The entry by Revolut into the market for savings brings welcome new competition. While other digital players from overseas are already in the market, Revolut’s significant base here – it claims 2.7 million customers – means it will provide a much stiffer competitive threat. Its existing relationships with many customers, who are used to its app, are likely to allow it to lure away business from those who maintain their main accounts at one of the big banks.
Irish banks generally offer a poor return on savings for demand accounts, the area being targeted by Revolut. The main domestic players have savings books which have risen sharply in recent years – now exceeding €150 billion in total – much of which they deposit at the ECB, where they get overnight rates of 4 per cent. This is a profitable area for them, with many households not moving cash from low interest rate demand accounts.
The Irish banks have increased the return on term and notice accounts but interest rates on demand deposit accounts remain well below the euro zone average. The rates offered by Revolut, starting at 2 per cent, are thus attractive. However, higher rates are only available to those who pay Revolut a monthly plan fee. And so Irish households need to weigh up which route is best for them, with domestic players offering reasonable returns for notice and fixed term accounts.
It remains to be seen how much business will move and how the domestic players will react. After all, they do not need more deposit cash at the moment to fund their lending books.
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However, the boost to competition is a positive sign. The euro zone has not yet developed into a single banking market, but protection of up to €100,000 on deposits applies to personal savings in all euro zone banks. The Revolut move, and that by other overseas digital players, indicates that competition is working, to the extent that they have spotted an opportunity where domestic players are currently cashing in and have decided that they want a share. As ever, customers need to consider now where best to put their savings, in line with their own particular needs.
