The way fintech start-ups Revolut, N26, Bunq and others have crept up on the traditional banking sector is eerily similar to the manner in which technology caused upheaval across sectors from publishing to shopping and music to movies.
When new technology is launched it is often slow to gain traction and is viewed with scepticism – and sometimes dismissed as a fad – by traditional players in the market.
But then the start-up grows its market share, particularly among younger audiences who are less in thrall to the way things have always been done. A tipping point is reached and the new technology starts to compete with – and sometimes threaten – those it has joined in the market square.
Revolut may have reached that tipping point with its announcement that it will soon be offering customers Irish Ibans – one of the main stumbling blocks to it becoming a viable alternative to a traditional bank account.
The traditional banks would do well to fear the challenge presented by the fintech, as well as others competing for business in the arena. It is not every technology or every product that becomes a verb in its own right and manages to do so with the speed of Revolut. The company is said to have in the region of two million Irish customers.
The speed with which people can Revolut money to contacts has been central to its popularity. Transferring money from one mainstream bank to another can be tortuous and can take a day or even longer at the weekend. With Revolut, however, the process is virtually instant. And all that is required is the person’s phone number.
Speed and ease of transfer is not, however, the only way fintechs are eating the traditional banks’ lunches.
The apps are more user-friendly than the technology offered by the State’s banks and give people more control over their money. It also has smart functions that allow parents to give children money in a secure fashion while giving them oversight as to how that money is spent.
In short the fintechs perform as we expect all technology to perform in 2023. Ease of use is why Revolut has gained market share faster in this country than anywhere else in Europe with the incumbent banks’ lack of innovation and old-fashioned systems found wanting on many levels.
One of the reasons Irish banks have been slow to respond to the challenge is complacency borne out of experience and the knowledge that, for generations, Irish people have been slow to change their banking habits, no matter how shabbily they are treated.
More than a decade ago the systems of Ulster Bank’s parent, the Royal Bank of Scotland, crashed and took down much of its infrastructure. For weeks Ulster Bank customers experienced problems. Many predicted those customers would leave in their hundreds of thousands as a result. That did not happen and few people punished the bank for its failings by switching to competitors.
Fast forward to today and switching remains moribund. Less than 1 per cent of Irish bank account holders switch their current accounts in any given year. That is – largely – because it is viewed as too much hassle.
Now that Revolut can offer its customers Irish Iban numbers, the hassle factor will be lessened and it will become much easier for its customers to have their salaries paid directly into a Revolut account. Setting up direct debits to pay utility and other bills should also be easier.
“Technically speaking, they should have been able to do this without an Irish Iban – unique account identifiers under the Single European Payments Directive [Sepa]. However, many Irish employers never got around to upgrading their IT systems which meant the Lithuanian Iban used by Revolut before Monday’s announcement often wouldn’t work,” says Mark Coan of financial advisers Money Sherpa.
[ Revolut to give customers Irish IbansOpens in new window ]
[ The return to normality: Your Revolut habits for 2022 revealedOpens in new window ]
Revolut is not, however, the only fintech player. Overseas digital banks such as German based N26 and the Dutch based Bunq have also entered the market, with Bunq issuing Irish Ibans late last year.
“These digital or ‘neo’ banks, offer lower charges, slicker interfaces and a bevy of features like share trading, crypto trading, junior accounts and saving vaults, that aren’t available from the traditional banks,” Coan notes.
With more salaries set to land in fintech accounts in the months ahead, balances will climb quickly and allow the neo banks to add profitable lending services such as consumer loans or mortgages.
The Central Bank will serve as the gatekeeper and will probably stop a free-for-all but the traditional banks will need to up their game or risk becoming marginalised.
They have responded with a plan for a mobile-based payments system to be known as the Synch platform. It is a joint venture by AIB, Bank of Ireland and Permanent TSB – the first since the roll out of Laser cards more than 20 years ago – and it will facilitate instantaneous person-to-person transfers as well as many of the features already offered by the fintech operators.
It has, however, been in the pipeline for almost three years and Irish consumers have yet to get a sense of how it will operate. In fintech terms, the pace of change has been glacial. Only time will tell if the banks here have left their big moves too late.
