Isracard-Esh deal collapse raises questions over Israel’s banking competition push
The collapse of the acquisition leaves credit card companies facing a longer path toward banking licenses just as regulators seek to challenge the dominance of the major banks.
On the surface, the cancellation of Isracard’s acquisition of the new digital bank Esh does not change the number of players in Israel’s banking system. Even without the backing of Isracard, and indirectly its controlling shareholder, Delek Group, Esh is expected to enter the market alongside digital bank One Zero and Bank of Jerusalem in an attempt to compete with Israel’s five largest banks.
However, the collapse of the deal is still a setback for efforts to increase competition in the banking sector.
Two weeks ago, the Bank of Israel published the final regulations for the “lean banking” reform, which will allow financial entities to obtain banking licenses under a lighter regulatory framework and raise deposits from customers while providing credit against them.
The main candidates to become small banks are the three credit card companies, Isracard, Max and Cal, alongside other non-bank financial players such as Phoenix Gamma and Direct Finance.
The acquisition of Esh was supposed to provide Isracard with a shortcut to obtaining a banking license, making it the first credit card company to successfully enter the banking sector. At the same time, the deal would have provided Esh with the financial backing and resources of a major financial institution, allowing it to expand and increase competition.
The importance of the deal is even greater given the mixed reaction to the Bank of Israel’s regulations. Several financial players expressed disappointment, arguing that certain requirements, particularly liquidity obligations, would still impose significant costs and could even weaken their capital ratios compared with their current position.
In other words, industry players expected the regulator to place greater emphasis on encouraging competition, while maintaining stability safeguards. Instead, they believe the final framework remained closer to traditional banking requirements.
Why did the Bank of Israel choose this approach? One possible explanation is the expected entry of Revolut, the global digital financial company that has been preparing to enter the Israeli market and is expected to receive a lean banking license under the new framework.
In addition, the Isracard-Esh transaction was supposed to create another early success story for the reform. The Bank of Israel could have pointed to the establishment of two new banking players, Revolut and Isracard through Esh, as evidence that the initiative was achieving its goal. It could then have hoped that additional credit card companies would follow, overcoming concerns over regulatory costs and joining the competition.
It is likely that Isracard’s ambition to become a small bank will not disappear following the cancellation of the Esh deal. The circumstances surrounding the collapse of the transaction remain unclear, and the company may continue searching for alternative routes into banking.
However, the path has now become longer and more complicated. The cancellation also weakens one of the Bank of Israel’s key hopes from the reform: creating a sense of urgency among existing financial players and encouraging them to compete for banking licenses before rivals gain an advantage.
