Penetration problems plague IT bank

Nine months after the launch of Eliot Bank, officials at Slovakia's most profitable bank, Tatra banka, maintain that their Internet off-shoot and Slovakia's only 'e-bank' has achieved what it set out to.
However, they have admitted that the market for Internet banks is limited, claiming that there is "only room for one Internet bank in Slovakia".
"The problem is not only with the [relatively low] rate of Internet penetration in Slovakia, but also that there is a ceiling on the market for an Internet bank. These types of bank are usually for younger people with less complicated demands, and there is a limit [to their numbers]," said Philippe Moreels, member of the board at Tatra banka in charge of Eliot.


Bank sector experts say interest in banking over the Internet can be satisfied by Internet services offered by regular 'physical' banks.
photo: Ján Svrček

Nine months after the launch of Eliot Bank, officials at Slovakia's most profitable bank, Tatra banka, maintain that their Internet off-shoot and Slovakia's only 'e-bank' has achieved what it set out to.

However, they have admitted that the market for Internet banks is limited, claiming that there is "only room for one Internet bank in Slovakia".

"The problem is not only with the [relatively low] rate of Internet penetration in Slovakia, but also that there is a ceiling on the market for an Internet bank. These types of bank are usually for younger people with less complicated demands, and there is a limit [to their numbers]," said Philippe Moreels, member of the board at Tatra banka in charge of Eliot.

Launching Eliot to a loud round of applause from its owners, Tatra banka said in August last year that it hoped to have 10,000 clients at Eliot at the end of the year. The bank has declined to release client figures for its operations so far, but some in the banking sector have questioned the venture's success.

"It's not been a success at all. In fact, a notable failure would be a better description," said one senior source in the sector.

Moreels, when asked by The Slovak Spectator how many clients Eliot had attracted, said: "We've reached a 'nice' number of clients. I don't want to say any numbers, but a 'nice' amount."

Few other banks, indeed, seem convinced of the chances for success for an Internet bank, instead pointing to the potential of existing Internet banking services already provided by most retail banks.

"We offer many Internet banking services and plan to expand our whole range of electronic banking to include banking via mobile phones, but we are not planning to launch any separate Internet bank. We don't see such demand for an Internet bank because people already have Internet banking and can use that," says Adriana Straussová of Istrobanka, a mid-sized Slovak bank.

Tomáš Kmeť, analyst at Slovenská sporiteľňa, Slovakia's largest bank adds: "What would be the point of a bank like ours starting an Internet bank? There may be some advantages in not having the fixed costs of starting up a branch network, you just need one big server. But many 'classic' banks already offer forms of Internet banking anyway."

He added that the e-banking market, whatever its size, is more likely to be dominated by Internet banking, where clients use the Internet to carry out day-to-day transactions and deposits on existing current or term accounts in established 'physical' banks.

"An Internet bank and Internet banking are different things. An Internet bank is in effect, a 'virtual' bank. And yes, some people may want to have a bank which they don't have to go to and be offered 50 different services. But it is Internet banking which is becoming more and more popular, and for more sophisticated clients the Internet is a convenient way to bank," Kmeť says. "At this point I would say that there is very limited space for growth [of an Internet bank market]."

An IT barrier

The point, though, is one which Moreels is reluctant to concede. "Yes, all 'classic' banks will offer Internet banking services, and as Internet penetration grows, so will demand. But so too will demand for a pure Internet bank."

With low rates of penetration - 15% of Slovaks use the Internet regularly according to the most recent polls carried out by Taylor Nelson Sofres Factum - the future for Eliot looked limited even as it was started. The Internet penetration figure for the neighbouring Czech Republic is 22%, while in the US the figure is as high as 58%. Moreels concedes that IT development will be an important factor in Eliot's future success.

"The market for Internet banks is smaller here than in a country like, say, Britain. There's a very low rate of Internet penetration here, and while that rate will increase, I'm afraid the speed of that increase will hold the growth [of Eliot] back. Until Internet penetration grows, the market for both Internet banks and Internet banking won't grow.

"There isn't room here at the moment for more than one Internet bank," he said.

Istrobanka's Straussová explains that her bank saw the low Internet penetration rate in Slovakia as a barrier to any bank starting a new virtual bank. "One of the main reasons we wouldn't see anyone start up an Internet bank as a separate operation is simply that when you look at the number of people in Slovakia who use the Internet, it is so low that we just don't think there would be any point in doing so."

IT experts have said that the future for growth in IT is uncertain. "The IT sector in general will grow and Internet penetration will rise in the next few years, approaching the levels of the Czech Republic. However, exact numbers are hard to predict," said Braňo Črep of the Slovak Internet advisory firm Core 4.

Despite the problems with the slow growth of the IT market, and the potential dominance of Internet banking over Internet banks, Moreels believes there is still an important place Eliot can command in the Slovak banking market.

"We started Eliot precisely because it was a completely different market [to Internet banking]. There are a lot of people out there who want a simple bank - not one that offers them lots of different choices. I think that we can see the bank has been a success," he says.

"Are there any other Internet banks in Slovakia?"

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