Qonto, Monabanq, HelloBank... will the rise of "neobanks" go too far?
In recent years, new financial players have emerged. Taking advantage of liberalization, these new players, improperly referred to as "neobanks," may create new risks. Ultimately, they could destabilize the traditional banking system, which, for the moment, still has real advantages.
Christine Marsal, University of Montpellier
On July 19, 2024, 140 people protested against the closure of a bank branch in the Lot department. However, this wave of closures is ongoing and affects all banking networks. At the same time, "neobanks" are attracting more and more French people, as evidenced by the annual increase in financial transactions of more than 40% in 2023.
By the end of that year, they had around 6 million customers, most of whom were young, urban, and in the upper socio-professional categories. The share of business customers is less easy to obtain: 400,000 customers in Europe for Qonto, no figures published for Monabanq or HelloBank! The movement is gaining momentum due to the high cost of services offered by traditional banks. At the same time, traditional banks are facing a serious crisis of vocation. The job of customer advisor is perceived as increasingly difficult and losing its meaning.
Not every bank is willing to do so
The term "neobank" is used to describe new players in the financial sector, but the term is misleading, as not all of them are banks within the meaning of the Monetary and Financial Code. Only credit institutions with a banking license can use the term "bank." Misuse of the term "bank" is even punishable by a fine. To find out the status of an institution, you can consult the REGAFI register of financial agents.
These new institutions emerged following the implementation of two European directives that liberalized payment services and electronic money. These directives allow operators that are not banks to provide payment methods (cards, direct debits, electronic wallets, telephone or Internet payments). Transactions are linked to a payment account rather than a deposit account (the well-known "checking account"). Bank branches are no longer necessary to carry out transactions, as customer relations are conducted remotely. Institutions use chatbots to provide continuous service. They have developed personalized account management applications that enhance the customer experience.
In an analysis published in 2018, the French Prudential Supervision and Resolution Authority (ACPR) reviewed the business models of neobanks and online banks, emphasizing that they are still seeking profitability in a highly competitive environment. Providing free services forces institutions to constantly improve their performance, which pushes them to target their customer base in order to increase their profitability.
Greater velocity of entrants
Their strengths lie in their ability to integrate the latest technological developments (e.g., smartphone transactions) and the speed of transactions (accounts can be opened immediately). However, the range of services offered is broader when the institution is backed by a traditional bank. Purely digital institutions (not affiliated with a banking network) offer only a limited range of services: checking accounts, bank cards, cash withdrawals and deposits, transfers, and direct debits.
Customer expectations remain paradoxical when it comes to their relationship with technology. On the one hand, there is a need for security and a desire for personalized, human advice. Customers reject advice from robots. On the other hand, there is a real attraction to technological solutions that make everyday life easier, such as contactless and mobile payment solutions.
Despite customer enthusiasm for these new applications, France is the European country where the number of bank branches remains very high compared to other countries.
What purpose do traditional banks still serve?
Banks collect deposits, grant loans, and manage payment methods. In the universal banking model, banks also offer insurance products. These banks cater to individuals, artisans, merchants, and small and medium-sized businesses. It differs from investment banks, which only deal with very large financial transactions (company buyouts, mergers, as in the film Wall Street). So, when compared to their non-bank competitors, these institutions offer a wider range of products and services. https://www.youtube.com/embed/8I4sdXbgk4g?wmode=transparent&start=0 Banque de France.
To maintain their accreditation, banks must comply with very strict and restrictive regulations, the aim of which is to protect households' savings. This means that in the event of a bank failure, customers are guaranteed up to €100,000 of their funds.
Regardless of the banking network concerned, the organization of a traditional bank always follows the same principles: territorial development represented by a network of bank branches spread across one or more national areas; a network manager who coordinates this regional network; a central bank (or central financing body) that enables the institution to adjust its balance sheet and cash flow by intervening in the financial markets. Banking networks are constantly redeploying to maintain a relevant regional network, to try to win new customers, and to effectively combine physical and virtual networks.
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In addition to this physical network, banks have all adopted a strategic model that closely combines physical branches with virtual branches by expanding the range of products and services available online. They are also seeking a new branch aesthetic and looking to differentiate themselves from their digital competitors through their image and history.
New risks
The proliferation of operators in the financial sector does not always allow customers to find their way around. The example of Swoon is instructive in this regard. Initially a software publishing company, the company collected savings without being authorized to do so. Its bankruptcy resulted in losses for its customers. In this case, Swoon's financial partner, which operated in the field of electronic payments, was fined €100,000 for negligence in monitoring transactions.
In the case of Swoon, consulting approved organizations could have dissuaded customers from subscribing to a savings account with an unauthorized institution. If in doubt, it is always possible to consult the blacklist of websites or entities offering savings or insurance products without ABEIS approval.
Christine Marsal, Senior Lecturer, Management Control, Bank Governance, University of Montpellier
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