Financial Services Ireland

The future of retail banking in Ireland

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The Irish retail banking sector is at an inflection point. Contributing to complexity and the disruption of its traditional models are:  

  • Rapid technological advances 
  • Changing customer preferences 
  • Increasing competition from technology-based market entrants 
  • The need to reduce high fixed costs 
  • Extensive regulatory and compliance obligations 
  • High capital requirements 
  • The growing importance of funding the transition to the green economy 
  • An unprecedented low interest rate environment 

Although change was underway in the sector before the pandemic, COVID-19 has accelerated its pace. It has brought a greater intensity to many of the issues influencing its direction. Recently, two significant players in the Irish retail banking market announced their intention to leave it. This put a brighter spotlight on the sector. It has triggered a call to assess the retail banking environment in Ireland and its future development.  

The Future of Retail Banking in Ireland report by BPFI, supported by EY, outlines the importance of the sector to the national economy. It identifies the key stakeholders within the sector and the competing demands on them. It seeks to understand the key challenges and opportunities the sector faces.  

The report also looks at what global banking leaders see as the essential pillars of a healthy banking system. It provides an assessment of the Irish retail banking landscape against each of these metrics:  

  • purpose-led banking sector that seeks to balance the expectations of customers, regulators, shareholders, and society, and prioritises long-term customer and societal value.  
  • viable banking sector that delivers value for customers and is profitable and efficient in doing so.  
  • safe and stable banking sector that is robust, secure, transparent, and acts in the best interests of the customer.  
  • progressive banking sector that continuously increases value for the customer and the shareholder using technology, analytics, talent and other innovations.  

The report was prepared in consultation with a panel of domestic and global banking experts and senior industry representatives. It provides an overview of the sector as we know it today and presents a framework for a collaborative and forward-looking discussion about its future.  

The function and future of retail banking 

There are many factors, challenges and opportunities to reflect on as we assess the future of Irish retail banking.  

A well-functioning modern economy and society need a stable and viable retail banking sector. Without the services it provides, much of normal life would grind to a halt. Businesses couldn’t operate without credit and payments services. Employees couldn’t get paid or deposit salaries in a guaranteed safe place. Consumers couldn’t spend, and people couldn’t buy homes.  

As well as underpinning the economy, the Irish retail banks:  

  • Employ approximately 22,000 people 
  • Contribute €1.6bn directly to the exchequer 
  • And a further €11.6 billion [3] to the economy each year.  

The future of retail banking in Ireland has been the subject of debate for some time, but the departure of two retail banks in 2021 has brought a new intensity to the topic. There is an acknowledgment of the need for a thorough analysis of Ireland’s retail banking environment.  

That analysis needs to be framed against the backdrop of the competing stakeholder demands within the sector. On the one hand, customers want fast, efficient, secure and low-cost financial services products. On the other, government and regulators place a strong emphasis on financial stability.  

Regulatory and other operational requirements place additional costs on banks, but they are in the interests of customers and society. By the same token, banks need to be profitable if they are to remain viable and continue to serve their customers and society.  

These demands and expectations are not mutually exclusive, but there is a natural tension between them. There is a need to acknowledge and balance the tension between stakeholders and their competing demands. Those stakeholders and their demands include: 

  • Customers seeking access, value, satisfaction, and trust  
  • Regulators seeking customer protection, capital adequacy and compliance 
  • Employees and talent seeking employment, empowerment, and a strong work culture 
  • Shareholders seeking a return on equity invested and profitability  
  • Society seeking alignment of banking efforts to wider societal objectives 

Given their different perspectives, any debate on the future of the sector needs to take account of the basic framework on which successful banking sectors are founded.  

What happens next 

We need a viable, safe, innovative, and purpose-led retail banking system that serves its customers, the Irish economy and the wider society.  

Given the myriad of competing demands, there should be a rigorous, informed, and balanced debate amongst all stakeholders. Using the pillars as the foundation for that process, they can achieve a shared vision for the future of banking in Ireland.  

As the country recovers from the impact of the pandemic, with finance and banking issues so crucial to our recovery, there has never been a better time to engage in a future-orientated dialogue. The BPFI report provides a framework for that conversation. It explores in detail the actions which the banking sector can take to take control of its future. These include:  

  • Investing in trust, the bedrock on which lasting customer relationships are built 
  • Developing new income streams, diversify and explore new business models 
  • Increasing agility and resilience to better manage future risks 
  • Continuing to invest in digital transformation and future talent to meet changing customer expectations. 

You can download the report below.  

Dermot Keegan

FS Partner, CFO Advisory
Dermot's Full Profile

The Future of Retail Banking in Ireland

How can Ireland’s retail banking sector meet the conflicting demands of its stakeholders and remain competitive? How can it ensure a safe and secure banking environment while facing technological disruption?

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