A new survey conducted by Censuswide on behalf of fintech Wise has revealed that two thirds of adults in Ireland think the banking sector lacks competition, and that the process of opening a new bank account is difficult. The survey also found that only half of the respondents trust traditional banking to handle their money fairly, while the rest prefer app-based banking or financial co-ops.
Low interest rates and high capital requirements
One of the reasons why the Irish banking sector is seen as unattractive by both consumers and banks is the low interest rate environment, which reduces the profit margin for lenders. The interest rates are low in order to stimulate the economy after the impact of Covid-19, but they also make it hard for banks to earn money from lending.
Another factor that affects the profitability of banks is the high level of capital they have to hold compared to their international peers. This is a legacy of the last financial crisis, which exposed the vulnerability of Irish banks to bad loans and defaults. The higher capital requirements mean that banks have to put aside more money to cover potential losses, which reduces their ability to lend more or return money to shareholders.
Repossession and market size
Another challenge that Irish banks face is the difficulty of repossessing properties from defaulting customers. The legal process for repossessions in Ireland can take as long as 42 months, compared to 18 in other European countries. This makes it harder for banks to recover their money and discourages them from lending in the first place.
Moreover, the Irish market is relatively small and dominated by two large players – AIB and Bank of Ireland – which limits the scope for competition and innovation. Several foreign-owned banks have entered and exited the Irish market in recent years, such as Ulster Bank, Bank of Scotland Ireland, Rabobank, and Danske Bank. The latest one to consider leaving is KBC Bank Ireland, which is in talks with Bank of Ireland about selling its performing loan portfolio and liabilities.
Fintech and co-op alternatives
The survey also showed that Irish consumers are open to alternatives to traditional banking, such as app-based banking or financial co-ops. Nearly 16% said they trust app-based banking more than traditional banking, while 19% said they prefer a financial co-op like a credit union. 43% said they like to use both a traditional banking service and one that is app-based.
The survey was carried out by Censuswide on behalf of Wise, a fintech company that offers low-cost international money transfers and multi-currency accounts. Wise claims that by collaborating with fintechs, traditional banks can improve their services and offer better solutions to customers.
“Legacy banks continue to be the top trusted choice for the Irish consumer,” said Roisin Levine, Head of UK & Europe Partnerships at Wise. “However, the majority of Irish people feel that the sector lacks competition, and that there’s room for services to improve. Irish people still trust traditional banks – but they’re open to fintechs, too.”
