Qonto, Monabanq, HelloBank... will the rise of the "neobanks" go too far?
In recent years, a number of new financial players have appeared on the scene. Taking advantage of liberalization, these new players, improperly called "neo-banks", can create new risks. In the long term, they could destabilize the traditional banking system, which for the moment retains some real strengths.
Christine Marsal, University of Montpellier
On July 19, 2024, 140 people protested against the closure of a bank branch in the Lot region of France. However, bank closures are a regular occurrence, affecting all banking networks. At the same time, "neobanks" are attracting more and more French people, as evidenced by an annual increase in financial transactions of over 40% in 2023.
At the end of the same year, they had around 6 million customers, mainly young, urban and from a high-income bracket. The share of corporate customers is less easy to obtain: 400,000 customers in Europe for Qonto, no published figures for Monabanq or HelloBank! The movement is gaining momentum because of the high cost of services offered by the so-called classic banks. At the same time, traditional banks are facing a serious vocational crisis. The job of customer advisor is perceived as increasingly difficult and meaningless.
Not just any bank
The term "neobank" is used to describe new players in the financial sector, but it's a misnomer because not all of them are banks within the meaning of the French Monetary and Financial Code. Only credit institutions with a banking license can use the term bank. Misuse of the term bank is punishable by fine. To find out the status of an institution, you can consult the REGAFI register of financial agents.
These new establishments emerged following the implementation of two European directives that liberalized payment and e-money services. These directives allow non-bank operators to provide payment services (cards, direct debits, electronic wallets, telephone and Internet payments). Transactions are linked to a payment account, not a deposit account (the famous "checking account"). Bank branches are no longer needed to carry out transactions, and customer relations are handled remotely. Establishments use conversational robots to ensure continuous service. They have developed personalized account management applications that facilitate the customer experience.
In an analysis published in 2018, the Autorité de contrôle prudentiel et de résolution (ACPR) looks back at the business models of neobanks and online banks, highlighting that they are still seeking profitability in a context of very strong competition. Providing services free of charge forces them to constantly improve their performance, which in turn leads them to target their customer base to increase profitability.
Greater incoming velocity
Their strengths lie in their ability to integrate the latest technological developments (e.g., smartphone operations) and the speed of operations (account opening is immediate). However, the range of services on offer is all the broader the more the establishment is backed by a traditional bank. Purely digital establishments (not affiliated to a banking network) offer only a limited range of services: current 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's a need for security, for personalized, human advice. Customers reject robotic advice. On the other, there is a real attraction for technological solutions that make daily life easier: contactless or mobile payment solutions.
Despite customers' enthusiasm for these new applications, France is the European country where the number of bank branches is still very high compared with other countries.
What are traditional banks still for?
Banks collect deposits, grant loans and manage means of payment. In the universal banking model, the bank also offers insurance products. This type of banking is aimed at private individuals, craftsmen and tradesmen, as well as small and medium-sized businesses. It differs from investment banking, which only deals with very large financial transactions (company takeovers, mergers, as in the film Wall Street). So if we compare these establishments with their non-bank competitors, they offer a wider range of products and services. https://www.youtube.com/embed/8I4sdXbgk4g?wmode=transparent&start=0 Banque de France.
To retain their authorization, banks have to comply with stringent regulations designed to safeguard household savings. For example, in the event of bank failure, customers are guaranteed funds of up to 100,000 euros.
Whatever the banking network concerned, the organization of a traditional bank always follows the same axes: territorial development represented by a network of bank branches deployed over one or more national areas; a network manager who coordinates this territorial network; a central caisse (or central financing body) which enables the establishment to adjust its balance sheet and cash flow by intervening on the financial markets. Banking networks are constantly redeploying to maintain a relevant territorial coverage, to try to win new customers, and to effectively combine physical and virtual networks.
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To complement this physical network, banks have all adopted a strategic model that closely blends physical and virtual branches, broadening the range of products and services accessible via the Internet. They are also looking for a new branch aesthetic, and seeking to differentiate themselves from their digital competitors through their image and history.
New risks
The proliferation of operators in the financial sector doesn't always make it easy for customers to find their way around. The example of Swoon is instructive in this respect. Initially a software company, Swoon collected savings without having the right to do so. Its bankruptcy resulted in losses for its customers. In this case, Swoon's financial partner, operating in the field of electronic payments, was fined 100,000 euros for negligence in controlling transactions.
In the case of Swoon, a consultation of approved organizations could have dissuaded customers from taking out a savings passbook with an unapproved establishment. In case of doubt, it is always possible to consult the blacklist of sites or entities offering savings or insurance products without ABEIS approval.
Christine Marsal, HDR Senior Lecturer, Management control, bank governance, University of Montpellier
This article is republished from The Conversation under a Creative Commons license. Read theoriginal article.