Pillar banks battle to keep current as online rivals play their cards
AIB has backed brave, while Bank of Ireland has sought to tug on the heartstrings of families. Permanent TSB has urged its customers to “keep going” and KBC is battling to ensure that everyone knows how easy it is to join them.
Banks have forever invested in ad campaigns. You can almost track the economic performance of the country through the tone of their marketing.
These days, if you sit on a Luas or a bus you’ll be struck by a raft of new adverts from new banks. Walk onto college campuses and you’ll find bankers that don’t look like bankers.
These ads and ambassadors tout the benefits of some of the world’s most recognisable digital banks, German fintech giant N26 and London-based disruptor Revolut. No fees, instant transfers, and some really pleasant user interfaces.
You can see why they’re already proving to be a hit here. Revolut claims to have more than 200,000 customers in Ireland, while N26 has more than two million across Europe, although the German bank has been coy on giving country-by-country breakdowns.
Efforts by the fintechs to take on the country’s pillar banks have been going on for years – in the late noughties Dublin-based money-transfer company CurrencyFair tried to take a piece of the banks’ financial pie.
“The original theory when we started was that startups were going to come and do one thing very well, for example we did foreign exchange much cheaper,” CurrencyFair founder Brett Meyer told the Sunday Independent.
“We’ve created a great benefit to some people but there are still plenty of people paying too much for transactions from banks. Margins have come down on the bank side, but they haven’t tried to get anywhere nearly as cheap as what we do. That theory that banks were going to be carved up product by product never really happened.”
Meyer, who has stepped away from the day-to-day running of CurrencyFair, built a business that has exchanged over €8bn. These days challenger banks such as Revolut and N26 are more interested in the current account market – for now at least. Both offer no monthly fees, which compares favourably to much of Ireland’s existing banks. They also offer no foreign exchange fees and don’t charge for contactless transactions.
The business model certainly seems akin to those of many tech giants which have focused heavily on getting as many users or customers in as possible. Both banks tout a “premium” subscription-based service, which offers add-ons like travel insurance.
“These challenger banks come out and in some cases do one thing for free but then they add other features, so it’s almost like they rebuilt a bank around it, which I find fascinating,” Meyer said.
“There are still question marks around the long-term viability of these challenger banks, I’m sure it’s not true of all of them. Getting customers at any cost means delivering services at below cost.”
The CurrencyFair founder, who now works as an adviser with numerous fintechs, said that in “pretty much every other area” outside of current accounts, banks collaborate with their younger peers. He also cited legacy technology as a tricky hurdle for banks to overcome.
Last month, the Sunday Independent reported that Revolut was to bring a physical presence to Ireland. Revolut said that it would also begin offering personal loans of up to €15,000 at the lowest interest rates in the market. In the past Revolut has been viewed as a “digital purse” product that goes hand-in-hand with a separate account from a pillar bank, but the company plans to change that. In December, it secured a European banking licence, allowing it to offer a much broader suite of products.
But it is not the only one that aims to put boots on the ground in Ireland.
Starling Bank, the London-based fintech, raised £75m last month to fund its own expansion. Part of that development includes a base in Dublin.
As well as current accounts, Starling also offers business accounts, joint accounts, as well as the typically intuitive user experience associated with digital banks. It was also founded by Anne Boden, the former chief operations officer of AIB.
Alex Frean, Starling’s corporate affairs chief, said that it was still in the process of applying for a banking licence here. “We are bringing genuine competition to a market that has been lacking it for so long by offering an app-based personal and business current account that is free and loaded with a host of smart money management tools,” Frean said.
“With no branch networks and no legacy IT systems to maintain, we have a much lower cost base than the legacy banks. They can try to copy our features, but they can’t copy our cost base.”
Frean said that banks had “tried to put things back to the way they were before” following the financial crisis. She said that Starling was founded because in order to build a “truly modern” bank that is customer-focused, it requires starting again “from scratch”.
Of course, Boden’s former employers dismiss this suggestion. AIB’s digital stats are impressive, boasting around 950,000 monthly active users who visit the site 36 times on average.
The bank has also begun allowing customers to open a current account on the mobile app, pushing the nightmare days of the humble card reader even further into the distant memory.
The State-controlled bank also snapped up a stake in b2b payments player TransferMate in 2017 to reduce costs on international payments. It has also opened up its online banking technology to allow external developers to build new products. As we revealed last year, AIB has been “closely looking” at a subscription model similar to that of N26 and Revolut.
Fergal Coburn, AIB’s chief digital and innovation officer, said that the bank is continuing to invest in its products.
“Our multi-product offering differentiates us from fintech providers who tend to offer consumers a single, or limited range of products,” he said.
“Over 100,000 new customers opened a current account with AIB last year and we continue to retain a market leading position. While we have seen from our data that some customers do try these fintech services, in many cases it is supplementary to their main current account and AIB remains the primary banking products and services provider.”
AIB has also done well to ensure its technological relevance, boasting services like Apple Pay, Android Pay, and Fitbit Pay. It also intends to go toe-to-toe with Revolut’s personal loans. The bank claims that more than half of all of its small loans up to €30,000 were applied for and approved through its mobile app last year. It also said that 90pc of decisions were made within three hours.
Elsewhere, KBC Bank Ireland views itself as neither a pillar bank nor a digital-only bank. It describes itself as the “best of both worlds”. In January it became the first bank in Ireland to launch multi-banking, which allows its customers with an AIB or Bank of Ireland account to check their balance on the KBC app.
It also offers no fees on its day-to-day banking services to customers that lodge a minimum of €2,500 into their account but there is no obligation to keep it there, unlike other banks.
KBC’s transformation director Kelvin Gillen said that it will move to add more and more features to its banking app as the year carries on.
“We launched the first phase of our multi-banking approach at the beginning of the year. Our ambition is to change the way that Irish people bank by providing instant, accessible financial products and services and this is a big step on our journey towards achieving this,” Gillen said.
Every Irish bank has recognised the need for change and the switch in consumer demands, especially around day-to-day transactions. Bank of Ireland is carrying out a near-€1bn digital transformation. Much of which is being spent on the bank’s ageing IT systems. Those changes have been directed to meet the needs of the new consumer.
A consumer that is spending more and more online through multiple currencies, according to AskAboutMoney’s Brendan Burgess.
“People are no-longer happy to be paying FX (foreign exchange) fees up to 2.75pc when Revolut will charge no FX fees for purchases within limits,” he said.
“The online challengers pose a huge threat but mainly amongst younger customers for now. The threat is serious and rapidly growing.”
Burgess said the country’s banks need to implement better technology and impose lower fees in order to stave off the fintech revolution. However, he did warn against jumping for the cheapest option when it comes to banking.
“People should go for the best service and not the cheapest or a free service,” he said. “Lots of people who availed of Permanent TSB’s ‘free banking’ ended up paying for it many times over with the most expensive mortgage. They paid 6pc interest when AIB and Bank of Ireland were charging 3pc.”
In Ulster Bank, transaction charges are on the way from April. The bank currently charges a monthly maintenance fee of €4 but imposes no transaction charges for the likes of ATM withdrawals.
That model will change, with the maintenance fee slipping to €2, while point-of-sale and direct debit payments fees increase to 20c. While banks are innovating to the best of their ability, the flexibility enjoyed by some of their younger competitors is a huge advantage. The user experience that Revolut and N26 boast is impressive. The speed at which transfers happen and the real-time information on transfers makes for an attractive prospect for customers.
However, should traditional banks manage to slap the same glossy finish on their products it will make for a very competitive marketplace, one that surely will benefit the consumer.
And the new arrivals are going to add some colour to the market. Revolut found itself in trouble for its “single shaming” ad over St Valentine’s Day. The digital bank apologised for running a slogan that read “To the 12,750 people who ordered a single takeaway on Valentine’s Day, you ok, Hun?”.
A marketing faux pas no doubt, but it is certainly far from the days of a man standing on the bus exclaiming that he didn’t know what a tracker mortgage was.
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