[AVIS D’EXPERT] The financial results of French banks are not looking good… What if it was the fault of their rather unique model, which they were unable to reinvent?
For two years, French retail banks have recorded execrable results. In a context marked by the stagnation of the real estate market and a very high number of business failures, the credit production of one of the main mutual banking groups collapsed by 40% in the first half of 2024, when the cost risk jumped 39% at one of its main competitors.
Retail banking represents between 40% and 60% of the revenue of French banking groups. But it now only contributes 28% to their profits, compared to 40% in 2016. Is this a sign of lasting slowdown?
Over the last ten years, letting themselves be carried by a real estate market favored by historically low interest rates, French banks have not undertaken the large-scale transformations that have taken place elsewhere. Today, their average operating ratio reaches 73%, compared to 58% for German banks and 41% for Spanish banks. France has twice as many bank branches per capita as in these two countries. While in the age of digitalization and despite numerous retirements, bank staff numbers have only fallen by 2% on average in France since 2016, compared to 13% in the EU as a whole.
A model out of breath?
Is the French banking model – the model of a universal bank – running out of steam? Will its transformation have an inevitable social cost, as the AT Kearney firm recently suggested? These decisive questions were asked of Ronan Le Moal.
All those who follow financial developments recognize him for having been, as Managing Director of Crédit Mutuel Arkéa from 2008 to 2020, the main initiator of innovations and changes at the head of a bank in France over the last ten years. However, for Ronan Le Moal, the current poor results of retail banks are essentially the result of a mechanical cyclical effect – the ruinous impact of rising rates on bank margins, in a country where banks mainly lend at fixed rates – which, just as automatically, will favor the restoration of these margins in the long term (if rates, of course, do not continue to rise).
However, retail banks are indeed faced with a combination of factors which structurally modify the exercise of their activities: the appearance of new competing players who are much more agile than them, a real takeover of power by consumers and fragmentation. of a value chain which, traditionally, from the design to the distribution of their products, allowed banks to operate in an integrated manner.
These three phenomena are inseparable: because neobanks and certain Big Tech players have appeared, the banking offering has changed. This competition makes it more subject to consumer arbitration and its design and distribution channels can only expand, outside traditional banking circuits. We no longer need to have a bank. We need banking services that very different players can now provide.
Everything revolves around the customer experience and the banking relationship is completely turned upside down. By emphasizing that the bank remains the only business that can refuse to sell its products to those who ask for them without having to justify it, Ronan Le Moal judges that we are witnessing the reversal of a real balance of power, historically favorable to banks , the scope of which they must fully understand.
Because the transformation factors mentioned will not break the universal model of French banks if they know how to adapt to it, that is to say putting the customer experience before the sale of products, working in open architecture with different partners and expand their distribution networks.
Truly putting customers at the center of the game
In relation to these challenges of structural transformation, limiting costs will not be enough. No more than abruptly closing a large number of agencies. On the other hand, if the poor adaptability of historical processing chains is certainly a hindrance, French banks have the means to develop them. In short, while most French banks remain focused on the sale of products and orient their advisory function accordingly, the change must be profound. It will lead to a rethinking of the formation of results, which will no longer be able to rely largely on commissions “which fall on their own”, while pricing does not sufficiently follow the added value actually created for customers.
In recent decades, banking activities have been greatly industrialized, ultimately to the detriment of customer relations, which account managers are no longer able to centralize. Against this drift, truly putting customers at the center of the game could restore full vigor to the retail banking model; which could even create new jobs, according to Ronan Le Moal. The social cost of their transformation – it is true that it has been announced for so long, was it not said that banking would be the steel industry of tomorrow already… thirty years ago! – is in no way inevitable.
But then what exactly are French banks missing? Skills linked to new professions? Financial institutions are particularly concerned today with recruiting certain talents, cherishing the dream of achieving, thanks to AI, a level of personalization of their customer relations which will allow them to stand up to their new competitors.
However, if we follow the remarks above, the issue is not only technological and cannot be evaluated in terms of skills. It concerns above all a transformation guided by the promotion of values clarifying and redefining the role and responsibilities of banks towards their customers. However, while such values of protection, benevolence and financial well-being are today explored by establishments in many countries, these themes remain largely ignored by French banks. Which perhaps especially lack visionaries!
By Guillaume Almeras, founder of the monitoring and advice site Score Advisor
