Can Revolut bring true competition to Irish banking?
Revolut chief executive Nik Storonsky has pledged to offer mortgages to Irish customers, describing home loans that are '100% digital', that would be financed by the bank themselves rather than through an intermediary. Picture: Luke MacGregor/Bloomberg
From humble beginnings as a simple, exchange rate-friendly travel card, few could foresee the upward trajectory on which Revolut would venture.
Boasting an Irish customer base of more than 2.2 million in just eight years, the speed of its growth in both a domestic and international context dwarfs the success of its closest neo rivals, and in recent months, has instilled hope of a real, viable alternative to the limited choice offered by Ireland’s two-and-a-half banks.
Before becoming a journalist, I worked for a summer in the financial consulting division of one of the big four accounting firms, during which I was asked to identify sectors that, due to their business model, found success in spite of the unprecedented headwinds of the pandemic era.
Choosing the growing fintech industry at the time felt like a no-brainer — their user-friendly interfaces were a welcome change from their traditional counterparts, which mattered more than ever when forced by circumstances to bank online.
Not only that, Revolut’s global market ensured it did not rely on one region, making it more diversified and stable than its traditional competitors.
Furthermore, the app’s targeting of different demographics through niche packages, particularly for younger customers, far exceeded the product offerings of Irish banks.
I touched on Revolut’s ambitious plans for the future, namely, the app’s migration to Irish IBANs, its move to have salaries deposited directly into customer accounts, the choice to take out personal loans and its planned expansion into the credit market — all of which have since become a reality.
At the time, it felt like the natural next step was to start taking the fintech sector seriously and thoroughly consider the impact of global competitors on Irish banks, the same banks that comprise the client list of the very firm I worked for. I was laughed out of the meeting.
It was made abundantly clear that day that banks like Revolut were not given serious consideration — that their growing popularity was simply a phase and it would be wrong to believe that after “all the work” and “years of innovation” implemented by Irish banks that customers would really migrate elsewhere. Old attitudes die hard.
Fast forward to 2023, the withdrawal of major players has seen a dramatic concentration in the banking market, with recently released half-year results showing just how much Ireland’s legacy banks have benefitted from KBC’s and Ulster Bank’s departure.
In the past six months, Bank of Ireland acquired €8bn in mortgage loans from KBC, while AIB and Permanent TSB carved out the Ulster Bank mortgage and commercial loan books between them.
In addition, new mortgages for AIB have also surged as a result of growing concentration, with the bank’s share of new mortgage loans now rising to more than 30%. In total, 185,000 new AIB accounts were opened in the first six months of this year, with the bank’s overall market share of account openings at 49%.
Bank of Ireland’s deposits rose to €102bn from €99bn in the same period, reflecting the KBC accounts that it acquired, bringing the total number of new customers to around 150,000 in the first half of this year.
Similarly, Permanent TSB, the sector’s smallest lender, watched its share of the new mortgage market grow to more than 23% at the end of June from a share of just 16.3% a year earlier, following its acquisition of 88,000 new customers from Ulster Bank and 25 of its branches.
The collapse in banking competition, aided by the European Central Bank’s aggressive interest rate campaign, has transformed the riches of Ireland’s banks.
Just this week, AIB posted an operating profit of more than €1.2bn for the first six months of 2023, exceeding its total of €1.08bn for all of last year. Similarly, Bank of Ireland posted an operating profit of €1bn at the end of June from €351m in the same period last year.
Fortunes like these are only achieved at the expense of someone or another, and it comes as no surprise that banks are at the same time, increasing rates for consumers, offering low rates to depositors, and implementing cost-cutting strategies impacting their own employees.
Just this week, the Financial Services Union, which represents Ireland’s tech, banking and financial sector, was in front of the Workplace Relations Commission with AIB as part of pay disputes, with the FSU calling on the bank on foot of bumper profits to agree on a pay rise to help employees with ongoing inflation.
Not only that, but Ireland was also recently found by Standard & Poor to have the worst transmission of deposit rates to customers out of the entire eurozone and UK, with Irish savers receiving just 7% of ECB rate increases. Meanwhile, mortgage interest repayments have soared by more than 46% in the last 12 months. An alternative is needed now more than ever.
In the last few years, Revolut’s ever-expanding service offering has reduced the need to bank elsewhere. With 2.2 million customers, which is not dissimilar from the customer base of Ireland’s legacy banks, Revolut knows the aim of the game is not to focus on further customer growth but to expand the usage and engagement of existing customers through additional services.
As part of this strategy, Revolut has signalled an expansion into Ireland’s mortgage market, a pivot that its own chief executive, Nik Storonsky, has pledged to offer, describing home loans that are “100% digital,” that would be financed by the bank themselves rather than through an intermediary.
Hence, in just a few years, Ireland could have a global bank offering everything from home loans, loans for small businesses, instant transfers, cash-back shopping, junior banking, stock trading, insurance and more, serving as a reminder to Ireland’s banks that the sector is not immune to international competitors.
It seems the message is slowly kicking in, which has led to a collective effort by Ireland’s legacy banks to prevent the threat of outsider competition.
In 2020, AIB, Bank of Ireland, Permanent TSB and KBC introduced Synch, a mobile payments app that would allow consumers to send money immediately to friends and family, as well as allow customers to complete retail and e-commerce transactions.
The goal of the app was to create an industry-wide banking payments platform to rival Revolut’s growing presence. However, sources within Revolut said they were not concerned by Synch.
Three years later and after multiple delays, customers are still without an official launch date, with a crackdown from the Competition and Consumer Protection Commission also ruling that the app could not exclude Revolut customers from using it, thus ruling it out as a legitimate rival.
Furthermore, legislation is already in place requiring all banks in the eurozone to implement instant payments by 2025, meaning Bank of Ireland, AIB and Permanent TSB will be soon required by law to introduce exactly what Synch is offering anyway.
Further competition is needed in Ireland’s banking sector. An industry that has for so long been dominated by the same players lacks innovation and in pursuit of profits, has neglected an imprisoned customer base with nowhere else to go.
One international player cannot fix Ireland’s entire banking sector. The past few years have shown the growing need for State intervention in the market, along with alternative lenders like credit unions, but at long last, it seems Revolut will give Ireland’s banks the kick they need to refocus their priorities.
