Niamh Hennessy: Changes in banking landscape only just beginning

Although banks are increasingly closing branches and moving towards online banking, Ireland is still a long way behind other countries, writes Niamh Hennessy
Niamh Hennessy: Changes in banking landscape only just beginning

The announcement this week that Bank of Ireland is to close more than 100 branches didn't come as big surprise within the industry. However, the scale is seen as a setback for many rural areas. Photo: Gareth Chaney/Collins

Is time running out for bank branches? Will they disappear from our main streets altogether?

And if we can't bank on the banks, what's the future for cash?

Also in today's Special Feature:

    • The future of money - Money is at the heart of how we operate and function as a society. But will we be using cash in 10 years' time?
    • Countless benefits to cashless cafe - Bear Market Coffee, which opened its doors a year before Covid struck, is Ireland's first cashless cafe
    • Revolut building a global super app - In 2015, Revolut launched in the UK. Today it has customers all over the world, including a million in Ireland.

    The announcement this week that Bank of Ireland is to close more than 100 branches didn't come as big surprise within the industry. However, the scale is seen as a setback for many rural areas.

    It comes hot on the heels of Ulster Bank's decision to shut up shop altogether, with the eventual loss of thousands of jobs and the closure of its 88 branches.

    Like most aspects of the world in which we now live, the future of money and banking is changing. The way we spend and save money is evolving, with the pace accelerating due to the pandemic.

    Banks have long signalled that change is coming, with the migration to digital banking starting many years ago. However, banks still kept a lot of branches open and bank tellers continued to be on hand for customers. 

    However, as the machines moved in, there were less and less windows open for someone to be able to speak with a bank employee. 

    Banks wanted more people online than over the counter. They wanted to change how we did business.

    The future for banks has always been a sensitive subject. Exasperated by the banking crisis, we have a love/hate relationship with them.

    Despite repeated attempts to increase choice and competition, the banking landscape hasn’t changed much over the years. 

    AIB and Bank of Ireland have been downsizing. Ulster Bank is ending its long relationship with Ireland. Gone too are Bank of Scotland/Halifax, Danske Bank (formerly National Irish Bank) and Rabobank (which owned ACC). 

    Not to mention Anglo Irish Bank and Irish Nationwide Building Society. The mass exodus from the market has underlined the belief that there is very little choice when it comes to banking. 

    We joined banks when we were in college to get a free mobile phone or our parents were long-standing members of a certain bank and that’s where we were automatically drawn to. 

    Banks are a bit like the two main political parties. Their names are deep rooted in our society, but there’s really very little difference at the core in what they do.

    Things are starting to change however.

    Ulster Bank's decision to shut up shop altogether will lead to the eventual loss of thousands of jobs and the closure of its 88 branches.

    Ulster Bank's decision to shut up shop altogether will lead to the eventual loss of thousands of jobs and the closure of its 88 branches.

    Like many other aspects of the world in which we now live, Covid-19 has changed our banking habits. We didn’t have access to bank branches for a lot of the last year — mortgages were applied for on Zoom, loans were given over the phone as we were forced to go more digital.

    Today in Ireland, 78% of people do their banking online and 60% do their banking on their mobile phones. But we’re still lagging behind our neighbours. 

    European Union statistics for 2020 show 95% of adults in Norway use online banking services, followed by Iceland (94%) and Denmark (91%). 

    However, Covid has given banks here the perfect cover to speed up the move to online, force customers to change habits and close more branches.

    In a way, Bank of Ireland is late to the table with its announcement that it is closing a raft of branches. In 2012, AIB announced it was closing 67 of its 267 branches in the Republic. At the same time, they announced a partnership with An Post. 

    This is not a new development. It makes sense for banks to offload branches and use the money elsewhere. The partnership with An Post makes sense in such a case too, but it’s a hard message to sell to the public.

    The Irish Bank Officials Association (IBOA) described AIB’s announcement 10 years ago as "traumatic". At the time IBOA general secretary Larry Broderick said the closures showed that AIB had no regard for the communities and customers it served. 

    This week, the Financial Services Union (formerly the IBOA) described Bank of Ireland's decision to close branches as “shameful”. It pointed out that the people who would suffer most are the elderly, people with no internet access and people with literacy problems.

    However, when it comes to adoption of digital services, the banks will argue that things are moving in a more positive direction. 

    Both AIB and Bank of Ireland say there has been a significant uptake in digital banking from an older generation. They say that, by closing branches, they will be offering better digital services.

    General Secretary of the IBOA (now the Financial Services Union) Larry Broderick described AIB's decision to close 67 branches 10 years ago as "traumatic". This week, Bank of Ireland announced it is to close more than 100 branches

    General Secretary of the IBOA (now the Financial Services Union) Larry Broderick described AIB's decision to close 67 branches 10 years ago as "traumatic". This week, Bank of Ireland announced it is to close more than 100 branches

    The argument has been made that closing bank branches would eliminate the important aspect of face-to-face banking. We couldn’t tear branches from the heart of the communities around Ireland. 

    However, along came the pandemic and people got on okay visiting branches less. Banks tell us people are not using branches much anymore. They say customers tell them they don’t need branches.

    The GeoView Commercial Property Report shows that the number of banks and credit unions has fallen substantially over the last decade, with 117 fewer branches in 2019 compared to 2010, representing a 12% drop.

    Consumer expert Daragh Cassidy of Bonkers.ie said the trends towards the adoption of digital banking and non-cash payments began long before Covid, but the pandemic has certainly sped things up.

    He said:

    I think we’re going to see a huge number of branch closures over the coming years and a big trend towards the use of card over cash.

    “The unions and the Government will make noise over any bank closures, and rural communities might feel particularly hard done by. 

    "But in the vast majority of cases, banks are closing branches as people, particularly those under 40, have no need for them,” Mr Cassidy said. 

    Consumer advocate Brendan Burgess believes we are looking at a future where face-to-face banking will be reduced because of the cost. At the end of the day, it's all down to money.

    “Banks will only provide it in a few places. ATMs can do most of the work,” he said.

    However, with the loss of branches comes the loss of relationships. Banking expert Professor Ray Kinsella said that some of the wisest people he has met have been bank officials — the deputy managers and managers. He said they knew exactly what was happening 'on the ground' and that was disappearing.

    “Banking was once a profession. Then it became an industry. Now it's a utility. 

    Algorithms don't do emotional intelligence. They don't do instinct. And notwithstanding the soft-focus PR, they don't really do 'relationships', except for the credit unions and, to a more limited extent, the Post Office. 

    "That's a big loss,” said Prof. Kinsella.

    The branch banking landscape will indeed change rapidly over the coming years, but technology at the banks will advance alongside that.

    Deloitte banking partner Seán Smith said that, in the past, many banks struggled to achieve widespread penetration of digital channels among their customer base, partly because different segments of society were reluctant to use them.

    “Covid-19 changed all that because restrictions on movement during lockdowns effectively forced people to go online. The firms that had invested more in digital were able to manage this process more efficiently and were successful in the early days of lockdown,” he said.

    However, Mr Cassidy said that, although things are improving when it comes to digital banking in Ireland, we’re still laggards.

    “Right now, the online services from the Irish-owned banks in particular are quite poor. And even though things are improving, we fall behind many of our European peers,” he said.

    The Deloitte Digital Banking Maturity Study, a benchmarking study of digital retail banking channels, ranks Ireland as a latecomer compared to other countries.

    PTSB, for example, still doesn’t offer services such as Google Pay or any type of biometric log-in through its app, while the ability to block and unblock your debit card only recently became available from AIB and still isn’t available with PTSB.

    AIB still requires account holders to use a card reader for many online tasks, and sending money still requires a 20-plus digit Iban and up to a two-day wait. Opening accounts also can still be a laborious process, requiring branch visits and form filling.

    It’s no surprise that digital uptake is stronger among the younger generation, but AIB chief digital and innovation officer Fergal Coburn said that Covid-19 has rapidly accelerated customers’ preference for digital banking.

    “Our customers are now interacting with our app more than 1.54m times a day, compared with 40,000 daily branch visits. 

    "Branch services will further evolve towards sales and advisory. The bank has also seen a 27% increase in digital daily usage among customers aged over 65 and a 9% increase in digital adoption among the over 40s. Customers have increased their use of digital wallets by more than 90% year on year,” he said.

    Bank of Ireland head of digital banking John O’Beirne said Covid-19 has certainly accelerated some pre-existing consumer trends.

    “At Bank of Ireland alone, there were 20m more visits to their digital channels last year and the number of BoI customers banking digitally has doubled over the past number of years,” he said.

    The mobile app is now its most popular way to bank, with more than 2.5m customer logins every week and traffic by up a third in the past two years. Mr O’Beirne said senior customers were increasingly banking online and he expected that trend to continue.

    “Customers can now open a current account online in less than seven minutes and complete the mortgage process from application all the way through to drawdown entirely online.

    "A big one for us was the launch of a new mobile app with 50% more functionality, and Apple and Google Pay. We’ll be adding more enhancements to the app this year as it is directly increasing customer satisfaction,” he said.

    “We’ve seen a real shift towards digital banking over the past year. It’s against this backdrop that we are now focused on improving and accelerating our services to be a digital relationship bank. 

    "Our customers continue to look for safe ways to bank online and from home. This means delivering new ways to pay, improving our services to have more choice and launching new digital solutions for customers across everyday banking, insurance and mortgages, to name but a few.” 

    The Bank of Ireland branch in Bantry, Co Cork. It is one of 103 branches that the financial institution plans to close around the country. Photo: Dan Linehan

    The Bank of Ireland branch in Bantry, Co Cork. It is one of 103 branches that the financial institution plans to close around the country. Photo: Dan Linehan

    In the future, some of the digital developments could include live interactions with bank employees via ATMs, artificial intelligence-based robot banking assistants at flagship branches and even virtual reality experiences at smart branches.

    Banking and Payments Federation Ireland (BPFI) chief executive Brian Hayes agrees, saying that there has been a remarkable increase in the adoption of digital services by customers in recent years and banks have been investing serious resources in the innovation and development of digital services to meet customers’ changing needs. 

    Mr Hayes said the rate of adoption to digital by Irish consumers and small businesses has been remarkable.

    “The shift towards digital channels, which was incremental in recent years, has been accelerated over the last 12 months due to Covid-19. We can expect to see these gains continuing post-Covid, with an increasing number of the traditional face-to-face banking services being made available through digital,” he said.

    During the pandemic many people have successfully drawn down mortgages, secured loans, and taken financial advice over Zoom and Skype calls.

    Mr Hayes also said that we will see greater collaboration amongst banks in the areas of fraud monitoring and prevention.

    “New capabilities will be developed to protect against cybercrime and money laundering,” he added.

    Mr Cassidy said the recent arrival of digital ‘banks’ N26 and Revolut has been a blessing in that it’s forced the Irish incumbents to start upping their game.

    The German N26 is what has come to be known as a ‘challenger bank’ and it has around 200,000 customers here, with more than seven million customers across Europe and the US.

    Another ‘challenger’ is Revolut, which has gathered more than one million Irish customers. Revolut makes life easier for people looking to send money to a friend or split a bill at a restaurant.

    However, new kids on the block don't add to increased competition, according to Prof. Kinsella, who claims we simply do not have a banking system that can deliver healthy competition in Ireland.

    He said:

    We need an authentic, robust, non-shareholder driven community bank along the German model focused on national development needs. But don't hold your breath.

    Although the banking landscape is evolving, it’s unlikely that we’ll see much change in how banks operate.

    Some fear the big banks here could abandon the likes of current and smaller deposit accounts, and just focus on the profit-making side of the business, such as corporate banking and mortgages.

    Consumer advocate Brendan Burgess does not not believe such a scenario will ever happen.

    He said the most profitable business for banks is mortgages and they get most of their business from their existing customers.

    “If you have a BoI current account, your first port of call for a mortgage will be BoI and, if you are approved, you will be so pleased that you might not shop around,” said Mr Burgess.

    Mr Cassidy of Bonkers.ie said there would be huge political pressure on the banks if they ever tried to do this, particularly AIB and Bank of Ireland.

    “While mortgages and large personal and corporate loans are what make banks the most profit, basic banking services are often the stepping stone to those products.

    "Even though they shouldn’t, a lot of people still choose their mortgage provider based on who they have their current account with. So if large banks like AIB were to forget about everyday banking services, they’d be shooting themselves in the foot really,” said Mr Cassidy.

    Brian Hayes, CEO of Banking and Payments Federation Ireland, says the shift towards digital channels has been accelerated over the last 12 months due to Covid-19. Photo: RollingNews.ie

    Brian Hayes, CEO of Banking and Payments Federation Ireland, says the shift towards digital channels has been accelerated over the last 12 months due to Covid-19. Photo: RollingNews.ie

    Whatever the future holds for the banking landscape, one thing is certain when it comes to value for money in Ireland for our banking: the current landscape is not so bright.

    We have the second-highest mortgage rates in the eurozone and among the highest personal loan rates. It’s even worse for SMEs. 

    A lot of basic everyday banking services, which are free in many other countries, incur a fee in Ireland. Of course, that wasn’t always the case.

    We’re relatively under-banked compared to our European neighbours.

    “That’s not to say there isn’t still competition and value to be had. For example, there are still nine current account providers and nine mortgage lenders in Ireland, but choice has definitely decreased in recent years and product innovation is more slow to come by,” said Mr Cassidy.

    What we could be looking at in the future is banks looking at partnerships with big names such as Amazon and Google. 

    These are trusted brands already in the digital space and banks could look to merge services to offer a better customer experience.

    Experts also say that that the likes of Alexa could offer financial services advice as it links up with financial institutions.

    Ireland has traditionally been very slow to move away from the concept of branch banking, but the world is changing fast. 

    The three main banks in Sweden, which has a population double that of Ireland, have between them only 25 branches that handle cash.

    10 things we’d miss without cash:

    • Charity collections: Charities rely a lot on street collections and bag packing which is driven by cash.
    • Mass collections: The mass basket would be very empty if there was no cash to fill it as it passes around the church during collection time.
    • Tips: Most restaurants these days will allow you to add a tip onto the credit card when paying but it has that feeling of not really being a proper tip unless you leave the note under the glass before leaving.
    • Pocket money: Parents will know the value of pocketmoney when it comes to getting a helping hand around the house. Would a transfer to a bank account have the same impact?
    • Lotto scratch cards: Without cash this could mean missing out on the €2 winnings on a scratch card (even if the card did cost €5 to buy).
    • Odd jobs: Offering your neighbour down the road €20 to buy a (takeaway) pint for helping you with an odd job is the perfect use for cash.
    • Farmers Markets: Buying your fresh veg and sourdough bread might be trickier without cash.
    • Halloween: Finding the coin in the barn brack and playing bob the apple would be no fun without cash.
    • Make a wish: Dropping a coin into a fountain to make a wish would be no more. How could we live in a world where wishes didn’t come true?
    • Birthday Cards: There is something very nice about opening a card and a note falling out. It’s a convenient and often, very welcome gift to give someone of any age.

    Deloitte Ireland partner David Dalton said Ireland’s banks do well on information gathering and sharing, day-to-day banking and expanding relationships beyond banking, but they need to do more in the areas of personal finance management and investment services.

    “A customer-centred approach, recognising the importance of user experience as a key differentiator driving customer satisfaction, coupled with good design and function is critical to digital success. 

    "Simple, straightforward changes packaged together would help to improve the global ranking of Irish banks and, most importantly, provide better customer service and loyalty."

    Looking to the future, banks such as N26 and Revolut have shaken up markets elsewhere and they have a presence in Ireland, but until they can offer a full suite of services, such as mortgages and pensions, they will remain in the challenger bank space. 

    "If they were to make moves towards offering those services, it would certainly shake up the traditional landscape of the five pillar banks here," he said.

    Among the areas where Irish banks can improve, according to the Deloitte study, is by offering a live chat functionality, making it easier to open current accounts, offering family current accounts, and creating and managing more channels (such as Facebook) to improve customer support in an omnichannel way.

    The banks are trying to do more. Recently AIB, Bank of Ireland, Permanent TSB and KBC Ireland alerted the Competition and Consumer Protection Commission (CCPC) of its plans to launch an app that would challenge Revolut. 

    However, the CCPC is looking for more details before it is approved.

    The app is being co-ordinated by the BPFI and it said that Synch Payments DAC is continuing to engage with the CCPC and the banks very much welcome that engagement and respect the process.

    “We believe the service that will be offered by Synch Payments DAC, subject to CCPC approval, is an important one for Irish consumers,” they said.

    As the debate rages about the future of banks and money, it's clear that nothing will remain the same.

    As one expert put it: "The change is not over; it's just beginning.”

    The future of money

    Money is important to us all. We may all place varying values on it but it really is at the heart of how we operate and function as a society.

    The big question then comes with how does the future of cash look? In 10 years will we still be using cash?

    Many countries around the world are moving towards cashless societies. In South Korea, for example, there are plans to phase out all coins. In Austria, 90% of 9.5 million debit card transactions are contactless. 

    In China, buskers and beggars on the street accept contactless payments using QR codes.

    Daragh Cassidy of consumer website Bonkers.ie said: “There’s lots of talk about the death of cash and the end of branch banking. We’ll still definitely be using cash in 10 years’ time – just far less of it.

    “I do think eventually, in about 25 years maybe, cash will have gone the same way as cheques in that it’ll just about be accepted in some places as a method of payment and people will know what it is, but it’ll have become a rare and outdated means of paying for something.” 

    The increasing availability and adoption of mobile payment options from the likes of Apple and Google Pay is helping to facilitate the move towards non-cash payments. Consumer advocate Brendan Burgess believes we will be using cash in 10 years but “a lot less”.

    That’s all very well, but with cash comes a certain sense of control. A study by Dun and Bradstreet found that, on average, people spend up to 18% more when using a credit card instead of cash. There’s also the aspect of anonymity when it comes to cash.

    A quick run over your recent transactions can sometimes cause a sense of embarrassment looking at what was bought in the last week. At least with cash, having three take-aways or buying clothes you don’t need isn’t there in black and white on a phone screen.

    Our move away from cash has of course well and truly begun. It’s hard to believe that we can pay for a taxi and not need any cash or order takeaway and not have to rummage through our pockets for a tip for the delivery driver. We can just add it on the app. 

    It’s even strange in these unusual times to pull out a €5 note from your pocket to pay for a coffee. The pandemic has brought a whole new meaning to ‘dirty money’.

    Of course, there’s the other side to cash and that is the black economy where cash really is king. Reports showed that in Canada when recreational cannabis became legal the number of bank notes in circulation fell significantly. It brings it back to the anonymity associated with cash, which can suit in certain situations.

    The latest figures from BPFI’s Payments Monitor published in December showed another record month for contactless payments with the monthly value of contactless spending surpassing €1 billion for the first time. Figures for the fourth quarter of 2020 showed the volume and value of contactless payments rising by 23.7% and 63.4% year-on-year to 174 million payments worth €2.8 billion.

    CEO of the BPFI Brian Hayes said: “The impact of Covid-19 has undoubtedly accelerated trends that we have been seeing emerge for many years with a significant uplift in the use of digital channels and electronic payments.

    “While many consumers had already embraced new and innovative electronic payment methods for some years, Covid-19 has resulted in a further societal shift towards electronic payment options. We expect that these changes in consumer behaviour will remain and drive long-lasting change in the volumes of paper-based options such as cash and cheque. However, the choice will always remain with the consumer.”

    The BPFI said that 92% of all adults in Ireland have now used contactless payments and 43% of consumers are using their smartphones in shops at least weekly.

    The increasing availability and adoption of mobile payment options from the likes of Apple and Google Pay is helping to facilitate the move towards non-cash payments.

    The increasing availability and adoption of mobile payment options from the likes of Apple and Google Pay is helping to facilitate the move towards non-cash payments.

    “While cash is still a preferred choice for some consumers it is being outperformed by card, contactless and smartphone payments,” said Mr Hayes.

    The research shows that when shopping for groceries, 63% of consumers preferred to use a card with a pin or a contactless card compared to 27% who preferred to use cash. There is also a growing demand for online banking as opposed to branch banking with up to 77% of bank customers using online and mobile banking to access their account on at least a weekly basis compared to just 12% who do so in their branch.

    A total of 64% of those surveyed said they used their branch less than once or month or never to access their bank account.

    Professor Ray Kinsella said Central Banks generate a nice profit by issuing cash.

    “Having said that, a number of countries are working towards a “cashless” society built around a fully digitised financial system. It’s very clear from data published by the Central Bank that fear of transmitting Covid via notes and coins has pushed us in that direction.

    “But it’s some way off and when it comes it will be embedded in a much wider project. There are social advantages to cash particularly for large numbers of individuals who are financially excluded,” he said.

    So cash might still be king, but its time is running out.

    Countless benefits to running a cashless cafe

    Ireland’s first ‘cashless cafe’ opened in Dublin a year before the pandemic hit.

    Bear Market Coffee is completely cash-free and is run by husband-and-wife team Ruth and Stephen Deasy.

    Mr Deasy said they love ‘cashless’ as it has many benefits for them. He said hygiene is a big benefit at the moment as their staff no longer touch cash or coins. He also said that being ‘cashless’ speeds things up.

    “We worked out that an average cash transaction takes 20 seconds longer than a contactless tap transaction as either the customer or the staff member has to count out change. This benefits both the customer and the business,” he said.

    Bear Market Coffee, Ireland's first 'cashless' cafe, is run by husband and wife team Stephen and Ruth Deasy. Picture: Orla Murray/ SON Photo

    Bear Market Coffee, Ireland's first 'cashless' cafe, is run by husband and wife team Stephen and Ruth Deasy. Picture: Orla Murray/ SON Photo

    He also said it is much better in terms of security as, with the stores now being cashless, they have seen a notable reduction in security issues.

    Mr Deasy also pointed out that, when it comes to bookkeeping and accounting, the back-end accounting system is far more streamlined and efficient.

    “Our teams used to spend up to one hour each day counting the tills, safes and end-of-day counts. If there were any discrepancies, everything had to be counted again. This is no longer required. 

    "We no longer have to pay for cash collection and lodgement,” he said.

    Revolut building a global super app

    Revolut is the new kid on the block when it comes to banking.

    According to Revolut themselves, they are building the world’s first truly global financial superapp.

    In 2015, Revolut launched in the UK offering money transfer and exchange. Today they have customers all over the world, including one million in Ireland.

    According to their website, they say that they help their customers improve their financial health, give them more control, and connect people seamlessly across the world.

    Revolut was founded by Nikolay Storonsky and Vlad Yatsenko. It is growing very fast and last year was valued at £4.2 billion. In January this year it applied for a UK banking license.

    In a nutshell, Revolut is a smartphone payment app. It is not a bank. Users also have the option to sign up for a prepaid card. Revolut offers banking services such as bank accounts, debit cards, fee-free currency exchange and peer-to-peer payments.

    As it is not a bank, funds in Revolut are not covered by any banking guarantee.

    One of the main uses is that it allows people to send money to other Revolut users instantly. Much easier than other bankings apps.

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