A comparative analysis of the US and EU retail banking markets - Wsbi

6.5.2 Europe
As already discussed in this chapter, retail banks in Europe
are still very much anchored as the main loan providers in
both the mortgage and SME lending markets, and there is
at this stage no significant threat posed by competition
coming from secondary market funding sources. In the case
of mortgage loans, while there are a few well developed
national markets, no pan-European platform currently exists
and there seems to be little enthusiasm in any case for
replicating the US mode of GSEs, while in the case of SME
loans, the nature and characteristics of such loans make
securitisation an unlikely alternative to bank funding.
In this section therefore, we consider in particular the
competition that European retail banks are facing in the
consumer credit market in a number of EU Member States.
We examine this one country at a time, as the situation
varies significantly from country to country 398 .
France has a wide range of consumer credit companies, but
it is difficult to say whether they provide real competition to
traditional banks as almost all of them are owned by banks.
The biggest players such as Cetelem, Sofinco and Cofinoga
are owned by large banking groups. Cetelem is owned by
BNP Paribas, Sofinco is owned by Crédit Agricole and
Cofinoga is jointly owned by Galeries Lafayette/Cetelem.
However some of these companies operate with a high
degree of autonomy. For example 70% of Sofinco’s business
is outside the orbit of Crédit Agricole. They also have lower
costs through being unburdened by the systems and staffing
agreements of the big banks, and can afford to price their
services aggressively. In some quarters of the banking industry
they are, therefore, viewed as serious competition.
A number of leading retailers also have banking operations
in France, such as S2P at Carrefour and Edel at Leclerc.
Their services are however offered in association with one
of the big bank-owned consumer finance companies.
Carrefour has an exclusive arrangement with Cetelem, and
Galeries Lafayette supplies its financial services through the
Cofinoga subsidiary which it partly owns with Cetelem.
In Germany, non-bank competition exists in the form of
mainly subsidiaries of insurance companies, household
retailers or car manufacturers.
The three biggest German car manufacturers 399 account for
42% of new car financing. The BMW bank has an established
credit card company and deposit banking operation
alongside its traditional leasing and finance business with
some 500,000 customers in Germany. The Volkswagen Finance
Company takes deposits, issues credit cards and offers a
range of savings and loans products through Volkswagen
Bank Direct. It has over half a million customers.
Another non-bank competitor in Germany is Entrium Direct
Bankers, formed in 1990 by the Quelle mail order group and
transformed, in 1995, into one of Germany's first internet
banks. By 2001, it had 700,000 customers.
By 2000 however, such non-bank groups had less than 1%
of the German retail banking market.
In the UK, many of the so-called non banks engage in
traditional banking activities such as deposit-taking as well
as the provision of loans. Non-banks in the UK come from a
wide array of different sectors such as the supermarket banks
(Sainsbury’s, Tesco, Safeway, Asda, Marks and Spencer),
insurance subsidiaries (Standard Life, Scottish Widows,
Prudential, Legal & General), transport companies (British
Airways and Easyjet) and utilities (Centrica, Thames Water).
Many of the non-banks in Britain therefore build on their
established brand names and existing client relationships to
diversify into financial services.
In the UK, many of the new entrants are partnerships with
existing banks, such as Safeway with Abbey National, Tesco
with Royal Bank of Scotland, and Sainsbury’s with Bank of
Scotland. Marks and Spencer is the only retail company which
established its own financial services company. They offer
only a limited range of products – loans or deposits – and
they avoid current accounts. Unlike in other European
countries, they have not ventured into investment products,
such as broking services and mutual funds.
Non-banks in the UK have made some impact, having
captured about 5% of the UK’s interest bearing accounts,
and about 1% of total mortgages outstanding. More
importantly, they gained a 10% share of new lending by the
first half of 1999.
398 The two main sources used for this section are as follows: 1. “The Future of Retail Banking in Europe: A view from the top”, O. McDonald and K. Keasey,
Unisys, 2002; 2. “Europe’s new banks. The ‘non-bank’ phenomenon”, CSFI Centre for the Study of Financial Innovation, June 2000.
399 Volkswagen, BMW and DaimlerChrysler.
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