Interview with Brian Hayes, CEO of Banking & Payments Federation Ireland (BPFI)

Interview with Brian Hayes, CEO of Banking & Payments Federation Ireland (BPFI)


BF:  Ireland’s economic performance and trajectory over these last 2-3 years has been characterized by resilience and steady growth in an uncertain global context. Despite the global headwinds, the Irish economy is exiting the pandemic with strong economic growth, projected to exceed 10% this year.  To begin today’s interview, and from your perspective as CEO of BPFI, what would you highlight as the dominant forces this year shaping the Irish economy and positioning it as one of the fastest growing in the EU?

Brian Hayes:  I think the most important thing about the Irish economy is its international nature. I think that Ireland has a huge advantage in having a very diverse number of significant industries based here. You have areas on the technology side and on the international banking side especially, which we, of course, represent. The internationalized economy is a big plus for Ireland. Secondly, I think the other plus for Ireland, particularly as we were in the middle of this very difficult period of inflation, supply lines and the war in Ukraine, is its absolute position within the Eurozone. I was a former MEP, and I think the number one thing for Ireland is to be at the absolute core of the Eurozone. That’s a huge advantage, coming to set up business and grow it and serve as corporate and reach clients via Ireland. Thirdly, Ireland has done well from the fallout of Brexit in terms of international financial services. We are a common law jurisdiction, we speak the English language, we are in the Eurozone. I see a second wave of opportunities from Brexit, frankly, which will help international business grow and develop here. I think the international economy is one, the position in the Eurozone is two, but also the increasing opportunities from Brexit which have yet to be fully tapped in terms of new business opportunities.

BF:  Ireland’s banking sector is an economic powerhouse. It comprises over 500 firms, 17 of the top 20 global banks among them, and employs more than 105,000 professionals. Additionally, Ireland services over €5.2 trillion of assets under administration, and is a global fintech hub. To what extent is the financial services industry being impacted by the exit of two key retail banks and the ongoing inflationary pressures?

Brian Hayes:  I think there are challenges for the retail sector. At one level, a population of five million people having six or seven retail banks, in terms of scale, may not be the best way forward because right the way across the European Union, increasingly you want banks of scale because the retail banking market is really an economy of scale business. We would be left with three fully serviced retail banks once Ulster Bank and KBC leave the market, but there are lots of other potential areas for growth in the fintech area, in the payments area, the SME lending area. What is happening in Ireland is no different to what is happening in other parts of the European Union in that the whole focus of the ECB and the SSM is around having banks of scale and larger banks with larger capital positions and larger liquidity. I think that what is happening here is, broadly speaking, happening in other markets. You take the UK, for instance: it has effectively no more than six fully serviced retail high street banks for a population of 60+ million people, so I think Europe effectively is overbanked. I think there is an opportunity for the banks that remain to become bigger and stronger and diversify into new markets, and that is something that you should always appreciate.

BF:  How would you characterize the growth of fintech and non-bank lenders in Ireland, and how is this reshaping the financial services sector as a whole?

Brian Hayes:  I think it is keeping people very competitive. The non-bank lending market in Ireland, particularly mortgages or SME lending, has grown quite significantly in recent years. In a sense, they may find a challenge in the number of years because the increasing ECB rates puts additional pressure on them for wholesale markets because they are non-deposit making banks, so it’s important from a competition perspective that they remain strong; notwithstanding, they come and go based on where the economic cycle is. I think what is exciting about the emerging fintech opportunities from Ireland is this connection to digital and finance. The reason why banks come here to Ireland is because there is a huge skills reserve and people are really good at digital and technology transfer. Those are really crucial drivers for the Irish economy and for financial services, especially. I think there are big opportunities particularly in the fintech area. What you are also getting is wholesale and retail banks that are utilizing some of the things they are seeing in Ireland and bringing more and more opportunities from the digital area. That is something I think many international banks come here for back office, but then they end up very much front office.  They become banks which are about generating revenue in the future rather than just doing a piece of their work behind the scenes, and that’s something that is hugely important to the nature of the economy here.

BF:  BPFI plays a critical role bringing together Ireland’s financial institutions and service companies across different segments, including international banks and FinTech. What are some of the most significant issues you are focusing on in terms of your lobbying efforts on behalf of the financial institutions and other non-bank entities?

Brian Hayes:  I think we will get, in the next week or so, a report on the future of retail banking which will be very important in terms of the landscape and environment, for some of the challenges we face here are around the amount of capital that must be held here, given the scale of the collapse that emerged here 12-13 years ago. It is inevitable that banks have to hold more capital. I think what we have seen emerge since the macroprudential rules by the central bank in 2015 is a much safer environment for lending and borrowing, which I think has been to the advantage of the whole sector as we go forward in terms of de-risking the things that are there. We work closely on non-competitive collaboration and how we can help as an industry. For instance, we worked very hard during the COVID payment break, establishing that 180,000 people got payment breaks over that period, from businesses to mortgage customers. We did it within the context of the European Banking Authority Regulatory Framework. We’re working right now on a fraud database; we are working on an instant payment platform which has now got regulatory approval. There are things we can do that are open for everyone in a non-competitive way and that are really helpful to the long-term viability of the industry. We think collaboration is crucial from the perspective of creating a better environment for all our members.

BF:  In your opinion, what are the top reasons that foreign investors should choose Ireland as a place to set up shop?

Brian Hayes:  Skills, number one. I think we have, across the European Union, probably the highest number of people in university or third level of education. I think skills is one. Two, a flexible work force. Our labor laws here are not very restrictive which means there is great opportunity for people to inculcate the kind of flexibility that maybe other countries don’t have as an offering. Three, I think common law jurisdiction is really important for businesses that come here because we have a written constitution. We have a very good court system which is important for investors that come to Ireland. I think four is the open nature of the economy. I think it is a very open place to do business. It’s an open place to work with regulators. It’s an open place for the purposes of developing. It’s not highly bureaucratic. I think you can make decisions quickly and that is something that we should never underestimate in terms of the nimbleness of the economy to move across the way.

BF:  The last 12 months have been dominated by inflationary pressure that emerged in the post-pandemic recovery period and that have only been exacerbated by the Ukraine crisis. What can you tell us about lending activity in Ireland in this high-interest rate environment? How are banks managing this and what is the effect on corporates and consumers?

Brian Hayes:  Banks are increasing interest rates because the European Central Bank (ECB) is increasing interest rates. I think the ECB was probably slower than the Federal Reserve or the Bank of England to start moving toward interest rate normalization. We have gone through a decade of lower for longer interest rate environment which really dulled the profitability and long-term investment in the banks across Europe, not just here in Ireland. The fact that we are moving toward a more normal interest rate environment puts a lot of pressure on the banking sector to get this right as they go forward but also in trying to get the appetite right. The IMF had a very good report recently about Ireland published in July, and they made the point that what is important as we go through this dulled economic environment internationally is that the banks continue to lend for corporates, households, and individuals. They play a key role in trying to resuscitate the economy as we come through this more challenging economic environment. The problems for Ireland are really problems around success. We have increased our population significantly; we have a housing problem in this country. A lot of people who can’t get work in other parts of Europe come to work here. It’s the problems of success, I think. Banks must be nimble and clear and be able to lend in the real economy as they go forward. I think that is something they are very aware of. But there is a great opportunity for businesses here, especially. Many of those businesses who came through the last recession deleveraged and reduced their balance sheet. The capacity to take on new credit now is important for their own investment, and I think that is a critical role that the banks will play. International banks, especially, are huge drivers behind the EU Next Generation Project, which is around funding the transition for climate and de-risking the economy and making sure the transition is open, so there’s opportunities for the banks here, both international and local, to fund the transition that is required for climate change and a lot of skills here in Dublin, especially at the international bond level.

BF:  Are there any specific areas — such as sustainable finance — that you see having strong growth potential in the coming years?

Brian Hayes:  I think for us the top three issues as we look into the next three years are: sustainable finance and ESG, the development of the digital economy, and how the Irish banking sector, with our colleagues in the European banking sector, can keep people safe in terms of the anti-fraud and cyber and AML (anti money laundering) agenda. On climate change, I think three issues stand out: First, making sure the products we bring forward fit in the European wide taxonomy. Secondly, that we get better collaboration across public and private sector when it comes to assessing the balance sheets of banks. We have gone through an ECB stress test recently and did a lot of learning from that, and we need to work public authorities across the European Union and in Ireland to make sure we get the data mix right to make sure we understand what are the risks that are there on bank balance sheets. And finally, we need to focus on making sure that in the banks there are people with skills to actually understand that risk, who can bring forward new products, who can actually help corporates, and SME businesses, big and small, to make the transition. The government in this country has very clear objectives for heat pumps for retrofitting of homes, changing the public transport of buses and the like. We need to see the same kind of ambition in our businesses now, because if we are going to make the transition between now and 2030, and 2030 and 2050, it requires a huge injection of private capital, and that is essentially what the banks job is around making sure that capital transfer happens. I think climate will be absolutely at the core of wholesale banking and retail banking in the future. We can get the world to a better place because the banks fundamentally are capital intermediaries. I am passionate about why we need to make more progress in this area.


BF:  With the UK leaving the European Union, Ireland – together with Malta – have become the only English-speaking jurisdictions. This has created a big opportunity for Ireland, who’s banking sector already was well positioned as an international financial center. Tell us a bit about the evolution of Ireland as an international finance hub, and why it has so successfully capitalized on the Brexit opportunity?

Brian Hayes:  We are very close to the UK, and effectively the home of capital markets in Europe is the City of London. The skills are there still within the City and if you are servicing clients, the City is still an important entity. But the UK is now a third country regime in the sense that it is outside the European Union and for Ireland, which is obviously very close to the UK and shares a land border through Northern Ireland, we are very conscious of the whole skills issue and the equivalence issue which, of course, is really important to the future. We currently have three single supervisory mechanism banks with European headquarters here in Ireland: Barclays Bank, Bank of America and Citibank; two of which expanded and relocated their European headquarters to Dublin as a direct result of Brexit.

We have seen also many less significant institutions also relocate. We have seen a lot of US Banks relocate to Dublin because of the opportunities that are there. That is a huge opportunity for Ireland. I think what is really important is that the European Union is as strong or as weak as all its component parts, and we have got to make sure that we have good competition for financial services across the European Union. It’s in everyone’s interest that we have competition. It’s in everyone’s interest that we have a diverse financial services ecosystem, and one the advantages is that places like Dublin, Amsterdam, Malta, and many other places gives is as a counterweight to say, Frankfort and Paris. Otherwise, everything moves to the center and that is not in the interest of the European Union on a long-term basis. I think it’s important that the Brexit opportunity has been realized here and that there are further opportunities to come as we go forward.

BF: The digital revolution is having a lasting impact on how, when and where people bank. Ireland, as a global hub for FinTech, is at the forefront of this change. What are the biggest changes that the digital revolution has brought to the finance sector, and what is BPFI doing to promote implementation of FinTech in Ireland?

Brian Hayes: One of our key associate memberships is around the FinTech Association of Ireland, where we have businesses big and small as our members. I think because we are so closely established as financial services to a digital hub here in Dublin, with some of the biggest digital names internationally here in Ireland, there is a great opportunity for us to do well on the financial services side. I think a huge outcome on digitalization is around making sure that people are safe, that we de-risk payments; that we de-risk because around cybersecurity, some of the issues are now more evident. We have seen digitalization become one of the outcomes of COVID. We had already seen digitalization before the pandemic, but COVID accelerated even further the use of digital products. I think what we have got to do going forward is to make sure that people are safe in that environment. So safety, anti-fraud agenda, anti-money laundering agenda, is going to be critical to the future of digital services. Not everyone can make that journey immediately so there are still going to be traditional bank branches, traditional cash points, and I think most banks today servicing the Irish market are a combination of call centers, branches and digital offering. We are seeing recently, with the loss of Ulster Bank and KBC, the great majority of the new accounts opened have been opened digitally, which has been to the benefit of customers. There will still be branches needed for certain customers, for people who may be digitally challenged, but ultimately, we’re entering a phase now where more and more banking will be done online, and people are voting with their fingertips and with their online bank branches, which I think provides the kind of information they need on an ongoing basis.


BF:  Cryptocurrencies are again in the spotlight because of the FTX fiasco. What is BPFI’s position on crypto and how do you gauge its future?

Brian Hayes:  I think it’s important that disruptive technologies are taken seriously. There is a place for those disruptive technologies in the banking and payments landscape because they serve a need and it’s inevitable while they are very young, there is a massive valuation fluctuation based on whether people believe them. I think for us, what’s really important, first and foremost, that we get the digital Euro Currency right. That is now happening at an ECB level. I think banks have very strong views on that and the ECB is right to take it on a step-by-step approach to see how the digital currency will go. I also think that we need an EU wide response to this rather than saying crypto has to be governed member state by member state. It seems to me that if we are serious about putting a proper regulatory architecture in place to help both those crypto businesses, but also consumers who use them, that there isn’t a diffuse European response to this. We haven’t seen that so far in Europe, and that is something that we are very clear in lobbying for on an EU wide basis. People have to realize that while the advantages can be fantastic there are also risks there. I think that was more recently highlighted in terms of some of the issues that have come out and I think we do need to see a proportionate regulation here. The Irish banking sector and the European banking sector have gone through this mammoth regulatory challenge in the last decade or so. Others haven’t, and I think those who want to see themselves as competitors in this space need to realize that the regulatory landscape applies to them, as it applies to everyone else.

BF:  What do you think will be the next “big thing” in digital finance?

Brian Hayes:  I think we are already there. If you look at AI or data engineering or block chain, they’re driving a lot of the kind or product diversities but also trying to make sure that the data of banks can be used by those banks for the benefit of customers. I think block chain is ultimately around getting a much more predictive view of where customers are. I think some of the challenge that ordinary people have in dealing with banks is understanding the compliance agenda. I think this is an opportunity for that to be put to much better use by integrating block chain, AI, and data collection. I think the banks have this enormous data bank of information, and that’s a benefit to them but, more importantly, to their customers on a long-term basis. I think that, ultimately, it is around utilizing that data for the benefit of customers, nudging those customers trying to see about their financial well-being into the future. For example, will they put money aside for a pension or are they going to invest? I think banks will ultimately become more diversified rather than just deposit takers or payment makers or credit sources. I think in a sense the banks inevitably move at a slower pace because of the regulatory burden that they suffer. They have to suffer because they are banks, but they have to embrace the technology side for the purposes of really getting a better, more diverse range of products to their customers on a long-term basis.

BF:  US-Ireland relations continue to peak as business is flowing in both directions. Many of the US Fortune 500 companies have established their regional HQs in Ireland, and Ireland is surprisingly the US’s 9th biggest foreign investor.  Tell us a bit of the financial relationship between Ireland and the US and what are the foundations of their partnership and in what areas do you see there being room for closer collaboration? What do you think will be the effect to the Irish-US partnership in finance and banking once the new OECD-wide corporate tax rate is implemented in Ireland?

Brian Hayes: I think it is a deeply personal relationship because of the connection between Ireland and the US and the number of people who associate with being Irish in the United States and vice-versa, and it works both ways to your point. Most people are not aware that Ireland is a huge investor in the United States, with the most recent figures indicating $269.4bn Irish investment in the US in 2021. But what we have seen as well, particularly since Brexit, has been more and more US banks look toward Ireland. They realize that in the same way that their customers are here, they need to be here. I’m talking about their corporate customers or their FDI here. It has to be to the long-term benefit of Europe to have the US banks in Ireland, in Germany, in France. The other thing I will say is this: if we are really going to develop a capital markets union across the European Union, we need the diversity of those third country US banks in Ireland and elsewhere to do the kind of things like digitalization, on ESG, on climate; there are huge opportunities there. It’s a deeply personal relationship. I think US businesses feel safe here. They look at the success of large businesses like Apple and others that have been here for many, many years and have developed their European offering via Ireland. I think it’s a place between Europe and the United States which is regarded in a safe way for those US investors that are looking for opportunities. We need the US banks which have traditionally been retail and wholesale banks. They have become big because they are investor banks, and they are retail banks. In Europe, we probably have too many banks and I think in Europe if we are going to develop a non-bank lending market, a capital markets union, we need these US banks to play to their strength, and I think they find Ireland a good place to bank in.


BF:  What do you think will be the effect to the Irish-US partnership in finance and banking once the new OECD-wide corporate tax rate is implemented in Ireland?


Brian Hayes:  I don’t believe there will be any negative effect because this has been coming for a long time. The Irish government has done a very good job in preparing the ground for the changes that are inevitable. What is important about a corporate tax regime is certainty and that it is fully complied with in terms of the international obligations, and I think the OECD and BEPS process which brought us to this point has been a long time in the offing. Most people are aware that it’s been coming, and the government have done a good job in preparing the ground for that. Certainly, the changes are well known, and I think won’t be a surprise to anyone.

BF:  As you took the helm of BPFI in May of 2019, you brought with you vast experience in financial policy, serving in both the Irish government and at the European parliament. What are some of the most valuable lessons you learned throughout your journey that are helping you steer BPFI?

Brian Hayes:  I think clarity of message, especially when it comes to what the banks need for the purposes of improving the landscape and the environment for competition in Ireland. Secondly, to be absolutely integrated to the European Union regulatory and supervisory system and not be an outlier in any way. What I mean by that is that we are fully integrated into the Eurozone, fully part of the Eurozone, and that we see organizations like the European Banking Authority, like the ECB, as absolutely central to our task in promoting the industry in Ireland. A third thing is the necessity to learn the mistakes of the past so that they are not repeated, and I said before publicly, I think taking a contrarian approach to banking was a good thing, making sure that a hard question was asked at a regulatory board level, at a C-suite level, is really important. I think we have learned the lessons of that, and we have seen a lot of really good advancements. What’s really important is that we learn the lessons of those mistakes as we go forward and have better lending, better borrowing, prudential lending, prudential borrowing, and a safer environment for people who invest and a safer environment for those banks. That has to be central to the things that I have learned in recent times.

BF:  What are your main ambitions as CEO of BPFI and how do you plan to achieve these?

Brian Hayes:  Our main ambition is that Ireland is a good place to locate a bank or a payment service business, that it is a competitive place, that the environment is right, that the message is understood by the public policy makers and by the public more generally about the good that the industry can do. Of course, the industry wants to make profit, but it has to be done in a sustainable way. It has to be sustainable over a period of time and in that context. I think our message has to be around explaining to public authorities and the public more generally about what wholesale international banks, or local retail banks, can do to advance some of the key priorities like ESG and keeping people safe from fraud. Banks play a critical role in society as key financial intermediaries, so I think making people aware of that is important. A lot of our jobs are in communicating more broadly to the public on things like an SME market monitor, on mortgage payments, on mortgage approvals, on a fraud smart initiative that we do; all these things are around giving accurate data to the public and the investor about what happens in Irish banks, and that has to be long term for the good.

BF:  What would be your final message to the readers of USA Today?

Brian Hayes: The US audience is so important to Ireland and the environment is a very stable, political environment, and it is a very stable economic environment, and it’s an environment which is at the heart of the European Union, and that’s Ireland’s future: the future of small countries with mixed economies around a strong Eurozone and a strong integration of that Eurozone and in a world where sometimes multilateralism can be put to one side, as we’re seeing in many areas of the world at the moment. Ireland is a strong multilateral player at a public authority level but also at a private level, too, in terms our investments, and that has to be really critical toward the US-Ireland relationship now, as it was in the past and will be in the future as well.