Orange bullish on bank plans, gives itself five years head start on incumbents

Orange, Groupama, mobile, banking

Laurent Paillassot admitted he was tired as we sat down at the end of another gruelling Mobile World Congress, but he is confident Orange’s adventure into banking will energise the company’s business moving forward.

The France-based operator announced in January that it plans to enter financial services in its home market by acquiring a 65 percent stake in the banking arm of Groupama.

This follows the launch late last year of a banking service in Poland, in partnership with Commerzbank, which has yielded 250,000 customers since Q4 last year.

Orange plans to generate €400 million of revenues at Group level from financial services by 2018.

Paillassot, a former Credit Lyonnais banker who joined Orange in 2014 and who has been driving the operator’s banking foray in France, reveals negotiations with Groupama are still ongoing.

“The plan is to sign [the deal] in March or April and launch in Q1 2017,” he says.

It is striking how confident Paillassot appears to be about Orange’s chances of success in this sector.

“There is a huge potential for us to become one of the biggest players in France very rapidly,” he says, citing what it has achieved in Poland as evidence that it can succeed.

In short, Orange plans to use Groupama’s infrastructure to offer a range of classic retail banking services to customers via their smartphones.

Paillassot says the operator has a clear window of opportunity to make its mark as a digital bank.

“We have 5-7 years before incumbent players [do something similar],” he claims, citing the cash and time required to build up a truly online banking operation.

He admits that Orange is “taking a risk” but insists that it’s “the right time” to build a book.

Scale is perhaps the most important goal that Orange needs to achieve, according to Paillassot.

“The question for us is how fast we can get to one million customers,” he says.

Orange will target millennials and Generation Y’ers, and Paillassot notes that the operator is in discussions with start-ups about developing new technologies designed to appeal to this demographic.

“Our proposition will be leaner, simpler, cheaper, more digital,” says Paillassot. “There are many ways you can change how to interact with a bank.”

Naturally, a key goal is to cross sell telecoms and financial services.

“We want to make it as bundled as possible,” Paillassot says.

When asked whether financial services will be more profitable than telecom services, the exec says it is difficult to compare the two.

The best way, Paillassot says, is to compare return on capital employed (ROCE) with return on equity (ROE).

He says the two are broadly similar at 10 percent and 12 percent respectively.

Paillassot rejects outright any concerns that Orange is entering the banking sector at the wrong time.

The macroeconomic environment could hardly be described as buoyant, with France’s leading stockmarket index the CAC40 having fallen over 10 percent in the past year.

Paillassot says: “The risk for us is not in the next 3-4 years as we build the balance sheet.

“We’re not going to go big on mortgages for instance… we will offer them but it’s not strategic for us at the beginning.”

He admits things could get “difficult” if interest rates go negative.

But this is one admission amid an overwhelmingly positive view that Orange just has to get the execution of its proposition correct to succeed.

A cynic would suggest Paillassot is in such an upbeat mood because he is handing over the reins of the banking project to Mark Rennard following an organisational reshuffle.

Rennard, who has been heading up the operator’s business in Africa and the Middle East, has little banking experience although he has overseen the deployment of Orange Money.

Paillassot, who is moving to head up Orange Spain, says the bankers that Orange have hired and will continue to hire to run the bank will mean his successor’s lack of sector knowledge will not be a disadvantage.

Indeed, with plans to roll out the banking service to Spain and Belgium in due course, Paillassot will not totally cut his ties with the business he has helped to create.

“We are investing in the future,” he insists. “This is a long-term play.”

Ovum’s Eden Zoller confirms it is definitely not a short-term attempt to boost customer retention and loyalty.

“Orange wants to be a disruptor in the banking sector but it is a high risk strategy,” she says.

Zoller describes it as an “unusual and bold” move for a telco in a mature market.

But she warns that while Orange’s decent track record in emerging markets will be useful, Europe is a very different animal.

Orange is right to focus on millennials, according to Zoller, as a lot of them are “actively suspicious” of traditional banks.

But she points out that Orange will still have a job on its hands to convince them to choose it over those banks who have mobile apps.

The Orange brand will offer it differentiation, Zoller believes, and its revamped retail stores featuring a wide range of digital services could be an important factor too.

But she is sceptical whether it will move the needle of Orange’s business in the long-term.

“The €400 million revenue target they have set themselves is a real drop in the ocean compared to their overall revenues,” Zoller says.

“I’m not sure [banking] will be a significant part of Orange’s business in the future.”

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