it because they have to have too much capital? “
The emergence and popularity of digital banking have played a significant role in changing this landscape. Earlier this year, the Bank of Ireland announced plans to close 103 branches in the country, and CEO Francesca McDonagh said the move to online services was a major driver of the decision.
Digital banking and the advent of fintech rivals have changed the dynamics of the Irish banking market, but serious questions linger about the state of competition and what it means for consumers.
Fintech operators, or non-banks, have taken the baton in current payments and left most of the existing ones to try to regain market share.
A consortium of Irish banks – AIB, Bank of Ireland, Permanent TSB and at least KBC for now – is trying to regain part of that customer base with its own application.
Indicatively called Synch, the application would allow instant payments between accounts in each of the banks.
The banks involved are closely linked to the project, but Michael Dowling, a finance professor at the University of Dublin, told CNBC that the possibility is triggering some competition warnings.
Dowling said the Synch app looks like a closed store where banks “want to set up a system where they can basically exclude” others from this payment network.
He added that mechanisms like SEPA Instant already exist so that banks in Europe can make instant payments.
The banks’ proposal for Synch is currently meeting with the Irish supervisory authority, the Commission for Competition and Consumer Protection. The original bank applications were refused the regulator due to lack of detail. Shortly afterwards, a second submission was filed.
The Federation of Banking and Payments Ireland, an industry group coordinating synchronization efforts with banks, declined to comment, citing the CCPC process.
Instant payments may be one thing that fintech companies have cornered, but question marks still hover over the future of long-term loans and mortgages in the country.
N26 deviated from lending in other markets, but did not bring those services to Ireland.
“We are a fully licensed bank so it is of course interesting to us to understand what could be a package of products that could work in this area in the Irish market,” Gormley said.
“Obviously with the news from Ulster Bank and KBC and the very dramatic change in Irish banking, we need to consider how and what we could offer for the Irish market.”
Dowling said the outlook for competition in the Irish banking sector looks bleak due to a shrinking number of banks – however Starling Bank, another relatively newcomer to the fintech scene, has long promised to enter the market and follow a banking license from the Central Bank. Bank of Ireland.
“I don’t think there’s a real possibility that some other bank will just pop up,” Dowling said, adding that other European banks are unlikely to attract the market.
He added that regulation is needed to prevent monopolistic behavior among the remaining banks.
“It’s that long-term borrowing where we’re stuck, there’s no competition. There are three banks and that’s really it. That’s the part where regulation has to go in and think creatively about how we’re going to solve that problem,” he said.
“It’s a change we need because there won’t be some outside savior. Maybe some fintech companies will evolve over time, but really what we need is increased competition.”