How BNP has started the “great replacement” of its branch network

In the past few weeks, 2 very interesting things happened in France:

• According to media reports, Compte-Nickel was sold to BNP for more than 200M EUR;
• Carrefour, a global leader in retail, is launching a neo-bank.

We already spoke about Compte-Nickel in a previous post. What is amazing with them is that they had a real business model from the start. They reached 500,000 users, 20M EUR revenue and profitability while spending ZERO on marketing. I repeat, nothing spent on marketing, but rather they invested in a product focused on solving a real problem for the unbanked, the under-banked or just people looking for simple and straightforward banking services.

To serve clients, Compte-Nickel built a “no-cost” physical distribution network using tobacco shops, of which there are more than 24,000 in France. To entice them to join, they offered revenue-sharing with the shops who were suffering from years of decreasing revenues. The shop owners saw Compte-Nickel as a way to attract more foot traffic and, by extension, increase sales. Where they have been really smart is when they decided to offer the French Association of Tobacco Shops to become shareholder of the company, creating a clear and strong barrier to entry for competitors.

Now, let’s have a look at the acquisition by BNP. The usage of branches by bank customers is fast-decreasing with more than 90% of customer touch points already being digital. Nevertheless, banks are not yet ready to completely eliminate their branch network, even if most of them start agreeing, at least off the record, that 80% of branches will have to be shut down in the next 20 years. In that context, I am pretty convinced that this acquisition is a way for BNP to take a first concrete step towards replacing its (very) expensive branch network with an (extremely) lean one. It is also a strategic move considering that tobacco shops probably have the above-mentioned exclusivity agreement with Compte-Nickel.

The closing of branch networks will then probably occur alongside the “replacement” of traditional physical banking networks with lean ones; leveraging the already existing networks of others industries such as supermarkets.

The big challenge for neo-banks is not around technology or product innovation. Building a great app and a great user experience is not really that complex and, more importantly, will probably neither be a strong differentiator nor a strong barrier to entry on the long-run. What is really challenging for neo-banks is how to attract a massive amount of users at a reasonable cost and to extract revenue from them under a sustainable business model. Barriers to entry in neo-banking are relatively low, but building a sustainable business like Compte-Nickel did is really hard.

So why is it so hard to create such a customer base for newcomers? Although the financial crisis had a negative impact on the reputation of traditional institutions, neobanks are still at the beginning of their trip to build a trusted brand.  Further, consumers – especially anyone who isn’t a  millennial – tend to be more conservative regarding money matters. Obviously, many people are willing to substitute their traditional book store for Amazon. However, they have yet to adopt a parallel attitude in regards of banking services. It will be interesting to see whether, from the innovation standpoint, traditional financial institutions will be able to catch up to neobanks before they finish this trust-building process.

Second, we are seeing companies like Carrefour, that owns and operates more than 1,000 supermarkets in France alone, launching neobanks. They do not have the same footprint as tobacco shops but their presence is still well established in many towns and cities.  More importantly, they already have millions of customers that shop at their “branches” every week. Therefore, this move makes a lot of sense. Additionally, many customers use Carrefour’s fidelity programme and in some cases, their clients have Carrefour-branded credit cards. That’s why using their brand and pre-existing loyalty to convert these customers into “full” banking clients represents a tremendous opportunity for Carrefour.

What’s even more interesting about this situation is that BNP holds a 40% stake in  “Carrefour Banque et Assurance” – which is a Carrefour subsidiary.  This offshoot powers the group’s payments card business and has 2.5 million clients.  Looking at it from this angle,  it now seems clear that BNP has really started the “grand replacement” of his branch network.

What will happen when Amazon will have replaced most retailers is a question that will need to be addressed in another post. However, it is becoming increasingly clear that banks are leading the way in shifting how consumers and retailers view traditional banking structures.

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