Faced with rising competition from fintechs, four Irish banks are forming a subsidiary to offer instant P2P transfers, but they're already facing regulatory complications.
Ireland is one of the few European countries without a domestic real-time bank transfer scheme, which explains why many Irish consumers have been opening accounts with digital challengers such as N26 and Revolut that offer free instant transfers.
The venture — called Synch Payments DAC and operated by Bank of Ireland, AIB, Permanent TSB and Belgium-based KBC’s Irish subsidiary — is meant to be analogous to the U.S.'s Zelle, Canada’s Interac e-Transfer, Sweden’s Swish and the U.K.’s Paym. If Synch Payments is approved by Ireland’s Competition and Consumer Protection Commission (CCPC), other Irish banks such as Ulster Bank and An Post Money, Irish postal service An Post’s bank, are expected to join the scheme.
The project hit a roadblock when its initial application to the CCPC was returned on Jan. 21 due to insufficient information.
“These kinds of partnerships are never easy in terms of driving value because of competing objectives and lack of alignment,” said Andrea Dunlop, managing director of the payments division at the U.K.-based IT firm Access Group. “Also, these banks have an overriding need to compete in the market. The other aspect is how the banks will drive additional revenue for their joint venture when consumer expectations around instant payments have been set already by the numerous fintechs offering these services for very little cost.”
The CCPC said in a statement that it had rejected the four banks’ initial notification about Synch Payments, as it couldn’t determine whether the proposed company is a “merger or acquisition” within the meaning of section 16 of Ireland’s 2002 Competition Act. In a letter to the banks, the CCPC expressed its “willingness to further engage with the notifying parties” in relation to the issues it had raised in its response.
“We see this as a return of the application form,” said Jillian Heffernan, a spokesperson for Banking and Payments Federation Ireland, which has been leading the Synch Payments initiative. “We welcome the CCPC’s statement of their willingness to engage with the parties involved in relation to the issues which they’ve raised, and we look forward to engaging with them on all the details.”
The Irish banks have lagged fintech disruptors in payments innovation and have also lagged payment developments in the EU.
A 24/7 Pan-European real-time scheme called
In recent years, as the U.K. prepared for Brexit, there has been a surge in fintechs establishing operations in Ireland, making it
“It’s difficult to see how the CCPC could approve Synch Payments unless it allows fintechs to join as well,” said Robert Courtneidge, a U.K.-based independent payments industry advisor who works with the Emerging Payments Association.
As of November 2020, 16 firms held Irish e-money institution licenses, while a further 10 firms held Irish payments institution licenses. U.K.-based digital challenger bank Starling is holding discussions with the Central Bank of Ireland about an Irish banking licence.
Both Revolut and N26 have signed up for SEPA Instant Credit Transfer, enabling their customers in Ireland and across Europe to transfer money instantly to eurozone bank accounts. By comparison, since Irish banks don’t offer SEPA Instant Credit Transfers, eurozone transfers from Irish bank accounts can take one to two working days.
Revolut’s Irish subsidiary has attracted 1.2 million customers, a significant figure given Ireland’s 4.9 million population.
“P2P payments are one of our most popular features,” said Revolut Ireland spokesperson Michael Russell. “If our users are sending money to non-Revolut users in Ireland or in the EU, they have the option of offering them instant transfers if they open a Revolut account, or two-day transfers to their bank accounts.”
Revolut and N26 pose a threat to Irish banks, as they offer a range of financial services beyond free P2P transfers and digital accounts. N26, which operates under a German banking licence, saw its Irish customer base double over the last 18 months to almost 200,000 customers, predominantly people aged 20 to 34.
Revolut acquired Lithuanian
Revolut also offers open banking-based aggregated account data and payments initiation from AIB, Permanent TSB, Ulster Bank and Bank of Ireland.
The Irish banks’ initiative might be too late and require a lot of marketing and persuasion to gain traction, said Courtneidge.
“The question in Ireland is whether the prevalence of existing fintech solutions in the 18-35 age group means the demographic most likely to use Synch doesn't need it,” he said. “The 35-plus demographic in Ireland may be tempted by Synch during a lockdown situation, but, having had lockdown for a year, has by now undoubtedly found ways to transfer funds without Synch.”
Arkwright Consulting partner Francesco Burelli said new entrants such as Revolut and N26 have proved to be serious competitors to incumbent banks for specific target demographics and target use cases. “So it’s not surprising to see the Irish banks join forces to address the P2P transfer market and prevent potential competitors becoming a threat to their business,” he said.
Synch Payments is one of several collaborative responses by European banks to the competitive threat posed by fintechs. In July 2020, 16 banks in Belgium, France, Germany, the Netherlands and Spain launched the European Payments Initiative (EPI), which — subject to regulatory approval — plans to offer cards, digital wallets and instant P2P payment services. In the Nordic region, six banks teamed up in 2017 to create P27, a domestic and cross-border real-time payment platform supporting multiple currencies.
“Collaborative initiatives by domestic banks to develop payment schemes have the advantage of critical mass,” said Aite Group senior analyst Ron van Wezel. “When all or most of the major banks support a payment product for their consumers, merchants will quickly adopt the innovation. Bank consortia have, however, received so much scrutiny from competition authorities that banks became reluctant to start new joint ventures. But we may be witnessing a revival, as shown by P27 in the Nordics, the EPI initiative and Ireland’s Synch Payments. I see Synch as a valid strategic move to develop new instant payment products for the mass market.”
