I was talking with some friends at the most innovative bank in Europe. A bank that has stopped getting on my radar for the past few years. I first blogged about them back in 2012, when I met the founder at an event. That bank is called Fidor.
Following that first meeting, we became friends, and I would regularly be delighted to hear of their innovations, such as offering better interest based upon Facebook Likes and storing World of Warcraft Gold or cryptocurrencies or anything else you felt was of value.
Then they got acquired in 2016 by BPCE Bank of France and I never heard anything again. Until now. This week, I hear that Fidor has asked to divorce from BPCE. It came as no surprise to me, but then again I was more surprised when a traditional large old bank had acquired the then most innovative bank in FinTech.
If you are not aware BPCE is the merger of two large old French banks that date back two hundred years. It’s a large old bank. At the time of the Fidor acquisition, the press release said that “the planned acquisition of Fidor is fully in line with Groupe BPCE’s strategic plan Another Way to Grow and will contribute to the acceleration of the rollout of the group’s digital strategy.”
François Pérol, Chairman of the Groupe BPCE Management Board said: “This operation constitutes a key step in the acceleration of the digital transformation of our group. It further demonstrates our commitment to innovation, to develop a customer centric approach enabled by a digital banking technology and to be more involved in digital and mobile banking field. We are very proud and happy to welcome Fidor’s teams, community and clients within Groupe BPCE.”
So what happened? How come it hasn’t worked out?
Well, it turns out that the French owners didn’t quite get the idea. They absorbed Fidor Bank and did nothing with it. No integration, no development, no plan.
According to Fidor’s founder, Matthias Kroener: “I think we had two good years. To now fully enable a maximum value creation out of Fidor´s potential I think it is a respectable resolution to go for a modified shareholder set up.” This was quite a diplomatic statement from his side, as he is a gentleman.
Matthias would not answer questions on the details but here’s my view on it all, as this can be a good lesson for any FinTech company thinking of having a deeper, strategic cooperation with a large, incumbent player.
First, a question regarding the governance. According to sources familiar with the development, BPCE never integrated Fidor in their thoughts on digital. This might be attributed to BPCE´s Chief Digital Officer, who acted as the Chairman of the Board. He had only recently joined the bank, from the French State Train SNCF Organisation. He joined after the Fidor deal had taken place. It was not his deal. He inherited it.
This is where the internal politics starts to destroy everything. I understand the new Chairman of the Fidor Board found it difficult to work out how to sell the deal to the provincial bankers, bearing in mind that BPCE is formed of many small banks. Equally, this new leader is not a banker. As mentioned, he came from the trains and it would be a hard task to talk digital and digital banking in the middle of all those offline bankers, who are protecting their little kingdoms in the French provinces. Specifically, coming from outside, he has no “political network” within the bank, and is severely challenged to talk about Fidor with no experience in digital banking, and no understanding of regulations such as PSD II.
There’s not only the internal politics, but French media has reported that there was a romantic affair taking place between two members of the C-suite, after all this is France, and this led to more political in-fighting. As these individuals had been responsible for the Fidor deal, the heads of local banks obviously started a campaign against them and, because of their involvement with Fidor, the hate campaign targeted that deal too, as accepted collateral damage within their internal politics. All that is public information as BPCE Group internal leaks fuelled French media with all kinds of confidential details. Sounds like a very French Netflix series, but it isn’t. It’s real life.
And there’s more to the issues than the wrong people in the wrong job dealing with political in-fighting.
At the time of the deal in 2016 I heard that Francois Perol, Group CEO of BPCE, said that he wanted Fidor to be set up in France first. Two years later, Fidor´s activities in France are non-existent. As I cannot imagine that there are technical reasons for this, this also has to be political. As the bosses of the local banks are the ones who decide whether or not to follow their CEO’s ideas, they obviously made a move to block the launch Fidor France. In fact I hear from Fidor France that all activity has stopped.
It is also easy to assume that there was a clash of cultures between a German-born bank (even worse: Matthias is Bavarian) and a French-centric bank. The language barrier is one challenge. More important, there is clash of cultures between a new, innovative, FinTech start-up and an old, risk-averse, incumbent bank. For example, Fidor is one of the leading and most experienced financial services operations when it comes to cryptocurrencies. You would imagine that there must have been discussions on that area during the acquisition phase but it turns out that BPCE didn’t like that much after all, as there has been no further involvement in crypto since 2016.
As can be seen, it’s not a great environment to work within. Having said that, there have been some positives.
The consumer banking business has increased threefold and business banking fourfold over the past two years. The balance sheet has been totally cleaned up for Fidor, thanks to the support of Paris. That’s clearly a positive effect as any new investor gets a super clean operation, with a balance sheet around €1.5 billion.
What can FinTechs learn out of that?
Well, for me, this illustrates the challenge of FinTech partnering well. Many banks are trying to innovate, to become digital, to be more hipster and less control freak. They are trying to work with young, start-ups and move away from being old fuddy-duddies. But that ain’t easy when the young start-up fundamentally challenges the old ways of thinking. Equally, the old ways of thinking are so ingrained culturally that any change to that thinking creates a political backlash that’s hard to temper.
In fact, it’s almost like Brexit. You have all of these different camps all wanting different things, and someone is always going to lose. In these situations, whether it be Brexit or old bank acquiring new bank or old bank working with start-ups, you need strong leadership to bring everyone along. It just won’t happen otherwise.
My final question to Matthias, who wasn’t very co-operative in my digging, would be: couldn’t all this have been anticipated? Couldn’t you foresee all that? BPCE is known to be a very political organisation, founded by politicians (Sarkozy) in the aftermath of the financial crisis as a merger of two big old banks. One day we will receive an honest answer on that. That’s why Fidor is finding another way to go and BPCE need to find yet another way to grow.
Besides those open questions regarding the past, the next steps into the future are clear as I hear that, with the support of Clipperton and Messier Marais, Fidor and BPCE are now preparing the Investment Memo for their separation. Ernst & Young is doing the due diligence and the owners of Fidor expect a final resolution by the spring of 2019. Watch this space.