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Irish banks want to take on Revolut together — but why has the competition watchdog 'rejected' them?

Why has it taken so long for Irish banks to address competition from fresh-faced fintech companies?

Image: SIPA USA/PA Images

THERE WAS SEEMINGLY good news for Irish consumers last week when it was reported that four Irish retail banks — Bank of Ireland, AIB, Permanent TSB and KBC — were formally moving ahead with plans to band together to create a payments app, Synch Payments, to rival digital challenger banks.

Over the last few years, fintech firms like British company Revolut and its German rival N26 have expanded their operations in Ireland, offering online current accounts and the appeal of instant money transfers.

Quickly ceding ground, traditional banks have — some say all-too slowly — moved to counter the threat posed by the new arrivals.

But their rival project hit a speed bump last week with the Competition and Consumer Protection Commission (CCPC) rejecting a merger notification submitted by four Irish banks.

Is it just a storm in a teacup?

What’s the background?

Early last year, it was reported by The Sunday Times that the banks had teamed up to create an app-based payments system “in a bid to stem the loss of customers to digital disruptors such as Revolut and Apple Pay”.

In a report published last April, the Central Bank explained that the banks — “led by the Banking and Payments Federation of Ireland (BPFI)”, the main industry lobbying group — were aiming to deliver the platform, dubbed Project Pegasus, in the first quarter of 2021.  

It was reported last week that Italian fintech firm Sia had been selected to provide the technology for the app, which will be called Synch Payments.

Why has it taken so long?

“Ireland is one of the few countries in Europe that does not currently offer an instant payments solution to its customers,” the Central Bank said in a report last year.

“Project Pegasus will address this need and will be capable of integration into any European scheme that may emerge.”

But a pan-European system, a scheme called Sepa Instant Credit Transfer (Sepa CT), has actually been in place since 2017 — yet, no main Irish banks have signed up to it.

Both Revolut and N26 — have signed up to Sepa CT, allowing their customers across Europe to transfer money to one another instantly.

And both companies are reaping the benefits; Revolut boasts 1.2 million Irish customers while N26 has about 200,000, it says. 

According to one consumer expert, general lack of competition in the Irish market is at the root of this delayed reaction by the traditional banks.

Financial advisor Eoin McGee believes Irish banks “had a very cushy position up until these FinTech banks like Revolut started to come into Ireland… They had to do something because their lunch is being eaten. I think the banks are realising that; they’re just taking their time about it”.

Synch then is an attempt to pool resources to deliver a product that can compete with some of their fresh-faced rivals.

What happened?

On Thursday evening, the CCPC reported on its website that the merger notification, submitted by the four banks earlier in the month, had been declared invalid.

“The notification was submitted on a voluntary basis under section 18(3) of the Competition Act 200,” the Commission said.

However, after a preliminary investigation by the watchdog, it “formed the view that the notifying parties have not provided full details of the proposed transaction”.

So the Commission said it was “unable to determine whether the proposed transaction is a ‘merger or acquisition’” as defined by the 2002 Act.

“As a result, the CCPC has also been unable to determine whether the proposed transaction should have been notified to the CCPC on a mandatory basis,” it explained.

As such, the notification was rejected section 18(12) of the 2002 Act.

According to that part of the Act, “A notification… shall not be valid where any information provided or statement… is false or misleading in a material respect, and any determination under this Part made on foot of such notification is void.”

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What does it mean?

Well, on the surface it seems to means that the banks failed to provide enough information about the project for the CCPC to make a decision one way or the other.

Whenever a merger is submitted for approval, the Commission investigates the potential impact on consumers.

As the CCPC says on its website, “Some mergers can have a negative effect on consumer welfare by, for example, leading to an increase in price or a reduction in output. That is, they substantially lessen competition and, as a result, consumers (including businesses) suffer.”

Needless to say, a joint venture between the biggest banks in Ireland, specifically designed to address competition from foreign disruptors like Revolut, throws up plenty of important competition and consumer protection questions.

But for whatever reason, the CCPC was unable to formally assess the proposed venture.

What’s next?

To be clear, the proposal has not itself been rejected outright.

In fact, the CCPC has yet to fully investigate but it has “expressed its willingness to further engage with the notifying parties”.

For its part, the BPFI said, “We see this as a return of the application form. We welcome the CCPC’s statement of their willingness to engage with the parties involved in relation to the issues which they have raised and we look forward to engaging with them on all of the detail”.

The worst you could say is that it’s a black eye for the Irish banks and, arguably, an embarrassing one, given the time they’ve spent getting Synch Payments off the ground.

“I actually think it’s hilarious,” McGee says.

“If you think of it, when you’re applying for a credit card, a personal loan, a mortgage, or a break on your mortgage, you get a 20-page application form from the bank. You have to fill it out and send it in. And now, the CCPC has said that the banks didn’t fill out the forms correctly; they didn’t give sufficient information. The irony of that!” 

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