Whither the neobanks? Revolut and N26 are two of the most high profile online banks, and just a few years ago seemed poised to take over from the staid, struggling legacy Irish groups such as Bank of Ireland and AIB. Now that picture of the bloated old firms being overtaken by sharp, tech savvy challengers, is a bit less straightforward.
The business case for the neobanks has been clear for some time: Revolut, N26 and others are new companies, unencumbered by the weight of bad loans and delinquent borrowers that hammered the older banks during the financial crash of 15 years ago. Relying on the web, these companies could facilitate day-to-day banking, especially for tech-savvy younger people. They do not have any branches – another cost saving compared to big banks. As the neobanks are more or less brand new, their technology is bang up to date. They aren’t relying on ancient systems, as some big banks are reputed to have done until recently, which can fail easily.
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But things appear to have changed. The big banks are revelling in higher interest rates at last and throwing off cash for investors – Bank of Ireland on Tuesday said it will hand out €350 million to shareholders this year. Not coincidentally, its shares are up a fifth this year and hit a 52-week high on Tuesday. AIB followed suit on Wednesday, saying it plans to increase investor distributions this year to €381 million.
Meanwhile Revolut and N26 are mired in problems. Revolut’s auditor said this month it was unable to satisfy itself on the “completeness and occurrence” of almost three-quarters of its revenue for 2021. One investor has reportedly cut its valuation of the company. Closer to home it’s grappling with increased phishing scams like most lenders. Germany’s N26 has lost three top executives in a year and is scrambling to strengthen anti-money laundering controls demanded by regulators. On Tuesday it emerged that a number of N26 executives had warned management of dysfunction and a “culture of fear” within the business.
The neobanks – Revolut in particular – are already a big part of the financial landscape and that’s unlikely to change. But their apparent inevitable march to dominance is not as clear cut as it once appeared.
