Online banks, most of which emerged in the 2000s, were considered avant-garde at the time. Today, they are struggling to become profitable, despite several changes to their business model. Here are some answers about their future.
Over the past 20 years, a succession of business models has evolved
The major banking groups are, for the most part, somewhat encumbered by their online banks. These were created in the early 2000s, when the Internet was just beginning to attract the interest of the general public.
Back then, traditional bank websites didn't offer the services they do today. They served mainly as shop windows, and customers were accustomed to visiting branches to carry out routine transactions. In this context, online banks were considered avant-garde.
Over the years, they have had to change their business model several times in order to survive. At first, before the bursting of the Internet bubble, they were more like brokerage sites dedicated to individuals.
Subsequently, online banks, still far removed from today's business model, focused on online savings. While interest rates were much higher than today, they attracted customers by offering very attractive rates for a pre-determined period.
When rates began to fall significantly, this business model no longer allowed online banks to stand out. Especially as, at the same time, with the help of fintechs, traditional banks began to offer more and more digital services, catching up with the lead taken by online banks.
As a result, the historical players born in the 2000s have had no choice but to adopt their current business model, and align themselves with the banks' offerings by proposing savings products, life insurance and loans.
Online banks that are rarely profitable
Despite this, online banks are struggling to become profitable, and a new business model has yet to be invented to ensure their future. Although they are constantly attracting new customers, often with the help of bonuses and very low rates, few of these customers make them their main bank - too few to earn enough.
For many years, Fortuneo, Crédit Mutuel Arkéa's online bank, has claimed to be the only profitable one among all its competitors. Boursorama, a subsidiary of Société Générale, proclaims that it would be profitable if it deducted the costs of acquiring new customers.
All the banking groups are looking for ways to make their online banks more profitable than they are costing them, or have decided to give up, asING has done by withdrawing from the French market. In April 2021, BforBank was recapitalized by Crédit Agricole for the 3rd time since its creation, while Fidor, a German neobank acquired by BPCE, was sold a few years later to an American investment fund.
With Hello Bank, BNP Paribas chose to target self-employed entrepreneurs in France and millenials in Belgium, believing that segmentation would be more profitable. These difficulties in finding the right business model have not prevented Banque Postale from taking its turn with My French Bank.
The future of online banking remains uncertain, and a new business model will probably have to be found. For Boursorama, on the other hand, which has just entered into exclusive negotiations with ING to buy its customer portfolio in France, the years ahead look brighter.