French operator buys out Groupama and injects another €230 million into its loss-making bank unit.

Iain Morris, International Editor

October 1, 2021

5 Min Read
Orange fails to land partner for ailing bank business

A bit of French swagger was apparent when Orange launched its inaugural banking service in 2017. Seeing itself as the disruptor in a moribund market, it had bought a majority stake in Groupama Banque – which then served about half a million customers – as an entry point the year before. Months later, the telco set out to prove that donning a pinstripe and mastering the finer points of personal finance was pas de problème.

It hasn't quite worked out as planned. Surveys showed that about a third of its customers were interested in Orange's banking service, said Laurent Paillassot, then head of Orange's mobile financial services business, in early 2016. In France alone, this would, at the time, have implied about 9 million people were ready to bank with the telco. Yet customer numbers across both France and Spain, where Orange has also taken its banking service, had not even hit 1.6 million by the end of June.

Orange seemed to have lost some of that original swagger by late 2019, when its stated target was to serve nearly 5 million customers by the end of 2023. Even this looks ambitious. Orange is currently signing up more than 40,000 new customers every month, it revealed in a statement published today. At that rate of growth, it would be on course for less than 3 million in the next two-and-a-half years.

Figure 1: Orange CEO Stephane Richard faces criticism over his bank move. Orange CEO Stephane Richard faces criticism over his bank move.

Profitability looks more distant, as well. The goal announced in late 2019 was to break even at the European banking business toward the end of 2023. By March this year, CEO Stephane Richard was telling French newspaper Le Figaro that he did not expect to stem losses until late 2024. Since the start of 2018, operating losses have totalled €627 million ($727 million), according to Orange's financial statements.

The latest negative is an apparent failure to find a new partner to replace Groupama. The hunt started when Groupama decided not to participate in the last capital increase, diluting its stake in the business from 35% to 22%. "So we started looking for a new partner, possibly to replace Groupama, in order to support the second phase of Orange Bank's development and its development in Europe and Africa," Richard told Le Figaro in March. "If we do not find a new partner, we will continue the venture alone."

The lack of interest in becoming Orange's partner was confirmed today when the telco acquired Groupama's remaining stake and announced a €230 million ($267 million) capital increase in the bank. Orange said it would maintain a commercial relationship with Groupama, but no other investment partner was unveiled, and Orange is now the bank's sole owner.

Ce n'est pas un catastrophe

It would be wrong to describe the bank foray as an outright catastrophe, or even to frame it as another example of telco failure to branch out beyond connectivity. Among French telecom customers who have opened a bank account, spending has doubled, says Orange. In Spain, the main benefit appears to have been a sharp reduction in churn, which has halved among customers of both a telecom and bank service.

Moreover, losses are expected to narrow significantly this year as net banking income (NBI) rises and management costs fall. NBI was up 57% for the first six months, to €53 million ($61 million), and the operating loss of €77 million ($89 million) was €10 million ($11.6 million) less than Orange reported a year earlier. Investment in processes over the last three years means management costs per customer have dropped 35% since 2018.

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Still, the highly competitive French bank sector has been harder to crack than Orange expected. During the launch phase, executives made a big deal of Orange's technological sophistication versus older rivals. But ownership of a mobile network is no prerequisite for the launch of a mobile banking app. A "virtual assistant" powered by artificial intelligence certainly looked impressive, but it was based on IBM Watson rather than in-house expertise. Crédit Mutuel, a French bank boasting 34.6 million customers altogether, relies on the same technology.

Supporters also reckoned that consumers would value the convenience and affordability of a one-stop shop for all their communications and banking needs. Taken to the extreme, this approach would have one organization responsible for all household services, from finance and energy to broadband and entertainment. Yet this could repel some customers as much as it appeals to others. Orange itself is worried about dependence on one or two critical suppliers. Why should the average person feel any different?

Figure 2: Should telcos become banks? (Source: Light Reading survey in late 2019) (Source: Light Reading survey in late 2019)

It is far too soon, however, to pass any final judgement on Orange's bank business. Financial indicators are improving, and the capital increase announced today will support the development of new features. A new marketing campaign should also raise awareness. "This new ambitious phase, which reflects Orange Group's fundamental values, will give rise to a new advertising slogan that will be revealed on Sunday on TV and digital channels," said Paul de Leusse, Orange Bank's CEO, in today's statement.

During a Light Reading survey carried out in late 2019, 88% of 189 respondents answered no when asked if telcos should become banks as part of diversification efforts. Since then, Richard has lashed out at criticism of his strategy. "In this country, as soon as you leave your area of expertise and take risks, you are ridiculed," he told Le Figaro in March. Orange will have to do a lot better to silence the critics.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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