Qonto, Monabanq, HelloBank… Will the rise of “neobanks” go too far?
In recent years, new financial players have emerged. Taking advantage of deregulation, these new players—often inaccurately referred to as “neobanks”—may create new risks. Over time, they could destabilize the traditional banking system, which, for now, still has real strengths.
Christine Marsal, University of Montpellier
On July 19, 2024, 140 people protested the closure of a bank branch in the Lot region. Yet this trend of closures is widespread 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 over 40% in 2023.
By the end of that same year, they had approximately 6 million customers, primarily young, urban, and from higher socioeconomic backgrounds. The share of business customers is harder to pin down: Qonto has 400,000 business customers in Europe, while no figures have been published for Monabanq or HelloBank! The movement is gaining momentum due to the high cost of services offered by so-called traditional banks. At the same time, traditional banks are facing a serious crisis in recruitment. The role of customer advisor is perceived as increasingly difficult and losing its meaning.
Not just any bank
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 as defined by the Monetary and Financial Code. Only credit institutions holding a banking license may use the term “bank.” Misuse of the term “bank” is even punishable by a fine. To determine an institution’s status, you can consult the REGAFI financial agents registry.
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, e-wallets, payments by phone or online). Transactions are linked to a payment account rather than a deposit account (the so-called “checking account”). Bank branches are no longer necessary to process transactions; customer interactions take place remotely. These institutions use chatbots to provide continuous service. They have developed personalized account management apps that enhance the customer experience.
In an analysis published in 2018, the French Prudential Supervision and Resolution Authority (ACPR) examines the business models of neobanks and online banks, noting that they are constantly striving to achieve profitability in a highly competitive environment. Offering free services forces these institutions to continually improve their performance, which in turn drives them to target specific customer segments to boost their profitability.
Greater speed among new entrants
Their strengths lie in their ability to incorporate the latest technological advancements (such as smartphone banking) and the speed of their services (accounts can be opened instantly). However, the range of services offered is even 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, debit 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 genuine appeal to technological solutions that make everyday life easier, such as contactless or mobile payment options.
Despite customers’ enthusiasm for these new apps, 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 accept deposits, extend loans, and manage payment systems. In the so-called universal banking model, banks also offer insurance products. These banks serve individuals, small business owners, and merchants, as well as small and medium-sized enterprises. It differs from an investment bank, which deals exclusively with very large financial transactions (company acquisitions, mergers, as seen in the movie Wall Street). Therefore, 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 licenses, banks must comply with very strict and burdensome regulations, the purpose of which is to protect household savings. Thus, in the event of a bank failure, customers are covered by deposit insurance up to 100,000 euros.
Regardless of the banking network in question, the structure of a traditional bank always follows the same basic principles: a regional expansion strategy consisting of a network of bank branches spread across one or more national regions; 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 flows by operating in the financial markets. Banking networks are constantly restructuring to maintain a relevant regional presence, to attract 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 integrates physical and virtual branches by expanding the range of products and services available online. They are also exploring a new branch design aesthetic and seeking to differentiate themselves from their digital competitors through their brand image and history.
New risks
The growing number of players in the financial sector doesn’t always make it easy for customers to navigate the market. The case of Swoon is instructive in this regard. Originally a software company, the firm collected savings without being authorized to do so. Its bankruptcy resulted in losses for its customers. In this case, Swoon’s financial partner, which operates in the electronic payments sector, was fined 100,000 euros for negligence in monitoring transactions.
In the case of Swoon, consulting with authorized agencies might have discouraged customers from opening a savings account with an unlicensed institution. If in doubt, you can always check the blacklist of websites or entities offering savings or insurance products without ABEIS authorization.
Christine Marsal, Associate Professor (HDR), Management Accounting, Banking Governance, University of Montpellier
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