- Fewer branches, more mobile is the way to woo younger clients
- French banks are among slowest in Europe at cutting branches
Jean-Baptiste Esmenjaud, 26, hasn’t set foot in his bank in over five years.
“La Banque Postale lets me do everything online, and I speak over the phone once a year with an adviser,” said the biology student, a decade-long customer of the state-backed bank whose 9,000-plus French branches gives it one of Europe’s biggest such networks. “I’ve been moving a lot and I took a year off to travel around the world. For me this is the only way to bank.”
Younger customers like Esmenjaud -- the so-called Millennials -- may finally push French banks to close more branches after lagging behind their European peers over the past five years. French branch reduction has been the smallest in the euro area’s main banking markets, European Central Bank figures show, making it the country with the most number of branches in the region.
“The French social system, especially banking contracts, are very protective, which complicates any plan to reduce branches, ” said Jean-Marc Velasque, a partner at consulting firm Nouvelles Donnes. “That’s even as their revenue is coming under more and more pressure from fintech companies and online banks.”
Between 2010 and 2014, French banks closed 3 percent of their branches, Dutch lenders shut 35 percent of theirs, while Spanish and German banks closed 26 percent and 11 percent, respectively, according to figures from the ECB. In Italy, the government is said to have weighed measures to help banks cut jobs as part of a plan to boost consolidation among its lenders.
France has kept its branches even as client visits are tumbling. Only 21 percent went to a bank branch several times a month last year, down from 52 percent in 2010, according to a BVA survey for the French Banking Federation.
Across Europe, pressure to shut branches is mounting as margins are squeezed by record-low interest rates, sluggish economic activity caps loan growth and technology companies sweep in with new online banking products. Western Europe is the only region in the world where retail banking revenue fell between 2010 and 2015, and its annual average 2.8 percent pick up through 2019 will be smaller than in any other part of the world, according to the Boston Consulting Group.
New players are emerging across the continent peddling low-cost bank accounts with only a card and online support, like Germany’s Number26 GmbH. New fintech players like Linxo, a budgeting application, are out to steal at least part of the younger customers’ attention.
In France, some unlikely players are joining the fray: Mobile operator Orange SA is launching its online bank at the start of next year, leveraging hundreds of stores as well as years of experience in mobile payments in Africa. It bought a majority stake in the banking unit of Groupama, a French insurer, and is seeking to sign up 2 million clients.
“Younger customers want fluid and immediate answers to their needs,” said Aymeril Hoang, head of innovation at Societe Generale SA, France’s second-biggest lender by market value. “If it means going to new providers, they’re more open to it.”
Banks across Europe are stepping up spending to lure such customers. They will spend $15.3 billion next year on new technology, excluding upkeep, almost double the level of 2013 at the height of the region’s sovereign crisis, according to research firm Celent.
“Attracting Millennials is critical,” said Ada di Marzo, a partner at consulting firm Bain & Co. While French banks may not have to make deep branch cuts, they’ll have to redesign their outlets to adapt to the needs of an ever-more connected client, she said.
Although French banks are burdened by their large network of branches they, like their European counterparts, are having to invest in new technology.
Credit Agricole SA, the No. 3 French bank, in March said it’ll invest 4.9 billion euros through 2019 in technology, including to maintain existing systems. Societe Generale last year said it’ll invest 1.5 billion euros in digital innovation by 2020 at its retail bank. BNP Paribas SA, France’s largest bank, and BPCE declined to disclose their budgets.
“Yes, we need to improve our tools in the face of a generation that wants everything digital and wants it fast,’’ said Myriam Beque, in charge of innovation at BNP Paribas’s French retail banking unit.
Granted, not all retail banking is likely to move online. Branches are still likely to be a part of the landscape in France as in Italy and elsewhere in Europe. After being in business for two decades, France’s largest no-branch bank Boursorama, fully acquired by Societe Generale in 2014, has fewer than 1 million clients, about 40 percent of whom are under 30. BPCE said about a quarter percent of its 9.5 million active customers only contact the bank through virtual interaction. The rest need a branch.
Still, the online trend can only accelerate, pointing to fewer branches. Societe Generale has said it plans to reduce its domestic network by 20 percent to 1,800 outlets by 2020. In Spain, Banco Bilbao Vizcaya Argentaria SA is pushing the logic to the limit by saying the bank could live with just 1,000 branches.
“A customer is not going to wait in a branch to open a bank account when he’s used to signing up to Uber for example in under a minute, ” said Serge Magdeleine, head of marketing and digital at Credit Agricole.