Irish banks’ failure to innovate could leave them written off for good

Pandemic accelerating demand for digital banking, with Irish lenders not at the races

The success of digital challenger Revolut, which claims one million Irish customers, shows how traditional lenders are being left behind

The success of digital challenger Revolut, which claims one million Irish customers, shows how traditional lenders are being left behind

 

We’ve seen plenty of coverage of how retailers and those in the hospitality sector are faring during the coronavirus pandemic. But banks are also struggling, with Davy Stockbrokers yesterday describing 2020 as “a write-off” for Irish lenders.

Its analysts lowered pre-provision estimates for AIB, Bank of Ireland and Permanent TSB, saying that each would be loss-making this year.

Irish lenders aren’t the only ones struggling. Recent reports from the research company Kearneys show the pandemic is providing both difficulties and opportunities for financial institutions.

It forecasts that European banks will see an average 20 per cent decline in retail banking revenues this year based on a partial recovery as Covid-19 restrictions lessen. Should a partial recovery not happen, the decline could be as much as 40 per cent, the company said.

It also predicts that one in four European bank branches will close over the next three years as the shift towards digital banking ramps up due to the coronavirus.

Prior to the pandemic, some 53 per cent of banking customers across Europe were going online for banking products and services. Kearney predicts however that while bank branches are shuttered, some 70 per cent of all account openings, lending, credit card applications and deposits will happen digitally.

“The Covid-19 pandemic was the catalyst needed for many changes already underway in the banking industry and has significantly accelerated demand for these changes to happen quickly,” said Simon Kent, global head of financial services at Kearney.

“Customers won’t go back to how things were, so neither should banks. This is a great opportunity for banks to stress-test their customer processes –both online and offline and especially how they interact with each other – to ensure long-term operational resilience,” he added.

There is certainly truth in this but the problem for Irish lenders at least is that they are behind the curve when it comes to digital banking. Bank of Ireland, for example, is only just getting round to rolling out its long-awaited customer app.

The success of digital challenger Revolut, which claims one million Irish customers, shows how traditional lenders are being left behind.

Revolut rival N26 recently claimed that digital banks will have as many customers with accounts locally as the main lenders in just five years. Unless the likes of AIB and Bank of Ireland raise their game significantly, it may not just be this year that is a write-off.