Telecoms giant Orange launches its own bank on Thursday, aiming to win 25 percent of France's online banking market by capitalizing on the rising use of smartphones to steal share from established lenders with inferior technology.
The launch is part of a push by the French firm to find alternative revenue streams and retain clients in the face of a price war in the telecommunications sector.
It is also a test for the telecoms and banking industry, marking the first attempt in a major developed market by a telecoms company to launch a standalone bank.
"We are targeting 2 million clients in ten years. That would represent 25 percent of the (online banking) market, but I hope we will not stop there ... and we will be the market leader in several years," Andre Coisne, chief executive of Orange Bank, told Reuters in an interview.
Coisne has previously launched online banks in France for ING Direct and Credit Agricole's BforBank.
Orange is starting from a small base - Coisne says it has 25,000 customers have expressed interest ahead of the launch, a tiny fraction of the company's 21 million mobile clients. But the timing of its entry gives some room for optimism.
In France, 793.4 million online banking e-payments were made last year according to the European Central Bank, up from 586.2 million in 2014.
Consultancy Ernst & Young predicts the number of customers going online to open an account in France will surge nearly six-fold to 17 million in the next ten years.
The regulatory environment is also becoming more favourable - next year new European Union rules will start to force banks to allow customer data to be made available to other companies, if the customers agree. That will help the likes of Orange to identify potential customers and offer them better deals than their current lenders.
"This is a good start," said Coisne, who will also face competition from telecoms rival Altice, which launches its bank in 2019.
ORANGE IS THE NEW BANK
Orange has beefed up financial services across its networks over the past ten years under several brands, such as Orange Money and Orange Cash, and Orange Finanse in Poland, which uses a platform created by Polish lender mBank.
It targets 400 million euros in revenues for its financial services unit by 2018, out of which half would come from Africa.
Africa is the world leader in mobile banking. Around 12 percent of adults there have a mobile money account against 2 percent globally, according to a 2014 World Bank survey.
Telecoms operators have long hoped to repeat their banking success in Africa and other developing markets in advanced economies, but until now have only done so by relying on partnerships with existing banks, with little success.
So far most telecoms operators have sought to retain customers by offering media content such as free access to music streaming apps like Spotify or movie streaming platform Netflix, as well as exclusive sports broadcasts.
But a minority investor in Orange told Reuters that diversification through banking could prove smarter because these services are essential and sticky.
"To me, it is smarter than spending millions on sport rights that expire every two or three years", the investor said.
There is no clearly successful precedent in major Western markets, which makes Orange's move so brave, said Tom Levine, global head of telecoms practice at Allen & Overy.
"I hope their ambition goes beyond retaining customers through bundles because there is a real opportunity for telcos in banking to be a platform, thanks to the trust they inspire, their strong brand, and large customer base".
Orange is betting on a wide range of services - mobile, internet, TV, videos and music, and now banking - to help generate enough revenue to offset costs on infrastructure investments.
"Our ambition is to offer everything, we are a complete bank," Coisne said.
From Nov. 2, Orange customers can use an instant mobile payment service as well as a free debit card, current account and savings accounts. Its online app will also allow users to transfer money via text message to another Orange account, and use Apple or Android wallets.
Other products, such as loans and insurance, are expected next year.
BANKS COUNTER ATTACK
Orange is not the only new entrant. Established banks such as BNP Paribas, Societe Generale and Credit Agricole are competing with new online low-cost banks such as N26, and retailers such as Carrefour.
Some French banking executives have expressed concern about the entry of Orange Bank into the market and the impact on profit margins.
Orange is "potentially a very important competitor", Philippe Brassac, chief executive of Credit Agricole, said in May.
Banks are making investments to increase the appeal of their services to smartphone users, while also cutting branches to keep costs down.
France's BNP Paribas upgraded its mobile app this year and hired a former marketing and digital executive at Bouygues Telecom to head its online Hello Bank! in France, while Credit Agricole is set to announce a new online banking offer in November.
If Orange meets its target of 2 million customers in the next 6 to 10 years, it would likely be at the expense of these rival online businesses. But for Orange, banking would remain a small business relative to its overall size, says Bengt Nordstrom, CEO of telecoms consulting firm Northstream.
"This would only bring a very small stream of additional revenue relative to the scale of Orange," he said.
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