PARIS (Reuters) - New online banks may be grabbing an ever larger market share, but traditional bricks-and-mortar banks are still much more profitable, France’s central bank head said on Wednesday.
French banks, like rivals elsewhere, are increasingly facing stiff competition from online banks that do not have to contend with the cost of maintaining and staffing large branch networks.
A third of new bank accounts opened last year in France were at companies that were entirely online banks with no physical branch network, said Bank of France governor Francois Villeroy de Galhau.
“But when I look at the profitability of these online banks, the picture is much less flattering,” Villeroy added, speaking at France’s competition authority.
Low interest rates hurt online banks in particular because their business models were built on earning money on the value of their deposits rather than charging fees for services like more traditional banks.
“I wouldn’t give up on branch networks. They may need to adapt their size, they may need to adapt the number of branches, it may be the number of personnel in each branch,” Villeroy said.
“But branch networks are much more profitable,” Villeroy said, adding they can much more easily sell other products and maintain relations with clients.
The head of a big French bank told him that when they made a new product offer only online, client take-up was 3%. But when it was clearly indicated clients could call their account manager for more information, take-up jumped to 50% even if people did not necessarily always call.
France’s biggest retail banks have in recent years trimmed back their retail networks as they struggle to keep costs down in the face of fierce competition from traditional rivals on online newcomers.
Villeroy said France was probably Europe’s most competitive banking market, largely because it was concentrated among a few big lenders, unlike in most other European countries.
He also renewed a long-standing call for more consolidation of the sector in Europe, which he said remains far more fragmented than compared to the United States’ banking market.
Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta