Digital finance players turn to profitability

ACPR

After the 2018 and 2020 editions, the ACPR is once again publishing its study on digital finance players. The two previous editions already showed the difficulties that FinTechs have in finding a viable business model. This edition marks a turning point both in terms of the number of players who have passed the threshold of profitability, but also in terms of the deterioration of the business model in a complicated economic context.

Facts

  • In this new edition, which follows more or less the same players as before (about fifteen in number), the ACPR wanted to delve into three particular points:
    • the evolution of the profitability of these players
    • the impact of the pandemic
    • and monitoring the partnership strategies of these actors
  • The study still points out the dependence of these digital finance players on traditional banking players, whether it is a capital, partnership or commercial dependence. Whether or not they belong to a bank, FinTechs have to deal with these essential players, which are necessary for their development.
  • It also notes, in line with previous editions, the growing success of their offerings and the strong growth in their customer base. For example, the panel of players surveyed in 2018 represented 8 million customers; the 2020 panel represents 16 million. And 35% of the new current accounts opened in 2020 were opened in one of the institutions surveyed by the ACPR.
  • The two main models of players that stand out are now the generalists on one side and the specialized players on the other.

Challenges

  • A shift towards profitability, which only highlights the disparities between players and strategies: Since the previous edition, 5 players have passed the threshold of profitability and 3 are on the way to it. In terms of player profiles, all of the independent fintechs on the panel (not belonging to a banking group) are profitable or in the process of becoming so, namely Lydia, Manager One, Younited, N26, Qonto and Revolut.
  • But at the same time, the ACPR notes that the average NBI per client has continued to decline since the first study was conducted. This evolution is also related to the evolution of the clientele of digital finance players, towards more young people and less executives. On the question of profitability, there are major disparities between generalist players, who seem to have a much harder time finding financial equilibrium, and specialized players, who seek to address customer segments or products that are considered more profitable.
  • In this context, the common strategy of the players is to diversify their offer, to charge more for their services and to move towards the most profitable products.
  • A search for profitability that drives the evolution of the offer: in this edition, the ACPR noted the strong growth of corporate services, which are considered much more profitable than the retail market. In particular, white-label payment and credit solutions have developed most rapidly, with strong demand for fractional or deferred payments.

Perspective

  • The ACPR study shows that the pandemic did not have a negative impact on digital financial services players, whose activity was, on the contrary, driven by the digitalization of uses. With the exception of a few players who ceased their activity, the majority of players were able to appreciate the resilience of their model.
  • In the interest rate environment, on the other hand, the situation is more uneven and the barrier to entry into the credit market is considered very high by fintechs.
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