The boardroom of Capitalflow on Baggot Street in the heart of Dublin 2 overlooks the former headquarters of Bank of Ireland. Now occupied by the Department of Health and owned by the beef tycoon Larry Goodman, the building’s bronze manganese frame, designed by Scott Tallon Walker, is visible through the window.
The pillar bank may no longer be housed there (it has moved a few hundred metres down the road), but it serves as a physical reminder of the banking landscape that Capitalflow, an alternative lender, is determined to disrupt.
Ronan Horgan, the chief executive of Capitalflow, sits on one side of the table; Antoinette Dunne, recently appointed as the independent chair of Capitalflow, is stationed on the other.
Horgan is down-to-earth and straight-talking. He founded Capitaflow in 2015 and helped build up its loan book to €320 million – supporting 3,000 small-to-medium-sized enterprises – by the time of its sale to Bunq, the Dutch challenger bank, last year.
Horgan tells me that the business will be at €600 million by the end of this year. Plus, he reveals that Capitalflow has recently applied for a retail credit firm licence with the Central Bank of Ireland.
Horgan has a good rapport with Dunne, who he previously worked with in Bank of Scotland (Ireland) over a decade ago. Back then Horgan was managing director of BoSI’s asset finance and motor division, while Dunne was one of its most senior executives.
“We’ve never worked directly together,” Dunne tells me. “I’ve been out of Bank of Scotland since 2009 and we haven’t been in the same organisation since then.”
The two did stay in touch however and occasionally met for coffee, which prompted Horgan to ask his old colleague to become chair of Capitalflow.
Dunne certainly brings a lot to the table.
She leads the European-regulated business of loan servicer BCM Global. The company has operations in Ireland, Britain, the UK, the Netherlands and Italy, and Dunne runs a team of 900 people servicing mortgages for 80 million borrowers on the behalf of banks, investment funds, credit unions and other lenders. BCM is part of Link Group, which is listed on the Australian Securities Exchange, and Dunne is also a member of its executive committee.
Horgan says that Dunne’s appointment as chair reflects Capitalflow’s ambitions, something we have arranged to meet to discuss.
But first I ask Dunne about her career to date.
Dunne left BoSI in August 2009 as the bank retrenched in the aftermath of the financial crisis, before setting up a consultancy business with a former colleague to advise borrowers on restructuring their debts. “We were preparing Nama business plans for people and things like that,” she said. “It was a lot of debt restructuring work.”
In June 2010, Dunne was made interim director of retail of Irish Nationwide, just over a year after its managing director Michael Fingelton resigned in the wake of a €1 million bonus scandal. Gerry McGinn, a former Bank of Ireland and Goodbody executive, had taken over and the plan was to try and put the society’s risky commercial property loans into the state-owned property agency Nama leaving a nimble residential mortgage-driven building society.
“I helped Gerry with the good bank / bad bank plan that went nowhere,” Dunne recalled. Returning Irish Nationwide to its roots as a mortgage provider was a good idea, but the state torpedoed the idea as more details emerged about its former managing director.
“It was a really disappointing time,” Dunne said. “Irish Nationwide had an amazing deposit book, and they had an amazing mortgage book. It had no trackers, it was all SVR (standard variable rate) and doing reasonably ok.
“I genuinely believed, and maybe it was naive of me at the time, but I genuinely believed it had a chance. It had a deposit book of €6 billion, a mortgage book of €2 billion and 44 branches. I thought this is going to be a nice little business for somebody to pick up.”
Dunne said the decision by Fingleton not to return his €1 million bonus hastened the society’s demise: “It opened the door to be able to say ‘Well, what else?’”
The ‘what else’ included spending by the society on expensive antique fruit baskets, Cristal champagne, stays in five-star hotels around the world, an €11,500 watch and so on. Reinventing Irish Nationwide became a no-go; the brand was terminally ‘tarnished’.
Instead, Dunne’s role pivoted to help merge it with Anglo Irish Bank to create IBRC, help Nama takeover much of its commercial loan book, and move its deposit book to Permanent TSB.
Dunne gained a lot of experience in distressed and performing loans, so she was in demand. Capita Asset Services asked her to work with them as a consultant to take over the wind-down of the Irish business of Rabobank, another lender that was withdrawing from the Irish market. “Capita pitched for the business, and I was part of the pitch as the retail bank expert,” Dunne recalled. Capita won its bid, and Dunne joined it full-time as a result. Dunne became director of Capita’s retail business, an area it had not been in before. It won other retail mandates from retrenching banks in Ireland and the UK, so this came under Dunne’s remit too.
Eventually, Dunne was managing residential mortgage services for millions of borrowers. In 2017, the Link Group acquired Capita Asset Services, so Dunne was now working for this company. The business continued to grow winning mandates in Ireland, Britain, Holland and Italy and rebranding as BCM Global, the division that Dunne leads.
BCM’s origins were in helping banks service distressed loan books post the financial crisis, but now its remit is much broader as it helps financial institutions behind the scenes with everything from originating on. Dunne enjoys working with BCM, and in 2019 she studied to become a professional chartered director with the Institute of Directors to add to her skills.
“I like the idea of non-exec work,” Dunne said. “I love Capitalflow’s business. When you’ve spent a lot of time as a servicer it is not the same. You’re not the lender, you’re not involved in the decision-making much. You’re trying to do things better but it’s different. I could see how Capitalflow was growing in a really controlled way, and I wanted to help.”
Dunne agreed to come on board, chairing her first board meeting for Capitalflow in May.
A changing market
Antoinette Dunne’s appointment as chair of Capitalflow comes at an important time for the business. In July 2021, Capitalflow was acquired by Bunq, a challenger digital bank founded by serial entrepreneur Ali Niknam. The deal went through as Bunq raised its first external capital of €193 million from long-term Capitalflow investor Pollen Street Capital, and Niknam himself. Bunq was previously backed only by Niknam, who had put almost €100 million into scaling the business before closing its series A round, the largest ever secured by a European fintech.
Bunq is in 30 European markets, including Ireland, and it has indicated it hopes Capitalflow will expand overseas too in time. Horgan said that Dunne has “considerable knowledge of the regulatory space which compliments Capitalflow’s desire to expand our products in future”.
He said she would further strengthen Capitalflow’s governance structures and bring a better gender balance to its board.
Horgan said after the Central Bank announced in May an extension of its regulatory regime, Capitalflow had applied to be authorised for a retail credit licence from it. “This will enable us to continue to grow and allow us to explore new opportunities with new products that will offer greater choice to consumers and businesses (subject to approval by the Central Bank),” he said. “Antoinette is somebody with a lot of financial services experience who is recognised by the Central Bank and is a straight-shooter and a straight-talker.”
According to Dunne: “I run a regulated business. We operate in the same space in terms of consumer lending so we’ve been on the same journey with the Central Bank, and I also bring my experience and knowledge too from my work. We manage over 80 million mortgages (in BCM) across all of our jurisdictions and we’re regulated by the FCA in the UK, the AFM in Holland and the Central Bank in Ireland.”
Capitalflow has a growing loan book, how fast is it growing? “We will be €600 million by the end of the year,” Horgan said. “And we will by then have advanced over €1 billion since we started in 2016.”
“The risk appetite (in Capitalflow) is very clear,” Dunne said. “Its controls are clear and the way it operates and engages is in a very controlled way. I think their ambition is limitless, and I think with exits from the market like KBC, there is a huge opportunity.”
“The flipside of rising interest rates is you’ve got to be aware of and watch its impact on people’s ability to pay.”Antoinette Dunne
I asked Dunne if Capitalflow can move into other markets as Bunq has. “I think there is a huge opportunity here in terms of products they are not currently in,” Dunne said. “I think getting the licence will give them the opportunity to do more because the infrastructure, the controls, the management team, the talent are here. There is a big opportunity in Ireland.
“But there is no reason the model can’t be lifted and shifted into other jurisdictions. We have done it in servicing (in BCM). If we want to do that you have to have your regulatory stuff right, your legal stuff right and your operating stuff right. There’s no reason it can’t happen, but that’s phase two.”
“There are loads of opportunities in Ireland to think about,” Horgan added. “Before you start thinking about the Germans, the Spanish, the French or the Dutch. The (banking) market is contracting, and customers are far more sophisticated so there is lots of opportunity.”
What type of new products do you hope to offer? “We haven’t set out any plans just yet,” Horgan said. “What we’ve tried to do is just do what we do and do it really well. We will add more products on, at some stage. We also have to think about how to align what Bunq does with Capitalflow, but that’s a larger plan to be agreed.”
Horgan said offering a buy-to-let product to business owners was one example of the type of product Capitalflow could offer in the future for individuals trying to build up small property portfolios. “It would be add-ons to our existing customer base,” Dunne added.
Bunq has launched mortgage products in Amsterdam, and Horgan said that could be something looked at in the future, but that was a decision that hadn’t been considered yet. “I can’t imagine why we couldn’t be a fully-fledged bank over the next number of years,” Horgan said. “Everybody talks about competition but there’s also a cultural thing.
“There’s a lack of trust between banks and customers as their experiences may not be great. We think we are able to offer a better experience too.”
Capitalflow, he said, was investing in digital but still believed in building relationships too. “It is digital but with the human touch,” Horgan said. “We don’t want to lose that ability for a customer to be able to pick up the phone and ring us. In a lot of fintech’s that is not in the model.”
Expansion and interest rates
Capitalflow employs 82 people. “It is hard to say what that goes to next year,” Horgan said. “Interest rates are rising which has knock-on impacts. We haven’t seen a dampening of appetite. Our last quarter was excellent and the pipeline for Q1 is really strong but there’s usually a lag of a quarter before interest rates really kick in.”
Will interest rates rise more? “I think so,” Horgan said. “I think it has got a bit more to go,” Dunne agreed.
How will a higher interest rate environment impact Capitalflow? “There’s no doubt it’s going to create far more revenues and income for banks and for non-bank lenders,” Horgan said. “Access to funding will be more difficult, especially for non-bank lenders which will have a knock-on effect on SME lending and liquidity.
“But from a Capitflow perspective, we’ve got plenty of liquidity through Bunq. Bunq wants to allow more capital to Capitalflow.”
Working out how much, he said, is still something being worked on.
“The flipside of rising interest rates is you’ve got to be aware of and watch its impact on people’s ability to pay,” Dunne added. “It does create more revenue, but it can also cause more non-performing loans. All costs are rising at the moment after a benign environment so you have to watch that as a business.”