When Europe’s legacy banks were on life support after the 2008 financial crisis, a new breed of challenger banks emerged.
The introduction of e-money institutions — an easy-access regulatory licence for providing payments, foreign exchange and digital wallet services — gave rise to N26 in Germany and Monzo, Starling and Revolut in the UK. However, Europe’s third-largest economy — France — has yet to produce a consumer neobank.
Until now.
Lydia, a French peer-to-peer payments app founded in 2013 with 8m users, wants to become France’s consumer banking app of choice. But it will face stiff competition.
A French neobank
In May, Lydia committed €100m to launch a digital banking brand, Sumeria. It’s since started the application for a banking licence in France cofounder and CEO Cyril Chiche told Sifted in an interview last week — a process that can take over 18 months. A banking licence would enable it to offer overdrafts and lend deposits.
In the meantime, 1.6m customers have already migrated to its banking operations, attracted by a 4% interest on current accounts. On top of that, customers can use its budgeting tools, make instant bank transfers and open an account to invest in crypto, ETFs and metals.
Lydia cofounder and CEO Cyril Chiche says that big banks in France are “extremely powerful”, so much so that asking to switch banks can be a heavy ask. To face off against them, Lydia will make ease-of-use at the core of its offering.
“The idea is to build financial products that are good enough for everyone — whether that be our family, friends or other people close to us, ” he says.
That might tempt people away from traditional banks — but it has plenty of neobank competitors too. Revolut has 3m users in France; starting with Ireland, Monzo is set to launch in the EU starting with Ireland in the “coming months”; and N26, which won’t disclose customer numbers, has been in France since 2017.
Fledgling fintechs like Helios, a startup focused on sustainable bank accounts, and crypto bank DeBlock are also vying for the French public’s wallets.
Lydia’s major competitor, however, will be Société Générale’s BoursoBank, which expanded into banking services in the 2000s after starting as a stock brokerage business in 1998. It now has more than 5m clients and many features, including insurance, stock trading services and mortgages.
Didier Valet, the former deputy CEO of Société Générale who’s since turned to investing as a VC, says that with both Revolut and BoursoBank in the market, it’ll be hard for Lydia to acquire enough customers to make its banking ambitions profitable.
There are also other digital banks operated by legacy players in France including BNP Paribas’ Hello Bank and Credit Mutuel’s Fortuneo, which have 755k and 1.2m clients respectively.
Morgan O’hana, cofounder of Paris-based B2B lender Defacto, believes the competition has stifled the need for French fintech founders to delve into consumer banking.
“They have a very good brand equity,” she says. “Although they might not be as fancy as your typical VC-backed neobank, people really enjoy using them — the [user] experience is good enough.”
The banking licence
There are three key reasons why it’s taken so long for France to get a home-grown consumer digital bank.
Firstly, regulators take their time when approving banking licences. French financial regulators haven’t awarded as many banking licenses to fintechs as similar regulatory bodies in the UK or Germany. SME-focused MemoBank became one of the first commercially independent banks to obtain a licence in 2020.
It wasn’t an easy process, however. The bank formally applied for a French licence back in 2017, and some investors say the long regulatory process hampered Memo Bank’s growth compared to fellow business banking fintech Qonto, one of France’s most famous fintech exports, which reached a unicorn valuation in 2022 and has 450k customers.
That’s where digital banks operating under the umbrella of France’s financial institutions — like BoursoBank — have an advantage.
French legacy players also have a habit of hoovering up potential challengers before they scale— to mixed results. Crédit Mutuel bought French payments fintech Pumpkin in 2017 only for it to be wound down in 2022. In 2017, BNP Paribas acquired neobank Nickel for €260m; it continues to operate as a BNP Paribas subsidiary and currently has 1.7m customers — significantly fewer than BoursoBank or Revolut.
And for years France just didn’t have the funding. “Initially, all of these neobanks required a lot of capital — VCs and strategic investors, for instance — which we didn’t have in France,” says Hugo Hazon, a French investor at fintech VC Illuminate Financial.
Defacto’s O’hana says French VCs have always preferred startups focused on business customers. “In France, VCs push for B2B over B2C,” she says.
Ambitious plans
With both French legacy banks and overseas neobanks competing, the race to become the go-to consumer neobank in France is heating up.
Lydia’s expects to receive a banking licence in 2026, says CEO Chiche. And while it’ll be several years behind its competitors, he’s confident in Lydia’s prospects.
“It happened earlier in the UK because the market was more mature,” he says. “It might take time but I’m very comfortable with the fact that it’s going to happen in France too.”
Read the orginal article: https://sifted.eu/articles/france-neobank-consumer-lydia/
