Just over a year ago, Britain's spunky Egg PLC was winning huzzahs everywhere after it emerged as one of Europe's rare profitable online banks. Egg attracted droves of customers with relatively high interest on deposits, cheap rates on mortgages, and virtually irresistible offers of 0% interest for six months for new credit-card customers. From a standing start in 1998, Egg's British customer base grew rapidly, to 1.35 million in 2000, and now tops 3 million. In the first nine months of this year, Egg, a unit of Britain's Prudential PLC, earned $96 million in its home market.
But the financial muse that has shown Egg the way to success in Britain apparently doesn't speak French. In January, 2002, Egg Chief Executive Paul Gratton announced with great fanfare that he was buying a small online bank across the Channel that he would use to hatch an Egg clone. But everything that could go wrong has gone wrong. The French don't like Egg's credit cards and have rejected its banking fees, which they regard as too high. Even Egg's quirky advertising campaign has backfired. After a year of hard sell, Egg has attracted only 140,000 French customers. Its Paris-based operation lost $118 million in the nine months through Sept. 30, raising questions about the British bank's ability not only to stay the course in France but also to follow through on plans to expand elsewhere in Europe and the U.S.
Analysts predict that Egg may abandon its French operation altogether. Gratton concedes only that he is rethinking his business model. "It is in the best interests of Egg's shareholders to form an alliance with a strategic partner," Gratton told investors in October. "We are in negotiations which may lead to a joint venture or other transaction." He declined to comment for this article.
Egg's Achilles' heel in France has been credit cards. The company has issued only 58,000 there after a year, compared with more than 2.4 million in Britain. It turns out French consumers prefer debit cards without finance charges or cards from consumer-finance companies without annual fees, instead of plain vanilla bank-issued cards. The value of credit-card transactions as a proportion of French gross domestic product is just 0.4%, vs. 10% in Britain, according to Credit Card Research Group in London. But Egg decided to enter the market anyway after focus groups showed that French consumers were looking for new ways to manage debt.
EDGY OR INSULTING?
To soften resistance, Egg offered French cardholders the same 1% cash-back incentive on credit purchases as it initially did in Britain. But it couldn't replicate another part of its strategy: charging retailers 1% of every transaction a customer charged on an Egg card. French retailers balked, so Egg cut its fee to 0.5%. To make up the lost revenue, Egg charges its French cardholders a $41 annual fee, which many find excessive. "An annual fee for getting cash back is not an attractive proposition," says Noel Reynolds, an analyst at Commerzbank Securities (CRZBY ) in London.
Then there were the ads. Egg execs in London considered them edgy. The French found them insulting. To showcase its cash-back policy and dispel conventional notions that credit cards are for spendthrifts, Egg ran print ads that featured the tagline "blondes have nothing in their heads." The point was to poke fun at such idées fixes (the blonde is gazing intelligently at a painting), but many women just felt patronized. "It was bad advertising that was highly sexist,"says Florence Montreynaud, head of French feminist group La Meute. Egg insists the ads were well received by its target audience. But investors, who have seen the stock drop 13% in the past month, wonder if Egg should ever have left the nest.
By Laura Cohn in London, with Christina Passariello in Paris