French telecom incumbent Orange is plotting a dramatic move into Europe's banking sector through a partnership with Groupama. (See Orange May Become Bank With Groupama Takeover.)
Negotiations could ultimately result in Orange (NYSE: FTE) acquiring a 65% stake in Groupama Banque, the French insurance giant's banking subsidiary, before launching a range of savings, loans, insurance and other financial services.
Orange already provides mobile money services in parts of Africa and the Middle East, and has also introduced a mobile banking application called Orange Finanse in Poland.
But the plan to launch Orange Bank would take the operator into new and unfamiliar territory.
Should it acquire Groupama Banque, Orange will find itself in control of a business that last year served 530,000 customers and had outstanding deposits of more than €2.1 billion ($2.3 billion) and outstanding loans of about €2 billion ($2.2 billion).
With the rollout of mobile banking services set to be a priority, Orange will need to work on differentiating itself from rivals and contending with new regulatory challenges.
Telco Transformation put some questions about the latest initiative to Laurent Paillassot, Orange's deputy CEO of customer experience and mobile banking.
Banking on Growth
Orange's Laurent Paillassot explains the operator's rationale for wanting to enter Europe's banking sector.
Telco Transformation: Why would a telecom operator want to become a bank?
Laurent Paillassot: Mobile banking is a key pillar of Orange's strategy to diversify and better connect customers to what is essential in their lives, and an area in which we believe we can be highly successful. Orange will draw on its highly recognized and valued brand, its close relationship with and knowledge of its 28 million customers in France, its powerful distribution network and its ability to offer cross-market offers to provide a truly differentiated customer experience in the digital banking market.
TT: Why do you think you can be highly successful in this field?
LP: We believe this is the right time to get into mobile banking and Orange has all the assets to be successful. In particular, more and more people in France hold accounts at multiple banks, particularly young people, in a regulatory context that makes it easy to switch banks. Orange has a number of strengths that will help it succeed in this field. First, we have a strong, globally recognized brand, trusted for security and reliability. We also have the know-how in marketing and technology. And our many local shops will complement the mobile subscription service, reassuring customers through a bricks-and-mortar presence. Furthermore, the surveys we've conducted show that a third of our customers are interested in opening an Orange Bank account.
TT: What kinds of unique services would Orange look to offer?
LP: Orange wants to create a simple and transparent banking experience. It will be mobile driven and distinctive in terms of price and customer focus. Orange Bank will combine the best of mobile banking -- services and innovative products at competitive prices -- with the reassuring side of Orange's physical network.
TT: Will the launch of banking services be confined to markets where Orange has a network presence?
LP: The focus today is on launching this initially in France and other European countries thereafter.
TT: Orange's revenue target of €400 million [$432 million] from financial services by 2018 seems relatively modest given the operator made €39 billion [$42 billion] in overall sales last year. Are we talking about a soft launch of Orange Bank in that time frame and how important do you think banking services will become to the Orange business?
LP: Since the launch of Orange Bank is planned for the start of 2017 in France, the 2018 target is in line with that. Mobile banking is one of Orange's key strategic areas of focus and will continue to be so.
TT: Why are you planning a tie-up with Groupama rather than another banking player?
LP: Orange has assessed proposals from several banking partners in the last six months and decided to enter into exclusive negotiations with Groupama. We were looking for strategic alignments in terms of developing a disruptive banking strategy. That is easier to do when banking is not the core activity, like for Groupama. Groupama Banque was selected for the quality of its business processes and its IT infrastructure and, ultimately, for its commitment to building a long-term strategic partnership which places the customer at the heart of the service offering.
TT: What kind of organizational and cultural changes will this banking move require?
LP: If this partnership agreement is realized, Orange will implement the necessary training plans with the contribution of our partner. We are also considering the allocation of key roles at Orange Bank from our own teams, those of our partner and from external sources.
TT: What are your plans for dealing with new and unfamiliar regulations as a financial-services player?
LP: As with all regulation, we will work with the relevant authorities to anticipate and implement all required regulation. Since Groupama is already a bank with a banking agreement, IT processes and bank reporting in place, that will help us to speed things up.
— Iain Morris, , News Editor, Light Reading