Is the retail banking model on the brink of collapse?
For over ten years, new players have been challenging traditional banks. Until recently, the conquest of these new players was limited to customers who were distant and not very active. Now, not only are they winning over more and more customers, with BoursoBank, for example, boasting 7.5 million, but they are also increasingly attracting those who were previously active in traditional banks. Could this be the turning point?
Bank branch closures accelerate in France
After a difficult 2023, when retail banking revenues fell by as much as 15% for some players compared with 2022 due to the impact of rising interest rates on interest margins, most French banks presented 2024 as the year of the rebound. This claim may well have been justified as revenues from the retail business grew by an average of 2%. The rebound was also stronger in the second half of the year, indicating a positive trend.
Nevertheless, when we compare the performance of French banks with their best European peers, the differences in cost/income ratios and ROE remain significant. The most efficient French bank is Crédit Mutuel, with a cost/income ratio of 56% in 2024, compared with 43% for Santander and 38% for UniCredit. The best French ROE, BNPP’s 10%, is also a long way from Santander’s 13%.
There are many reasons for this. Firstly, European banks are coming out of a high point in the cycle thanks to rising interest rates, whereas the opposite is true for French banks. Secondly, margins on lending to individuals and businesses are lower in France, at 1% on average compared with 2% in Europe. Finally, the French branch network, which is less and less effective at winning over customers, is twice as dense. These adjustments should therefore continue.
BoursoBank’s hypergrowth called into question
Over the last ten years, a new generation of digital banks, such as Revolut and N26, has emerged with undeniable commercial success (50 million customers for Revolut worldwide and 4 million in France), albeit still generating losses. The rise in interest rates in 2022–2023, combined with the achievement of critical mass, has enabled several neobanks, such as Revolut, to break even, marking a new stage in their development.
At the same time, or even before, traditional banks launched their own online banks, with mixed results. BoursoBank is the one that has won over the most customers (around 7.5 million), but it has remained loss-making until recently. Fortuneo, by contrast, did not aim for such a high number of customers for a long time, but it has long since become profitable thanks to its upmarket clientele and strong focus on savings.
Several challenges now lie ahead. BoursoBank must succeed in turning its millions of secondary bank customers into main customers. Fortuneo, Hello bank! and BforBank – all aiming to double or triple their customer base – must assert themselves against well-established leaders. Revolut, however, needs to expand its offering to consolidate its position and increase revenue per customer. The era of easy growth is coming to an end, and the time has come for consolidation strategies.
BNP Paribas plans to close a third of its branches by 2030
The French retail banking market is facing major challenges, notably lower profitability than elsewhere in Europe due to low margins (1% compared with 2% on average), a protective model (regulated savings and fixed-rate loans) and a very dense network. Against a backdrop of low volumes of home loans (the main vector for winning new customers) and aggressive digital players, the effectiveness of this network is being called into question.
To boost the profitability of traditional banks, there are at least two types of lever, excluding those aimed at diluting the weight of the French Retail Banking business in overall revenues. Firstly, the service model: even if they do not converge perfectly (LCL, Arkéa, etc.), recent announcements show a desire to create two types of customer: remote customers, who are mainly served digitally, and value customers, who have access to the physical network.
However, this adjustment to the service model will probably not suffice to restore profitability in a business that has been under severe pressure for over ten years. That takes us to the second lever: the branch network of French banks, which is twice as large as that of European banks (50 branches per 100,000 inhabitants in France compared with 25 in Europe), could be adjusted to bring the cost-to-serve ratio more into line with revenues. Examples should follow.
Nicolas Darbo, Partner, Accuracy