The fear is that it’s those who stay at home, rather than those who venture abroad, who will end up lifelong losers. The smart money in consumer banking used to avoid international expansion. JPMorgan Chase’s Jamie Dimon once said opening a retail bank outside the US was a recipe for “losing money pretty much the rest of your life”.
Yet Chase is now spreading across Europe — while Revolut, which operates in 40 countries, is valued at $115bn. And for those yet to go global, it is easier than ever to try. Historically, the problem with international banks was that, while they may look like one group from outside, behind the scenes was often a sprawling mess of different systems and organisations.
Between local regulations and the need to run large branch networks in each market, there were few economies of scale. That’s why groups such as HSBC and Citigroup have spent years shedding non-core businesses. However, modern tech platforms make international scale more attractive.
Products developed for one market can be quickly adapted for use elsewhere. Language and local quirks are still a barrier, but digital-only lenders don’t need huge teams of local branch staff. If European regulators finally make some progress in harmonising rules, cross-continental expansion would become much easier.
Contrary to Dimon’s past remarks, a new bank might now pay for itself pretty quickly. Chase UK racked up cumulative pre-tax losses of £264mn before breaking even on an annual basis, but made back more than half of that total in pre-tax profit last year, according to analysis by UBS. Nor is Chase the only one trying to disprove the theory that international expansion is a fool’s errand.
Italy’s Intesa Sanpaolo said the tech it developed for a digital-only bank in its home market would become “a key enabler for expansion into new international markets”; BBVA thinks opening new digital banks across Europe is preferable to the hassle of acquisitions. The current interest rate environment encourages the approach. Higher rates increase banks’ profit margins but weigh on loan demand; having a new market to tap therefore adds more of a growthy zing to results.
Lloyds Bank, which has a habit of quietly trying new things — as shown in its experiment in owning and letting out residential properties — is building its retail bank presence in Germany and the Netherlands. There are not many business lines in the UK where it could grow assets by 15 per cent per year. Good news as this is for old-school bankers who want to feel like tech entrepreneurs, it’s worrying for banks hoping to rest on their laurels.
British start-up Allica, for one, is targeting markets including Sweden, Ireland and the Netherlands that are highly consolidated. With price comparison websites, brokers and, soon enough, AI agents, it is relatively simple for new entrants to get a foothold in savings and loans, if not current accounts. Seasoned bank chiefs like to remind investors that the sector hasn’t had a good crisis in a while.
A real credit cycle could leave egg on the faces of those who grow too quickly in unfamiliar markets. But this is probably more of a worry for digital upstarts than it is for those who endured previous routs, like Chase and Lloyds. This time, the fear is that it’s those who stay at home, rather than those who venture abroad, who will end up lifelong losers.
Source: Financial Times Companies · Summarized by HeadlinesBriefing