Will Revolut revolutionise the Irish mortgage market? Experts have their say

Apart from that one time it wrecked the economy and the lives of millions of people back in 2008, the Irish banking system had an uneventfully staid, steady and predictable time of it for the guts of 150 years until 2015.

That was the year an upstart tech company with a snappy name and high-octane business model burst on to the scene and promised a revolution the like of which the financial sector had never seen before.

In truth, Revolut didn’t really burst on to the scene at all, rather it crept slowly on to it from the wings with its early steps in the Irish market tentative at best.

Its first mention in this newspaper came in early 2016 when the “global money app”, as it was described in a dull but accurate fashion, merited just three short sentences in a piece about the absence of competition in the Irish financial services sector which had been haemorrhaging banks at an unseemly rate since the crash.

No one could have known then that within a decade more than three-quarters of Irish adults would have a Revolut account and the upstart would be a verb, a distinction awarded to only a handful of brands over the last 50 years.

It is hard to imagine anyone ever saying they were AIB-ing or BOI-ing money to their friends.

In addition to offering cheap and easy foreign exchange transactions and international money transfers, Revolut is now the payment method of choice for many market-stall holders and tradespeople and the easiest way to transfer money to friends and family. It is also used by parents collecting money for end-of-year presents for primary school teachers.

[ Revolut’s Irish mortgages are a game changer, and the banks know it ]

It offers traditional bank accounts, loans, credit cards and insurance products as well as access to a dizzying array of cryptocurrencies that surely few of its users understand.

And, based on fresh promises it has made, from early next year it will also start offering would-be homeowners in Ireland mortgages, although significant question marks remain as to how that will work.

“We’re very keen to get mortgages launched next year in Ireland,” Joe Heneghan, chief executive of Revolut Europe, told The Irish Times on Tuesday following the publication of its annual report. “Our team is working very hard on it. I would probably say the first half of next year is realistic. The market is attractive.”

Although it is always nice to be called attractive and important to acknowledge the many successes Revolut has had, there are also failures.

Over recent years, The Irish Times has carried a number of distressing stories told by readers who saw their Revolut bank accounts drained – sometimes in real time – by criminals who have been quick to recognise the potential the platform has for virtually untraceable scams.

One person who was targeted by criminals lost thousands of euro after her account was compromised. She told us that despite the crime she never once spoke to a human being working with the company and all her frantic dealings with Revolut had to be conducted online, sometimes with chatbots.

Another lost thousands of euro despite the fact that he realised what was happening as it was happening but could not get through to a human being in Revolut to help him stop the money leaving his account.

Although Revolut has always insisted – correctly – that it is by no means the only financial platform that is targeted by criminals, and it is adamant its systems are robust, one of its unique selling points is what makes it so attractive to the scammers of the world.

[ Scammers drain woman’s Revolut account and fintech comes looking for more ]

[ Sinister Revolut scam sees reader’s account drained of thousands ]

Money that is moved from one Revolut account to another travels in real time and once the money is gone, it is gone. The platform also relies heavily on AI and chatbots and does not have the level of human interactions and supports that Irish pillar banks or credit unions offer their customers.

That is not to say these “traditional” customers don’t sometimes lose out to scammers, they can. But at least they get to speak to other human beings about it, and that counts for something.

Although the mortgage offering promise by Revolut attracted a great deal of interest this week, the devil will very much be in the detail.

“Obviously everyone welcomes competition,” says Karl Deeter, the chief executive of onlineapplication.com, a service aiming to make the mortgage application process easier. “And competition that materialises is even better,” he adds, dryly. “Revolut have been making announcements like this for several years in a row and have delivered nothing, so that is disappointing.”

Deeter says Revolut is “amazing” and it has “revolutionised” international payments and foreign exchange. “But fintechs are more like a rockets than cargo ship, they focus all their energy on one thing and do that really well but it if they try to be everything for every one they will struggle,” he says.

“I would have reservations about their ability to compete in the mortgage market,” he says. “I think their offering is somewhat incoherent. They don’t seem to be sure whether they are going to distribute directly or through brokers, and has anyone ever spoken about the Revolut’s wonderful customer service?”

Mark Coan, of financial advisers moneysherpa.ie, says that although Revolut has grown at a staggering pace, it “hasn’t really damaged Irish bank profits” as bank margins usually come from lending rather than payments.

But he is more upbeat about the prospects for change than Deeter. “By capitalising on its massive brand awareness, fintech efficiencies and low-cost funding from its significant customer deposit base, Revolut could revolutionise the Irish mortgage market,” Coan says.

“In theory they could undercut Irish traditional banks’ mortgage rates significantly due to their lower costs. A lot of the cost of mortgages is driven by branch and other overheads fintechs simply don’t have. But it remains to be seen quite how aggressive they choose to be. As Ireland seems to be a test market for Revolut’s bigger markets, though it would seem almost certain they intend to take a significant slice of the pie.”

Daragh Cassidy of bonkers.ie watches the Irish financial sector closer than most people and although he has no doubt Revolut will make the mortgage application process “very easy and slick and seamless, a question remains as to how competitive its rates will be”.

“Revolut now offers personal loans and credit cards. But it’s by no means the cheapest for these products. Will it be the cheapest for mortgage lending? A mortgage is such a big financial decision that many people will have no problem taking out a loan with a more ‘traditional’ lender if it means they’ll get a better rate and save tens of thousands over the lifetime of the loan.”

Cassidy also wonders what Revolut’s lending standards will be like. “Will it offer many exemptions? How will it treat applications from the self-employed? How will it treat commission income? Will it offer terms over 30 years? It could have quite strict lending standards especially at the start if it will rely on automation and AI as opposed to human input to make underwriting decisions.”

He notes that if someone has a “somewhat tricky mortgage application” it may only get approved after being intensely reviewed and assessed by a qualified mortgage adviser and perhaps even senior management, and it may require several follow-up calls with the applicant. “Revolut may simply refuse all these applications outright and only accept the ‘perfect’ ones as it may not want to deal with people by phone,” he continues.

“What’s more, around 50 per cent of lending now goes through brokers. They’re a very important part of the Irish mortgage landscape. Will Revolut use this channel?”

Cassidy also points to “a perception of unsafety around using Revolut. Even though almost everyone now has a Revolut account, many people are still wary of using it as their main day-to-day current account or for their savings. Admittedly, this is less of an issue when it’s Revolut lending you the money – the risk is really all on them. But a lot of Irish people still value the personal touch and being able to chat to someone.”