First appearing around thirty years ago, branchless banks, by telephone, web and mobile, are now part of the landscape. However, they have not yet fully acquired the trust of users. Are you right to be suspicious?
This is one of the lessons of the exclusive survey (1) carried out by our partner YouGov France: 49% of those questioned consider that depositing money in an online bank is more risky than in a traditional establishment.
More than one in two French people have no confidence in the soundness of the financial sector
It has been nearly 30 years, however, that the first brand without branches, Banque Directe (2), made its appearance on the French market. Today, Boursorama is by far the French bank that captures the most new customers. But there is still a doubt: is my money safe among those brands that are not embodied in points of sale made of brick and mortar (3)in agencies around the corner?
These fears are also caused by the heterogeneity of these actors of dematerialized banking. Online banks, nobanks, payment or savings applications: there is plenty to get lost. Here are the questions to ask yourself to better appreciate their reliability.
The question of accreditation
Credit institution or payment institution? The distinction between these two types of approvals issued by the police of the financial sector is not clear to everyone: according to our survey (1)only a large third of those questioned made the difference.
In fact, the products and services distributed by both may look alike: bank account with IBAN, means of payment, budget management tools, savings accounts, etc. However, the distinction is important. Because only customers of credit institutions benefit directly from the guarantee mechanism on their deposits, implemented in France by the Deposit Guarantee and Resolution Fund (FGDR). Clearly, in the event of the bankruptcy of their bank, they are compensated, up to 100,000 euros maximum per establishment and within 7 working days.
My bank is in trouble: what will become of my money?
In the case of a payment institution, it is a little more complicated. They have an obligation to protect deposits carried out by their users, either by depositing them on a so-called cantonment account in a credit institution, either by contracting insurance to guarantee them. But they are not directly covered by the FGDR. Result: in the event of a default, the procedures to be implemented and the deadlines for recovering the money would be more uncertain. The recovery of the funds would then take place after bringing into play a classic mechanism of business bankruptcy, with the appointment of a liquidator, confirms Thierry Dissaux, chairman of the executive board of the FGDR.
Of the players currently offering 100% online payment account management, most are credit institutions in their own right. This is the case of historic online banks, those that appeared in the 2000s: BforBank, Boursorama Banque, Fortuneo, Hello bank! and Monabanq. But also nobankswhich appeared in the 2010s: Bunq, Ma French Bank, N26, Orange Bank or Revolut.
On the other hand, leading players are payment or electronic money institutions. These include Nickel and its more than 3 million customers in France; Lydia, who has just obtained her accreditation, or even from Qonto.
The question of nationality
In banking too, the European Union is a single market. Credit institutions authorized in other EU countries therefore have the possibility of offer their services in France, without having to request specific approval from the tricolor regulator, the ACPR. This is the case, in particular, of Bunq, agr in the Netherlands, N26, in Germany or even Revolut, in Lithuania.
As we have seen: these 3 European players, as credit institutions, benefit from the same deposit guarantee scheme than online banks and French nobanks. With a nuance: in the event of bankruptcy, it is not the French operator, the FGDR, which would be called upon to compensate customers, but that of the country where they obtained their approval. Clearly, if Bunq or N26 were to go bankrupt, the French customer would have to contact the Dutch or German crisis operators to recover his money. With the risk of having to complete these procedures in a foreign language.
This would not be the case, on the other hand, of a customer of Revolut. The nobank, although registered in Lithuania, has a branch in France. In the event of bankruptcy, the procedure to follow would therefore be the same as for a French bank: the FGDR would be responsible for collecting claims for compensation, via a secure space on its websitethen to make the link with the Lithuanian guarantee fund.
The question of profitability
For a bank, generating income is a way of strengthening its equity, and therefore its capacity stay solvent in the event of a storm.
Even if they exceed, for the oldest, the 20 years of existence, all historical online banks, however, are not yet profitable. This is the case, in particular, of Boursorama Banque, the large leader in this small market with nearly 5 million customers. The SG subsidiary remains in the conquest phase and continues to devote a large part of its resources to marketing expenses. Its president, Benot Grisoni, promises: the profits are coming soon. Already, Boursorama has announced balanced accounts for the 1st quarter of 2023.
However, the urgency of profitability is relative for these online banks. All are held by large banking groups, ready to recapitalize them if necessary: Crdit Agricole for BforBank, SG for Boursorama Banque, Crdit Mutuel Arka for Fortuneo, Crdit Mutuel Alliance Fdrale for Monabanq.
The question arises in a different way for nobanks. They are generally not backed by banking groups. My French Bank, a subsidiary of La Banque Postale, is an exception. Orange Bank is a subsidiary of an extra-banking player, but with very solid backbones: the French telecoms number, Orange. On the other hand, Bunq, Revolut or even N26 finance their development by resorting to fund raising. A source of potential stress, while venture capital tends to dry up under the effect of rising rates.
Their economic model, however, is currently showing its viability. Revolut has been profitable since 2021with a net profit of £26.3million, thanks to the growing engagement of its 27million retail customers.
At the end of February, Bunq also announced that it had declared a net profit before tax of 2.3 million euros in the last quarter of 2022. The one that presents itself as the 2nd largest nobank in the EU is therefore now profitable, thanks in particular to a sharp rise its income from bank commissions (+37% over one year) and deposits from its users (+64%), which reached 1.8 billion euros at the end of 2022.
The case of N26 is more uncertain. The nobank, launched in 2013 Berlin, continues to lose money. Its growth, moreover, is hampered by the regulator of the German financial sector, which asks it to better fulfill its obligations in terms of the fight against money laundering and the financing of terrorism, and restricts, in the meantime, the number of accounts it is allowed to open each month.
Beware of non-regulated players!
Whether they are credit or payment institutions, the institutions mentioned here have in common that they are under the supervision of regulatory authorities, such as the European Central Bank or, in France, the ACPR, which ensure that they comply with regulations on financial management, security or the fight against money laundering.
This is not the case for all players offering payment services, savings or loans. Some operate on the margins of any supervision, asagent or representative of payment institutions or electronic money. In this case, the ACPR specifies, it is the approved establishment [qui] remains solely responsible for the actions of the companies it has commissioned.
This obviously does not mean that the company in question is not reliable. An example: before obtaining an e-money institution license recently, a major player like Lydia evolved for years as an agent of Okali and Treezor, two e-money institutions, without that this hinders its development and the proper functioning of its services.
History, however, can also go wrong, as was recently illustrated by the swoon fall. This Lille company marketed, from 2018, a particularly attractive investment for the time – 3% gross annual remuneration – and presented as risk-free. Although presenting itself as a nobank, it nevertheless had no approval, evolving outside the ACPR’s supervisory scope. It was put into compulsory liquidation in July 2021, leaving about 150 savers on the floor, some having invested tens of thousands of euros. They are now engaged in long-term legal proceedings, without certainty of one day being able to recover their money.
(1) Survey carried out on 1,005 people representative of the French national population aged 18 and over. Survey conducted online, on the YouGov France proprietary panel, from March 29 to 30, 2023. (2) Launched in 1994 by Compagnie Bancaire (Paribas Group), Banque Directe was acquired in 2002 by the insurer AXA to become Axa Banque . (3) From Brick & Mortar, an expression used in Anglo-Saxon countries to describe businesses offering physical points of sale.