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The Irish Government’s comprehensive review of the country’s retail banking sector has concluded with 34 separate recommendations to better improve the culture of governance, competition and consumer protection. It also wants to legislate to protect access to cash.
Earlier this week (November 29), the Irish department of finance published a report of its retail banking review, concluding that consumers and businesses are increasingly using digital banking services, while access to cash is becoming a growing problem.
The review was commissioned last year after ministers found that the Irish retail banking sector had gone through significant changes in the past 15 years.
During that time, the number of retail banks has dropped from 12 to three, with Ulster Bank and KBC being the latest ones to announce plans to exit the Irish market.
Meanwhile, the review expects that the trends seen over the last decade, such as the increasing digitalisation of the sector and the further decline in the use of cash, will continue.
The report makes 34 recommendations to address issues arising from these trends of fewer ATMs, gaps in consumer protection and financial inclusion and potential issues related to competition.
Paschal Donohoe, the minister for finance, commented: “Implementing these recommendations will deliver real benefits for consumers and SMEs and help ensure that the sector continues to fulfil the critical function it plays in our lives and our economy fairly, equitably and effectively.”
Consumer protection and good culture
Although the report sees technological innovation in the retail banking sector largely as a positive move, it noted that digital solutions may increase financial exclusion, poor customer outcomes and increased digital security risk.
It also highlights important questions related to customer data regarding ownership, usage and potential privacy issues, and algorithmic decision-making, where errors or biases go undetected.
The report notes that there have been significant steps taken, by both regulators and industry players, to ensure a high level of protection for consumers.
Alongside legislative and regulatory changes throughout the past decade, banks have set up the Irish Banking Culture Board, aimed at building a culture that helps regain public trust. In addition, legislation for an Individual Accountability Framework is currently being discussed at the lower house of the parliament.
Although the report applauds these actions, it states that the industry “must give greater consideration to customers’ expectations and requirements as it devises strategies to support them in the roll-out of digital enabled products and services, especially those who are more at risk, including the vulnerable.”
For instance, the report recommends banks submit robust assessments to the central bank when they are planning to end services at a branch or close a branch. These assessments should examine, among others, the impact on customers and the suitability of alternative services.
Banks should also make it clear to consumers who are engaging with firms passporting into Ireland which European ombudsman would deal with any future complaints.
Competition should be monitored
The retail banking sector in Ireland was already concentrated before the departure of Ulster Bank and KBC, and although new competition has partly filled the gaps, the report notes that the market is increasingly fragmented.
Non-banks have entered the mortgage and consumer credit markets and new digital banks have entered the current accounts and consumer credit markets.
Meanwhile, the review finds that uptake in open banking has been slow in part due to the impact of legacy systems, challenges around harmonising of APIs and the relatively lower number of third-party providers operating in the country.
The high level of market concentration raises barriers to new players entering the market. As a result, the report calls for proportionate regulations that ensure firms that meet the regulatory standards have frictionless access to the market.
The department recommends that the central bank review its authorisation and approvals processes to identify how this might be improved.
It also urges the central bank to ensure that its regulatory approach helps realise the benefits of innovation in financial services and, as part of that effort, conduct a detailed review of its Innovation Hub.
Legislation to protect access to cash
Ireland has been no exception in facing the dilemma of a decline in the use of cash and a corresponding reduction in the infrastructure supporting access to cash.
The ministerial report proposes a legislative framework to manage any further decline in the cash infrastructure “in a fair, transparent and equitable manner”.
It stresses though that “the objective of this framework must not be to reverse what has occurred or seek to maintain cash usage at its current level but rather to manage further decline in an orderly way.”
In a separate report, published along with the review findings, the Central Bank of Ireland notes that retail banks have significantly cut services providing access to cash, via both bank branch closures and selling offsite ATM networks to independent ATM deployers (IADs).
As a result, by the end of last year, 75 percent of the Irish ATM network was owned by IADs, a significantly higher portion than in any other country in the eurozone according to the report, although not that dissimilar to the UK.
Meanwhile, by the end of the year, Ireland’s bank branch network is set to decrease by over 25 percent compared to October 2021.
To ensure that customers can access branch and over-the-counter services, banks progressively contract services to An Post, the state-owned postal service.
At the same time, banks’ cash centres are increasingly being replaced by the cash in transit (CIT) sector.
Although CIT firms and IADs have become of critical importance to the distribution of and access to cash, the report cautions that currently neither are subject to authorisation or supervision by the central bank.
As a result, the report recommends the government legislate to provide reasonable access to cash services, with the principal responsibility to ensure cash access falls on banks depending on their share of current accounts and the amount of deposits they hold.
Finally, the department recommends the development of a National Payment Strategy by 2024.
This strategy should set out a roadmap for the future evolution of the entire payments system, taking into account developments in digital payments, and advising on how future changes should be made in relation to access to cash and other issues.
