Competition Between Neobanks and Online Banks in the French Retail Banking Market and Reactions From Universal Banks

Competition Between Neobanks and Online Banks in the French Retail Banking Market and Reactions From Universal Banks

Jean Michel Rocchi (Sciences Po Aix, France)
Copyright: © 2021 |Pages: 26
DOI: 10.4018/978-1-7998-7110-1.ch009
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Abstract

This chapter will provide an analysis of market moves, and innovation sources, from newcomers and incumbent players, based on core and periphery networks theory; and additional survival analysis and VSR model, based on organizational population ecology. The French market neobanks, which are a subpart of fintech, are dominantly set up by entrepreneurs. On the contrary, online banks usually have universal banks as shareholders. Does this difference matter regarding market strategies? Is innovation coming only from peripheral actors like online banks and moreover neobanks, or do large retail banks at the heart of the banking system try to integrate or promote it? The author will discuss these topics to conclude with mixed evidence. Hence, if neobanks, on one hand, tend to converge towards the core; universal banks, on the other hand, are growingly accepting peripheral actors.
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Literature Review On Entrepreneurship, Innovation, And Organizational Population Ecology.

The French word ‘’entrepreneur’’ dates back, to Cantillon (1755/2015) to describe all types of creators exposed to a risk of failure. Say (1803/2018) mentions the qualities that an entrepreneur must possess ‘’judgment, consistency, knowledge of men and things.’’ Knight (1921) pointed out that an entrepreneur operates in an environment dominated by uncertainty and’’ the ‘’specialization” of uncertainty-bearing in the hands of entrepreneurs’’ (p.245). Keynes (1973) describes the ‘’animal spirits’’ of the decision-making of entrepreneurs as ‘’a spontaneous urge to action rather than inaction, and not as the outcome of quantitative benefits multiplied by quantitative probabilities’’ (p.161).

The more recent literature is devoted to the concept of opportunity which overlaps two aspects: the discovery of it on the one hand, and the exploitation of it on the other hand. For Kirzner (1973) entrepreneurs specifics, unlike other market participants, consist “ … in their alertness to previously unnoticed changes in circumstances which may make it possible to get far more in exchange for whatever they have to offer than was hitherto possible” (p.15-16). Kirzner (1997) considers that an opportunity covers two aspects: on the one hand an “imprecisely defined market need” and on the other hand, ‘’an un or under employed resources or capabilities’’. Hence, the entrepreneur is a decision-maker coping with opportunities poorly noticed before his action. For Casson (1982) an entrepreneur is someone taking superior decisions ‘’about the coordination of scarce resources’’. Entrepreneurs are a threat to inefficient organizations. Their ability to exploit opportunities is the consequence of the lack of efforts of other individuals.

Superior entrepreneurs are supporting new ideas and pushing for innovation; they are at the periphery while the existing dominant business is on the core. Cattani and Ferriani (2008) within the context of the Hollywood motion picture industry ‘’argue that individuals who occupy an intermediate position between the core and the periphery of their social system are in a favorable position to achieve creative results. In addition, the benefits accrued through an individual’s intermediate core/periphery position can also be observed at the team level, when the same individual works in a team whose members come from both ends of the core/periphery continuum’’ (p.824). Moreover, Sgourev (2013) in the context of cubism acceptance argue that modern art is a model where: ‘’…not only the periphery moves toward the core through collective action, as typically asserted, but the core also moves toward the periphery, becoming more receptive to radical ideas ‘’ (p.1). But the paradox is that if outsiders seem more efficient in providing innovation, they are less likely to carry them out (Sgourev, 2013; Cattani et al., 2017).

Regarding the market evolution, what does ‘’new’’ mean? Davidsson (2016) provides an answer in saying that ‘’new’’ is dual as it means“that either the new activity is an independent start-up, implying that a new firm emerges as a result, or an internal new venture, which means that the firm has previously not been making this particular market offering’’ (p.8). In other words, “new’’ covers both entrepreneurship stricto sensu, as well as ‘‘intrapreneuring’’ (Pinchot, 1985; Pinchot & Pellman, 1999). Notwithstanding that technological innovation could emerge as the result of both ‘‘breakthrough’’ or ‘’bricolage’’ (Garud & Karnøe, 2003). Now, ‘‘disruptive innovation’’ (Christensen et al., 2018) needs to be explained as in one hand ‘’it gained considerable currency among practitioners’’ but on the other hand is characterized by ‘’widespread misunderstanding of its core principles’’ (p.1043). Hence, for Christensen et al., (2018), ‘’A related issue is overuse of disruptive innovation/disruption as a synonym for any new threat (or substantial ongoing change) and underuse of disruptive innovation as a theoretical concept” (p.1044). The original theory of disruptive innovation emerged from empirical observations illustrating that incumbents outperform new entrants at the time of incremental moves but they underperform at disruptive innovations ones (Christensen, 1997). What characterizes disruptive innovations is that they are rare and those new entrants are offering products inferior to the incumbents but have other attributes such as being cheaper, more convenient etc… Over time new entrants move from the low-end of the market to the high-end market (Christensen, 1997).

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