Wanted: 100 mln euros for new Irish bank

Thu Feb 20, 2014 11:18am EST

* Technology and telecoms firms eyed as investors

* New bank would offer current accounts, small loans

* Mobile app promises new innovations like cheque scanning

* Italy, Spain and Germany next if it succeeds in Ireland

By Laura Noonan

DUBLIN, Feb 20 (Reuters) - Wanted - investors willing to pump 100 million euros into a new European bank that picked Ireland as its first market. Strategic partners only, hedge funds, private equity and institutions need not apply.

American marketing expert Travis Ledwith and German banker Thomas Buemsen have been quietly making that unlikely-sounding pitch to telecoms and technology firms and other hand-picked investors for the last few months.

Now the duo are kicking off formal fundraising that they hope will allow them to cash in on Ireland's newly-concentrated banking market, the turnaround from economic crisis and the Dublin technology hub that will help them break new ground.

Public perception of the country's current lenders, including the surviving domestic banks who were among those bailed out to the tune of close to 70 billion euros ($96.26 billion), doesn't hurt either.

"Most of the clients had a negative experience with their existing bank," said Buemsen, 46, who met 33-year-old Ledwith on an international MBA course in 2012.

"Danske Bank is leaving, ACC is leaving, they have huge losses. All the other banks that were state owned are still state owned...It (personal banking) is an area of banking which was neglected in the last couple of years."

If their plans for Flip succeed they'll become the first new retail player in Ireland since Postbank's shortlived venture in 2007 and the first to offer cutting edge technology like an app that allows customers to scan and upload cheques instead of physically depositing them.

They want it to be a "lifestyle bank", tailored to making your life easier, a concept similar to the one used by a Thai bank called K Bank.

They hope the Irish operation will be open by 2015 and are already thinking further afield, with plans to replicate the model in Italy and Spain, where they see similar post-crisis opportunities, and in Germany, where they want to take advantage of a large banking market they say is lacking in innovation.

BARRIERS

Brand new banks have been few and far between across the developed world. Jason Quarry, head of Oliver Wyman UK, cites several barriers to entry - the lack of an existing brand, customer inertia over switching bank accounts, not having an existing balance sheet and cash flow, and the need to develop the complex operating platform needed to run a bank.

"However, you can turn each of those on their head and turn them into an advantage," he said.

"Historic brand dynamics are shifting given the challenges from the financial crisis; customers are gradually becoming more willing to consider alternative providers; the lack of a balance sheet means less exposure to credit losses from legacy lending; the lack of existing IT complexity offers the chance of developing a clean operating model."

He said markets seeing light at the end of the tunnel after high defaults were particularly ripe for new entrants.

Irish policymakers have publicly spoken about the need to tempt more lenders towards small- and medium-sized enterprises, after the crisis left Ireland with only three SME lenders of scale - state-owned AIB, Royal Bank of Scotland's Ulster Bank and Bank of Ireland, which counts the Irish state as a 15 percent shareholder.

But they have said less about the personal banking market, where state-owned Permanent TSB joins the big three as a competitor.

"It's all about the app, a bank that is low cost and has a world class mobile phone App will go viral," said Peter Bellew, a senior executive with an Irish airline.

"A new online brand could impute trust from customers from day one with understated design and simple interfaces."

Financial experts say there could be space in the Irish market for another player.

"There is a role for new niche players in the Irish banking market," said Ciaran Callaghan, analyst at Merrion Stockbrokers.

INNOVATION

Ledwith and Buemsen hope to keep Flip's costs down by outsourcing most of its operations to providers like Capita, which is already signed up as a partner.

The traditional branch network will be ditched in favour of an online only system, similar to the one offered by RaboDirect, a subsidiary of Dutch bank Rabobank which offers online personal and business savings.

Soaring regulatory costs that constrain many banks should be avoided because Flip's model is simple - take in deposits from customers and offer current accounts, personal loans and overdrafts - so rules about derivatives and the hierarchy of bondholders are of little concern.

What customers should see is deposit rates of about 1.5 percent, against current rates of almost nothing from the Irish banks now, along with a simple pricing structure for its current accounts, the duo said.

The target market is defined not by the usual parameters of age and wealth, but by how people use their bank, Ledwith said.

The service side is where they claim the biggest advantage. Their lifestyle bank will be fronted by an app that makes banking easy. Along with cheque-scanning, they plan a Skype-style live chat feature allowing customers to talk to a bank representative within their app.

The app will also analyse a customer's spending so they can see where their money is going, and will warn them if they're over-spending and prompt them about a possible overdraft.

LICENSING

Getting a licence may not be straightforward. Just ask Dave Fishwick, who's spent close to three years trying to convince UK regulators to license his 'Bank of Dave'. Fishwick has arranged loans of more than 2.5 million pounds by acting as a matchmaker between savers and borrowers, but is still has no licence.

"The process is huge, and you've got to bear in mind that there's one other banking licence issued in the last 100 years, to Metro Bank," he said, adding that his venture is now halfway through the process and hopes to have a licence this year.

Flip hasn't even begun talking to the Central Bank of Ireland about a licence yet, and won't until it gets financial backers on board. It expects the process to take about a year.

Vernon Hill, who founded Metro Bank in 2010, had already built Commerce Bank from start-up into one of the U.S.'s top twenty lenders before he tried his hand in the UK.

"Metro Bank was an unusual set of factors that came together," he said. "I had a proven model, I had a management team to help me. I had done new banks and I had the ability to raise capital based on my prior performance."

Buemsen spent 17 years working in financial services, rising to become deputy CEO of Hungary's Takarek Bank, but he has never set one up. Ledwith comes from the marketing world.

"We're looking for investors that are interested in retail financial services ... but that themselves do not want to be a bank," said Ledwith.

Targeted investors included mobile phone handset makers who want to offer the banking platform on their devices, technology companies who want to help develop the interface or telecoms companies whose networks will be used by bank customers.

Because they're such large companies, Buemsen and Ledwith believe that they'll be able to tap them for extra cash if the project takes off and needs more money to expand to new markets.

The duo also stress that they don't have to make it big. The headcount could be as low as 20 direct employees when they start. Their business model pencils in about 10,000 customers at launch (wooed via online sign-up before launch), rising to 30,000 or 40,000 in the first year - less than one percent of the adult Irish population.

And they don't even have to go against the famed Irish statistic that people are more likely to leave their spouse than their bank. It's increasingly common to have more than one bank account. "You don't have to get a divorce," said Buemsen. "You can have an affair with us as well."

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