I come across a lot of cases Ronan like your fiancée in One Fine Day.
If it’s any consolation (and I know it isn’t), the banks might be doing her a favour: almost all businesses fail (half in the first five years on average, 80% within ten years). Business survivourship rates are even lower for IT related companies and for partnerships.
Why are they doing her a favour? Because even when the banks do lend money to start ups/SMEs it has to be personally guaranteed. Net net: when the business fails (as most do) the entrepreneur doesn’t go back to square one, he/she goes back to square minus one as the debts have to be repaid even after the business is gone.
@Sean
Thanks for that link – interesting to see similar stories in the UK, but not in the US or – indeed – Portugal (in the comments).
@Gerard
I can understand your point in relation to credit. But One Fab Day isn’t even daring to dream of a loan, all it wants is a merchant account so it can trade! No risk to either the enterprise or to the bank, but banks seems to perceive this to be “hassle”.
Two relevant stories: We could not get a highstreet mortgage BEFORE the bust as two self-employed freelancers. We were paying €1100 a month in rent. We had 50% down, cash. It was insanity. We ended up getting a sub-prime mortgage and self-certifying. Our payments are €474 per month. It is sheer dumb luck our rate is ECB +1.
Second of all, as part of my unreliable and financially unsound freelance work, I create ecommerce websites for Irish businesses. I always try to get people setup with an Irish bank. I *routinely* end up sending people to the US despite heroic efforts because it is virtually impossible for a new business to get a merchant account for CNP sales here. It is a serious, serious problem.
An independent, well-functioning banking system is at the heart of a modern market economy. What you are proposing (in a small way) is that the operation of the banking system be dictated by politicians. It is hard to understate how wrong a direction this is to go in.
I do not see how the government could give a diktat like that to a privately controlled bank (Bank of Ireland).
I agree that the banking system is not functioning well in a number of respects. If the government wants to intervene in the banking system, they should do so by establishing a new regulatory regime, then selling part or all of AIB/pTSB to a new player. If the government wants to solve the specific credit-card transaction processing problem, they should do so by other means, i.e., encourage, entice or goad Paypal into providing a more upmarket service.
You are also proposing easy answers to difficult (but not insurmountable) problems. The real difference between Ireland and the UK and Germany over the next few years wil be that their banks have developed far superior transaction systems over the last ten years. At the same time IPSO and the Irish banks have failed to deliver any progress or to align us with the UK or German systems. This is a big problem for Irish banking (but not one that the government can micromanage to a solution).
Gerard: it is true that it most businesses do shut down within a few years, but it is not quite true to say they all ‘fail’. Many fulfill their purpose to a greater or lesser extent and then shut down.
On a practical note, did One Fine Day try Worldpay?
@Antoin,
Thanks for the comment. Unfortunately, Worldpay is even more expensive (and less flexible) than Paypal and the Irish banks (if they do give you an account). Also, it doesn’t integrate well on to websites and, according to those who deal with these things, has significant customer trust issues and so would hamper export volumes. Even if One Fab Day did go that route, the argument above in relation to banks would still remain.
Regarding your more substantive point, this is capitalism. Shareholders set the agenda, not management. If the taxpayer is the shareholder – and even leave aside that this is for reasons for which the banks should be extremely grateful – then the taxpayer calls the shots. Simple as. If the taxpayer does not impose its will, you have a direction-less company that is only out to tread water or serve its management. To turn your point on its head, “it is hard to understate how wrong a direction this is to go in.”
If we had an independent, well-functioning banking system (which to be fair you note yourself we don’t), it would spot this opportunity for significant sustainable low-risk profits and seize it. The fact that we don’t speaks volumes. There is no appetite at the moment among banks internationally to come into Ireland, so we need to look to the banks that we in large part own. As Ireland already has a home-grown world-leading online payments service provider in Realex, so we don’t need to ask PayPal to change for “little ol’ Ireland”. All we need is a banking system that works!
I’m not asking for crony capitalism (Johnny TD’s nephew gets fast-tracked up the queue because of who he knows), I’m asking for targets. If the country were to put in place a goal of 100,000 extra companies trading online by 2020, and owns some banks, it’s obvious how these connect. The government has already done this – and will be doing it again – in relation to mortgage provision. Why not SMEs?
It is the obvious but wrong answer. It is also the obvious but wrong answer in relation to mortgage lending.
This is not capitalism. This is state-controlled allocation of capital.
The reason foreign banks have no appetite to enter the Irish market (and to a greater or lesser extent the reason why Fortis and BoSI have exited the Irish banking market) is that the market is all tied up by banks the government owns or has a large position in and which the government’s interest is to support.
Unfortunately it looks like the lack of well-run privately owned banking in Ireland is driving customers off-shore (according to tweets which suggest that Citibank US has taken an interest). There is a lesson here, but imposing targets is not it.
I think there is a real danger that small Irish websites wishing to trade online will start using products offered by US-based companies like Stripe (stripe.com) and Noca (noca.com) and pay them a premium just to avoid the hassle of setting up merchant accounts with Irish banks.
@Martin
Thanks for the comment. As it happens, someone working with Citi based in Texas actually got in touch with One Fab Day yesterday upon hearing about this – it was, apparently, a shock to talk to a bank where the focus was on solutions, not barriers. From One Fab Day’s point of view, fingers crossed it all works out but the broader point remains: how ridiculous is it that a US bank, not an Irish bank, picked up on this and acted on it?! Other start-ups are saying it’s actually just easier to set up in Delaware and go from there (without moving physically at all).
While Antoin disagrees, and I see where he’s coming from re diktat, I firmly believe that the combination of national (non-bank specific) policy targets and shareholder prerogative must be used to overcome the spectre of zombie banks refusing profit and stifling jobs growth.
R
Tyrone Slothrop
,
Ehhh, Mr.Lyons, Alpha Centauri is a binary star system with a combined magnitude of -0.27 and therefore not a planet. No life can exist in or on a star, let alone a binary system. Are we to believe these are some kind of magical aliens??
Richarrd
,
Ronan. Very similar story, my company is an EI HSPU and we had to get them to intervene to get a merchant account. Even then there were strings attached. Looks like there is an opportunity for someone to bypass the banks on this – see Realex Ciara Pay
Help!
,
HOw do you set up a merchant account in the US/where do you go to do it? Help appreciated please email applecore@ireland.com
What about looking for a lower rate from Worldpay for Irish startups? That would seem much more viable than trying to get these banks to do business they just don’t want to do.
Excellent piece Ronan, I think a lot of the problem is that IRish banks in general have underinvested in IT services in recent years, preferring instead to spend it outsourcing to a narrowing circle of providers who themselves are not spending either. As a result the level of innovation in terms of business services are low.
The suggestions about basing offshore are probably – sadly – your finances only real options at the moment, but remember there is the whole of Europe if you are able to manage the various languages.
Sean Murphy ,
Tales of woe setting up merchant a/cs in the UK:
http://zachinglis.com/2011/why-the-uk-startup-scene-is-doomed/
Interestingly, the solution was to set up a US a/c which seemed altogether much easier…
Gerard O'Neill ,
I come across a lot of cases Ronan like your fiancée in One Fine Day.
If it’s any consolation (and I know it isn’t), the banks might be doing her a favour: almost all businesses fail (half in the first five years on average, 80% within ten years). Business survivourship rates are even lower for IT related companies and for partnerships.
Why are they doing her a favour? Because even when the banks do lend money to start ups/SMEs it has to be personally guaranteed. Net net: when the business fails (as most do) the entrepreneur doesn’t go back to square one, he/she goes back to square minus one as the debts have to be repaid even after the business is gone.
Like I said, it’s no consolation…
Ronan Lyons ,
@Sean
Thanks for that link – interesting to see similar stories in the UK, but not in the US or – indeed – Portugal (in the comments).
@Gerard
I can understand your point in relation to credit. But One Fab Day isn’t even daring to dream of a loan, all it wants is a merchant account so it can trade! No risk to either the enterprise or to the bank, but banks seems to perceive this to be “hassle”.
Sabrina Dent ,
Two relevant stories: We could not get a highstreet mortgage BEFORE the bust as two self-employed freelancers. We were paying €1100 a month in rent. We had 50% down, cash. It was insanity. We ended up getting a sub-prime mortgage and self-certifying. Our payments are €474 per month. It is sheer dumb luck our rate is ECB +1.
Second of all, as part of my unreliable and financially unsound freelance work, I create ecommerce websites for Irish businesses. I always try to get people setup with an Irish bank. I *routinely* end up sending people to the US despite heroic efforts because it is virtually impossible for a new business to get a merchant account for CNP sales here. It is a serious, serious problem.
Antoin O Lachtnain ,
An independent, well-functioning banking system is at the heart of a modern market economy. What you are proposing (in a small way) is that the operation of the banking system be dictated by politicians. It is hard to understate how wrong a direction this is to go in.
I do not see how the government could give a diktat like that to a privately controlled bank (Bank of Ireland).
I agree that the banking system is not functioning well in a number of respects. If the government wants to intervene in the banking system, they should do so by establishing a new regulatory regime, then selling part or all of AIB/pTSB to a new player. If the government wants to solve the specific credit-card transaction processing problem, they should do so by other means, i.e., encourage, entice or goad Paypal into providing a more upmarket service.
You are also proposing easy answers to difficult (but not insurmountable) problems. The real difference between Ireland and the UK and Germany over the next few years wil be that their banks have developed far superior transaction systems over the last ten years. At the same time IPSO and the Irish banks have failed to deliver any progress or to align us with the UK or German systems. This is a big problem for Irish banking (but not one that the government can micromanage to a solution).
Gerard: it is true that it most businesses do shut down within a few years, but it is not quite true to say they all ‘fail’. Many fulfill their purpose to a greater or lesser extent and then shut down.
On a practical note, did One Fine Day try Worldpay?
Ronan Lyons ,
@Antoin,
Thanks for the comment. Unfortunately, Worldpay is even more expensive (and less flexible) than Paypal and the Irish banks (if they do give you an account). Also, it doesn’t integrate well on to websites and, according to those who deal with these things, has significant customer trust issues and so would hamper export volumes. Even if One Fab Day did go that route, the argument above in relation to banks would still remain.
Regarding your more substantive point, this is capitalism. Shareholders set the agenda, not management. If the taxpayer is the shareholder – and even leave aside that this is for reasons for which the banks should be extremely grateful – then the taxpayer calls the shots. Simple as. If the taxpayer does not impose its will, you have a direction-less company that is only out to tread water or serve its management. To turn your point on its head, “it is hard to understate how wrong a direction this is to go in.”
If we had an independent, well-functioning banking system (which to be fair you note yourself we don’t), it would spot this opportunity for significant sustainable low-risk profits and seize it. The fact that we don’t speaks volumes. There is no appetite at the moment among banks internationally to come into Ireland, so we need to look to the banks that we in large part own. As Ireland already has a home-grown world-leading online payments service provider in Realex, so we don’t need to ask PayPal to change for “little ol’ Ireland”. All we need is a banking system that works!
I’m not asking for crony capitalism (Johnny TD’s nephew gets fast-tracked up the queue because of who he knows), I’m asking for targets. If the country were to put in place a goal of 100,000 extra companies trading online by 2020, and owns some banks, it’s obvious how these connect. The government has already done this – and will be doing it again – in relation to mortgage provision. Why not SMEs?
Antoin O Lachtnain ,
It is the obvious but wrong answer. It is also the obvious but wrong answer in relation to mortgage lending.
This is not capitalism. This is state-controlled allocation of capital.
The reason foreign banks have no appetite to enter the Irish market (and to a greater or lesser extent the reason why Fortis and BoSI have exited the Irish banking market) is that the market is all tied up by banks the government owns or has a large position in and which the government’s interest is to support.
Unfortunately it looks like the lack of well-run privately owned banking in Ireland is driving customers off-shore (according to tweets which suggest that Citibank US has taken an interest). There is a lesson here, but imposing targets is not it.
Martin Harrigan ,
Great post.
I think there is a real danger that small Irish websites wishing to trade online will start using products offered by US-based companies like Stripe (stripe.com) and Noca (noca.com) and pay them a premium just to avoid the hassle of setting up merchant accounts with Irish banks.
Ronan Lyons ,
@Martin
Thanks for the comment. As it happens, someone working with Citi based in Texas actually got in touch with One Fab Day yesterday upon hearing about this – it was, apparently, a shock to talk to a bank where the focus was on solutions, not barriers. From One Fab Day’s point of view, fingers crossed it all works out but the broader point remains: how ridiculous is it that a US bank, not an Irish bank, picked up on this and acted on it?! Other start-ups are saying it’s actually just easier to set up in Delaware and go from there (without moving physically at all).
While Antoin disagrees, and I see where he’s coming from re diktat, I firmly believe that the combination of national (non-bank specific) policy targets and shareholder prerogative must be used to overcome the spectre of zombie banks refusing profit and stifling jobs growth.
R
Tyrone Slothrop ,
Ehhh, Mr.Lyons, Alpha Centauri is a binary star system with a combined magnitude of -0.27 and therefore not a planet. No life can exist in or on a star, let alone a binary system. Are we to believe these are some kind of magical aliens??
Richarrd ,
Ronan. Very similar story, my company is an EI HSPU and we had to get them to intervene to get a merchant account. Even then there were strings attached. Looks like there is an opportunity for someone to bypass the banks on this – see Realex Ciara Pay
Help! ,
HOw do you set up a merchant account in the US/where do you go to do it? Help appreciated please email applecore@ireland.com
Antoin O Lachtnain ,
What about looking for a lower rate from Worldpay for Irish startups? That would seem much more viable than trying to get these banks to do business they just don’t want to do.
Ronan Lyons ,
@Help!
I’m not an expert on the finer points of getting a merchant account but you might check out this link which has a good bit more information:
http://zachinglis.com/2011/why-the-uk-startup-scene-is-doomed/
If you’re on Twitter, you might try talking to: http://twitter.com/#!/AskCiti
Hope that’s of use,
Ronan.
Laura ,
Excellent piece Ronan, I think a lot of the problem is that IRish banks in general have underinvested in IT services in recent years, preferring instead to spend it outsourcing to a narrowing circle of providers who themselves are not spending either. As a result the level of innovation in terms of business services are low.
The suggestions about basing offshore are probably – sadly – your finances only real options at the moment, but remember there is the whole of Europe if you are able to manage the various languages.