Fintech disruptors turn into incumbents
The trend for fintech upstarts to collaborate with the big banks they once sought to challenge is now so well established that the boundaries of their business models are no longer clear.
The leading bank in France buys a financial technology company that has quickly attracted growing numbers of customers to a cheap, basic bank account that users can open in five minutes without going through the pain of dealing with a traditional bank.
The longest-established peer-to-peer lending platform in the UK is applying for a banking licence.
It’s getting harder to distinguish the disruptors from the incumbents. Increasingly they appear to be copying each other.
At the start of April, BNP Paribas announced it would be taking a 95% stake in Financière de Paiements Électroniques (FPE), which since 2013 has been distributing through French tobacconists its compte-nickel, or nickel account, quickly attracting 550,000 customers who can deposit their salaries, send and receive payments and use a MasterCard, all at a cost of €20 a year.
The account offers no access to overdrafts or credit lines, but users don’t have to prove any level of income or wealth to open one.
Azzurra Guelfi, analyst at Citi, notes unconfirmed reports that BNP Paribas is paying €200 million for its stake: “Albeit small, we see this acquisition as a positive for BNPP, as it is a step further in its customer acquisition/customer experience improvement and digital transformation announced in its recent investor day and could potentially also effect on the efficiency of the processing/payment area.”
The bank admits that much of the value of the nickel account derives from its 100% digital processing and real-time treatment of payment transactions. However, Thierry Laborde, deputy chief operating officer of BNP Paribas, underlines that: “the compte-nickel offering will remain distinct from, and complementary to, the products and services provided by the BNP Paribas branch network and Hello bank!”
He adds: “Meanwhile, we will be making every effort to help compte-nickel improve the customer experience and foster its growth, while remaining true to its concept.”
The deal envisages a continuation of the agreement with tobacconists and newsagents to distribute the account, which comes with low acquisition costs for the bank, no credit risk and low digital processing costs.
In other words, BNP Paribas is accelerating the growth of an account that was originally set up to disrupt banks. Indeed, BNPP targets 2 million customers for compte-nickel by 2020.
In the UK
Zopa was set up in the UK in 2005 by entrepreneurs annoyed at seeing banks charge borrowers too much for loans and pay savers too little for funding. They saw a chance to use new technology to more efficiently match up and improve terms for both sides.
Last November, Zopa first set out a plan for the next stage of its development: becoming a bank.
Chief executive Jaidev Janardana went into more detail at the AltFi Europe conference at the end of March. Zopa, which in the first quarter of 2017 was originating loans at the rate of £1 billion a year, will offer FSCS-protected deposit accounts for savers, alongside P2P investments, including IF ISAs for investors, and personal loans, car finance and credit cards for people looking to borrow.
It will not offer a current account like the compte-nickel, however, arguing that open banking will make the current account less of a binding tie between customers and financial providers.
What lies behind the decision? Janardana boasts: “We’re uniquely placed to make the next generation bank a leader in consumer finance, combining our customer-centric culture, agile technology and data excellence with a track record of loan origination and risk management.”
A less charitable explanation might be that it is dawning on the erstwhile disruptors that if you want to lend customers money, it helps if you have some in the first place. That has been a big stumbling block to growth for alternative and peer-to-peer lenders who have struggled to manage their funding gaps through institutional investor and bank-provided back-up lines as well as through securitization.
Selling insured deposits is probably a better way, as long as the new bank can still derive enough processing efficiency from its technology to offer value to lenders and borrowers. Perhaps Zopa could have collaborated with a bank. Instead it chose to become one.
The challengers are turning into the incumbents.