first-e

» see first-e.com as it lived, on the wayback machine

~ the last words ~

The bust I watched was American. It reached me as news, in the register you read a foreign election in, because nothing I actually used went down in 2001 and the Turkish internet was two or three years behind the timetable anyway. first-e is the European version of that same year, and unless you were opening a savings account in Britain or Germany you never heard the name at all.

It launched in September 1999 out of Dublin, built by Enba, an Irish internet incubator holding around 200 million euros from backers that included Intel and Apax Partners. The founders had worked out one clever thing, and it was regulatory rather than technical. Getting a banking license in Europe takes years. Renting one takes a phone call, so first-e traded under the license of Banque d'Escompte, a small private bank in Paris, and was in the market while its competitors were still filing paperwork.

The pitch was the obvious one and it worked. No branches meant no branch overhead, which meant deposit rates the high street could not answer without cannibalizing itself, and a current account you opened from a desk instead of a queue. It went at Britain first and then Germany, and at its height it had about 250,000 customers and 280 people working in Dublin.

Then it needed a second act, because a deposit account paying above-market interest is a business that loses money faster the better it does. The second act was supposed to be a merger.

~ the record ~

~ the license trick ~

Borrowing a license got first-e to market in months, and the same arrangement is what fintech rediscovered fifteen years later and now sells as banking-as-a-service. It also embedded a problem that nobody was pricing in 1999. The bank's regulator sat in France while its customers sat in Britain and Germany, and its right to exist was a commercial relationship with a third party rather than a thing it owned.

That was survivable while money was cheap. It became the whole story the moment first-e needed someone to buy it, because what was actually for sale was a customer list and a brand, not a bank.

~ the merger that did not happen ~

In 2000 first-e agreed to merge with Uno-e, the internet bank belonging to BBVA and Terra Networks, in a deal valued at around 2.4 billion euros. It would have made the largest online bank in Europe. In April 2001 BBVA walked away, citing conditions that had changed underneath everyone, and paid roughly 350 million euros in compensation for the privilege.

A compensation payment is not a customer base and it is not a license. Enba spent the rest of 2001 looking for another buyer in a market where nobody was buying anything with the word internet in the sentence. Operations ceased on 3 October 2001, 245 jobs went in Dublin, and the British and German customers were moved across to Direkt Anlage Bank and its broker.

~ what it proved ~

Everything first-e believed turned out to be correct. Banking without branches is now simply what banking is, and the account you open on a phone in ten minutes is a direct descendant of what it was selling in 1999. Nobody remembers it for that, because being right early and being right are different businesses, and only one of them has a funding round available in October 2001.

The other thing it demonstrated is how quiet a bank failure can be when it is engineered rather than suffered. There was no run and no queue outside a branch, because there was no branch. The accounts moved, the site went dark, and the whole thing lasted from one September to the second October after it.

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