Profitability of online banks: the eternal questioning
The area online bank represents 16 million customers, but more than 400 million euros of loss. In its third study devoted to digital players in finance, published on July 18, 2022, the Prudential Control and Resolution Authority (ACPR) notes that between 2018 and 2020, “ the strong growth in the number of customers in 2020 is not accompanied by an improvement in operating profitability“.
The net loss even widened, going from 376 million euros in 2019 to 441 million in 2020. The net result per customer follows this curve, going from -45 euros to -57 euros. The reasons: far “too high” overhead costs, starting with staff and IT resources. But that’s not all, since there are also the costs of customer acquisition with expensive advertising expenses and generous bonuses for signing up for an account.
The regulator has maintained its conclusion for years: “Digital players in finance are still struggling to generate sufficient profitability, despite an increase in their income”. The ACPR nevertheless distinguishes between the more specialized and profitable 100% mobile players, and online banks belonging to large banking groups with a diversified offer, but with little or no profitability. In Europe, according to a report by the Boston Consulting Group, only about fifteen Fintechs would be profitable out of a sample of 350 establishments…
Orange Bank: 880 million euros loss in five years
On the market since 2017, Orange Bank is one of the unprofitable mobile banks. This is the weight of the sentence uttered by Stéphane Richard, six months after his departure “I may have overestimated our chances of success“. Orange Bank would have 2.6 million customers in France, even if the figures have potentially been inflated since 2020 with the integration of the 600,000 customers linked to its mobile insurance.
This portfolio places it on the podium of online banks, but does not prevent it from presenting a deficit of 880 million euros cumulatively over five years. As of 2018, losses amounted to 169 million euros, then 185 million euros the following year. In 2020, the deficit widened by an additional 195 million euros and last year by 160 million euros. The current year shows no sign of recovery, since the first half amounted to 80 million euros in loss.
An example of mismanagement: salespeople in Orange stores received higher bonuses. This strategy of encouraging customers to open a mobile bank account has convinced 80% of subscriptions. Except that this costly technique ran out of steam once all telecom customers were contacted. This influence of physical stores over digital is also a paradox for an online bank.
Faced with this observation, the project supported by Stéphane Richard is called into question. Already in 2021, Orange Bank had to buy back the shares held by its historical partner Groupama. This operation had been preceded by an unsuccessful attempt to open up the capital in the summer. Already, the rumors of takeover by the competition (Boursorama, BNP Paribas, Santander) fed the news.
What place for Orange Bank in Orange’s new strategic plan?
This fall, the question came back to the fore. Stéphane Richard left Orange, replaced by Christel Heydemann on April 4, 2022. The manager is preparing a new strategic plan in February 2023 and wants the company to refocus on its core business: telecoms.
Like the OCS video-on-demand service destined to be resold to Canal+, Orange Bank is clearly no longer in the odor of holiness. Online banking symbolizes the failure of the group’s fragmentation. The newspaper Les Échos indicates that the investment bank Lazard has already been mandated to find a buyer in the event of a sale or a partner in the event of an opening of the capital.
An internal source specifies that it will be necessary to do better than last year where “expectations in terms of control, price, IT issues and the governance situation at the head of Orange did not make it possible to go all the way“. With an evolution however:Today, the configuration is completely different for Orange Bank. The bank has accelerated its development and made significant progress in its IT migration“.
As a reminder, the investment bank Lazard had piloted the process of selling HSBC France’s retail bank to the Cerberus fund through its subsidiary My Money Group. Is the sale obvious? Not necessarily, even if Christel Heydemann clearly plans to saw off the branch mobile banking in the event of profitability objectives not being achieved in 2024.
The inevitable consolidation of the online banking market
For the moment, Orange continues to offer new paid offers such as premium cards, express loan or the offer dedicated to families. The group saysfully committed to the pursuit of its value strategy while moving towards financial equilibrium”. The idea may be to establish partnerships in support of their activities in the field of insurance or credit.
Proof that nothing is written, Christel Heydemann has just appointed Stéphane Vallois as director. The former Deputy Chief Executive Officer succeeds Paul de Leusse who has been in place for four years. Stéphane Vallois also made these comments last spring during the Systals Cards meeting: “On the one hand, we are seeing an abundance of new, largely financed players and, on the other, almost historical players who are withdrawing from the market. The withdrawal of ING Direct is very significant and again raises the question of the long-term economic model“.
Which candidates for the takeover of Orange Bank?
Candidates for takeover are necessarily eyeing the 2.6 million customers of Orange Bank. Starting with Boursorama Banque. The Société Générale subsidiary is the market leader with nearly 5 million customers. However, the establishment still willingly postpones crossing its break-even point, with the objective of achieving a net profit of 100 million in 2024.
Boursorama Banque has already recovered the customers of ING France last year, with the sale of the balance sheet and customers, but without the workforce. However, this last point is excluded by Orange which refuses any “social subject if there were to be one”. What cool some candidates.
For its part, BNP Paribas, another credible candidate, says it wants to focus on the development of its Nickel mobile bank (2.5 million customers). The account without a bank has announced that it has been profitable since 2018 thanks to a paid offer, a variable-cost model based on a network of tobacconists, and no promotional campaign or expensive welcome bonuses.
For Orange Bank, it is impossible to know which scenario will prevail for the moment, especially since the group has yet to clarify its intentions in February. Nevertheless, in a period where rates are rising and where access to liquidity is more difficult, the conditions are met for market consolidation.
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Orange Bank in deficit, mobile banking at an impasse?
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