Israeli Credit Card Firm Isracard Cancels Digital Bank esh Deal, Delaying Banking Competition

Isracard's unexpected cancellation of its acquisition of the digital bank esh has surprised the Israeli financial sector. Although the deal's delay and Isracard's 30% stock drop since the March announcement hinted at difficulties, the cancellation was still unforeseen, especially given Isracard's recent aggressive moves under Delek Group's control, including acquiring El Al's frequent flyer program and launching the "Mami" credit card. The acquisition of esh, a licensed bank, was intended as a shortcut for Isracard to enter banking, but now the company must reconsider whether to find another technological partner or build internally, which will extend the timeline.

This setback is significant for banking competition in Israel. Regulators have favored consolidating efforts into a few strong new banks rather than many small players, aiming to challenge the dominance of the five largest banks with institutions that have substantial financial backing. Isracard and the foreign fintech giant Revolut were expected to be the two "lions" to shake up the market. With Isracard stepping back, esh must proceed alone without Isracard's financial support, weakening the competitive vision.

Additionally, the momentum for banking reform has been hurt. Just two weeks ago, the Bank of Israel finalized regulations allowing financial entities to obtain a narrow banking license, accept deposits, and provide credit. Credit card companies like Isracard, Max, and CAL, along with non-bank players such as Gamma and Maimon Yasir, were natural candidates to expand. However, these regulations were met with disappointment due to stringent liquidity requirements that increase costs and weaken capital ratios. The Bank of Israel had relied on the swift entry of Revolut and Isracard-esh to create a competitive push, but Isracard's withdrawal may discourage others from advancing.

The broader vision of transforming credit card companies into full-fledged banks remains distant. Besides Isracard's delay and uncertainties around Max, CAL's progress depends on the sale of its stake by Bank Leumi to Union and Harel, a deal stalled for months awaiting antitrust approval. If that deal fails and CAL pursues an IPO, its banking transition will also be delayed. Meanwhile, the public awaits Revolut's market entry, though the scope of its offerings is still unclear. Until then, Israeli consumers continue to face high fees and interest rates in a banking market lacking robust competition.