Future of finance rests on cost and competitiveness

The financial services sector has fared relatively well since the onset of the Covid-19 pandemic in Ireland 15 months ago, proving its resilience in the face of unprecedented global upheaval.

In the months ahead, the key focal points for the sector will be cost management and competitive advantage, according to Michael Tuohy, a Partner at Mazars.

"Cost will be a major priority coming out of the pandemic," Tuohy said. "I'm not advocating a slash-and-burn mentality, but there will be a need to maximise operational efficiencies and make sure money is spent in the right areas.

"Lending reform will be another big focus, representing a huge potential opportunity. That comes down to lenders truly understanding consumers, and the products and services they like.

As Tuohy sees it, the players that will be best-placed to succeed coming out of Covid will be those with a "very clear handle on consumer behaviour."

As a Partner in the Audit and Assurance and Head of Financial Services at Mazars, Tuohy works with Irish and international banks, investment firms and regulated funds. He has assisted financial institutions with risk, governance and regulatory reviews.

He said the financial services sector in Ireland and elsewhere would have to contend with an increasingly tight regulatory regime in the years ahead.

"We've already seen a massive rise in the regulations governing the sector in the last few years and that will continue, regardless of the pressure governments will be under to get economies up and running as we emerge from the pandemic," Tuohy said.

"Compliance costs are very significant for entities in the financial services sector and that will continue to be the case, but the regulatory agenda will evolve.

"Sustainability will continue to be a key focus, but, since Covid broke last year, there has also been a lot of the talk from central banks on operational resilience and asking regulated entities to demonstrate how they are going to survive through the pandemic and into the future.

"We don't see that changing, but it is likely to evolve with more focus on anti-money laundering measures, fraud and cybercrime."

In tandem with stringent regulatory requirements, established players in the banking sector are facing increasing competition from digital challengers.

Recent entrants to the Irish market include Revolut, the British-headquartered fintech, and N26, a German neobank headquartered in Berlin.

Vivid Money, also from Germany, recently signalled its intention to enter the Irish market as part of a wider European expansion.

Starling Bank, a London-based operator, is, meanwhile, pursuing a banking licence from the Central Bank of Ireland.

In response, established players in the Irish market have set up a new company to develop a banking app to rival those offered by these challengers.

Yippay is being developed by Synch Payments, a company co-owned by Bank of Ireland, AIB, Permanent TSB and KBC Ireland.

"Covid has really accelerated digital developments in banking globally - even in the US, where traditionally cash has been 'king'," Tuohy said.

"Coming out of the pandemic, digital payment companies will prosper and we're going to see more new entrants into the market.

"At the same time, we're seeing a lot of consolidation in the lending market, not just in Ireland, but also in Europe.

"Established banks will need to bring competitive loans and digital offerings that make the lending process as seamless as possible for borrowers. Their focus in the future will have to be on quick decisions without paper trails."

This article first appeared in The Business Post on the 30th May 2021.