Cancellation of Esh Acquisition by Isracard
At first glance, Isracard’s decision to abandon the acquisition of the digital bank Esh doesn’t appear to alter the competitive landscape of the Israeli banking sector. Even without Isracard, which is indirectly backed by Delek Group, Esh is likely to launch alongside One Zero and Bank of Jerusalem, challenging the dominance of Israel’s five largest banks.
Nonetheless, this collapse is actually a setback for the initiative aimed at increasing competition in the banking industry.
Just two weeks ago, the Bank of Israel unveiled the final regulations for its “Lean Banking” reforms. These changes will enable financial institutions to secure banking licenses under a more lenient regulatory environment, allowing them to attract deposits from customers while also extending credit.
The potential new entrants into the banking sector are mainly credit card companies like Isracard, Max, and Cal, along with non-bank financial firms such as Phoenix Gamma and Direct Finance.
The initial plan for acquiring Esh was seen as a shortcut for Isracard to obtain a banking license, potentially making it the first credit card company to break into banking. Moreover, this deal would have provided Esh with the necessary financial support and capabilities of a major financial entity, helping it to grow and intensify competition.
This agreement was especially significant, considering the mixed responses regarding Israeli banking regulations. Many in the finance sector expressed disappointment, claiming that some requirements—particularly those related to liquidity—would still impose hefty costs and might diminish capital adequacy ratios compared to current standards.
In essence, industry stakeholders had hoped that regulators would prioritize competition while still ensuring stability. Instead, the final framework is perceived as aligning more closely with traditional banking requirements.
One might wonder why the Bank of Israel opted for this approach. Perhaps it’s related to the anticipated entry of Revolut, a global digital finance company that aims to establish a foothold in the Israeli market and expects to secure a Lean Banking license under these new regulations.
Additionally, the Isracard-Esh partnership was supposed to represent an early success for these reforms. The Bank of Israel could have showcased the emergence of two new banking entities—Revolut and Isracard through Esh—as evidence that their initiatives were making progress. The hope was that this success would encourage more credit card companies to overcome hesitation about regulatory costs and join the fray.
Even with the deal now off the table, Isracard’s aspirations to transform into a small bank will continue. The exact reasons behind the agreement’s failure remain somewhat ambiguous, and the company might pursue other avenues to venture into banking.
However, this route is now more intricate and demanding. The cancellation also weakens one of the main intentions behind the Bank of Israel’s reforms: to spark a sense of urgency among established financial players to compete for banking licenses before others can seize an advantage.
