A woman walks through Bank of Ireland ATMs in Dublin city center.
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DUBLIN – The complexion of the Irish bank has changed dramatically.
In just a few weeks, Ulster Bank, owned by NatWest, announced that it was going out of business as KBC Ireland began talks to sell its loan portfolio and make the exit.
These measures could eventually leave only three banks in the Irish market – the two main players of Bank of Ireland and AIB, and Permanent TSB – sounding the alarm on the state of banking competition in the country.
All the while, fintechs (financial technology) that have successfully secured venture capital funding, like Revolut and N26, have accelerated in the market. Revolut has around 1.3 million users in Ireland, while N26 has around 200,000 users.
Adrienne Gormley, COO of N26 in Germany, which itself is a fully regulated bank, is aware of the drastically changed market.
“Firstly, we see this as an opportunity. While Ulster Bank news has probably been on the cards for quite some time, I think people were surprised by KBC’s announcement,” she said. told CNBC.
This may present opportunities, but it also raises the question: What are the challenges and problems so prevalent in the Irish market that two big banks would wash their hands of it and leave?
“While we are evaluating what is going on and why others are leaving, we should always look at our customers with very clear eyes and focus on the needs of the customers in the market. Obviously we have to look and see well, why the others Is it because they have to hold too much capital? “
The emergence and popularity of digital banking has played an important role in changing this landscape. Earlier this year, the Bank of Ireland announced plans to close 103 branches in the country. CEO Francesca McDonagh said the move to online services was a major driver of the move.
Digital banking and the arrival of fintech competitors have changed the dynamics of the Irish banking market, but serious questions persist about the state of competition and what it means for consumers.
Fintech operators, or neo-banks, have taken over from instant payments and have left many incumbents attempting to reclaim market share.
A consortium of Irish banks – AIB, Bank of Ireland, Permanent TSB and KBC for the time being at least – is trying to win back some of that customer base with its own app.
Tentatively titled Synch, the application would allow instant payments between the accounts of each of the banks.
The banks involved have been quiet about the project, but Michael Dowling, a finance professor at Dublin City University, told CNBC the prospect raises warnings about competition.
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 for banks in Europe to make instant payments.
The banks’ Synch proposal is currently subject to oversight by Ireland’s Competition and Consumer Protection Commission. A first deposit by the banks was rejected by the regulator due to a lack of details. A second deposit was made shortly after.
The Banking & Payments Federation Ireland, an industry group that coordinates synchronization efforts with banks, declined to comment, citing the CCPC process.
The future of competition
Instant payments may be something fintech companies have come to grips with, but question marks continue to hang over the future of long-term loans and mortgages in the country.
N26 turned to lending in other markets, but did not bring these services to Ireland.
“We are a fully licensed bank so it is of course interesting for us to understand what a suite of products could be that could work in this space in the Irish market,” said Gormley.
“Obviously, with the news from Ulster Bank and KBC and the very radical change in the Irish banking industry, we need to think about how and what we would deliver to the Irish market.”
Dowling said the prospects for competition in the Irish banking sector appear bleak with the number of banks declining – however Starling Bank, another newcomer to the fintech scene, has long been promising to enter the market and is continuing its banking license. with the Central Bank of Ireland.
“I don’t think there is a real possibility that another bank will appear,” Dowling said, adding that other European banks are unlikely to be attracted to the market.
He added that regulation is needed to prevent monopoly behavior among the remaining banks.
“This is long term borrowing where we are stuck, there is no competition. There are three banks and that is really it. This is where the regulation has to step in and think creatively. to how we solve this problem, ”he said.
“This is the change we need because there will be no external savior to come. Maybe some of the fintech firms could grow in due course, but what we really need is forced competition.