Société Générale plans to sell Shine: Analysis of a rapidly changing banking strategy

Société Générale is actively evaluating the prospects of selling Shine, its neobank dedicated to professionals, an approach that raises multiple questions.

The current situation of fintechs, already precarious by a significant funding crisis, seems to be heading towards a year 2024 marked by significant turbulence. The case of Shine, put on sale by Société Générale, confirms this trend and is part of a wider dynamic affecting the banking sector, as evidenced by Orange's desire to part with Anytime and the decision of La Banque Postale to put an end to the Ma French Bank adventure.

This period was marked by a profusion of innovative initiatives on the part of banks, seeking to reinvent themselves through internal projects or strategic acquisitions, in particular following the takeover of Compte-Nickel by BNP Paribas. Societe Generale's acquisition of a stake in Shine in 2020, for a significant amount of 100 million euros, was representative of this approach, underlining the attractiveness of neobanks and their disruptive potential.

Nevertheless, the economic landscape has evolved considerably, forcing banking players to rethink their strategies and to prioritize cost rationalization over unbridled diversification.

Our opinion on the subject:

Does the planned sale of Shine (and Anytime) mark a turning point in the acquisition strategy of banking groups?

Banking groups are not in the process of giving up their acquisition strategy but rather seem to be moving towards targets with a more robust economic model, such as those in the car leasing sector (with the acquisitions of LeasePlan and Reezocar, for example). Faced with more fragile economic models, in particular those of neobanks characterized by a limited net banking product per customer and high marketing and compliance costs (KYC), a repositioning seems appropriate. This observation is also palpable in the insurance sector, with cases such as that of Luko who had to work with the insurer Allianz.
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What are the pitfalls of this innovation by acquisition?

This strategy needs to be put into context. In 2020, the French banking market saw the emergence of many new players, French and international pure-players, among which Qonto and N26 Business quickly gained market share. Faced with this, traditional institutions have had to react, either by internal creations, like Blank by Crédit Agricole, or by acquisitions, like the approach of Orange or Société Générale.

Studies reveal that two-thirds of acquisitions encounter significant integration problems: cultural shocks, slow and complex decision-making processes, lack of sufficient synergies in distribution through traditional networks, etc.

In the end, these transactions often result in considerable efforts for results that do not always meet initial expectations.

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What are the repercussions for Shine?

Created in 2017 by brilliant entrepreneurs, Shine was probably aware of the associated risks when it was acquired in 2020.
The change of management at Société Générale probably accelerates this decision, especially as the stock market context encourages cost rationalization. The difficulties encountered by Luko in finding a buyer are revealing. A buyer could come forward, but probably under conditions that are not financially advantageous for Société Générale. As for Shine, it remains to be evaluated who could ensure its financing in order to enable it to reach a critical size and guarantee its sustainability.

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What types of actors could be interested in acquiring Shine?
The majority of French banks currently seem to be withdrawing from their neobank activities. However, an already well-established player seeking to consolidate its leading position or a new international competitor wishing to accelerate its commercial development in France could consider such an acquisition. However, it is crucial to assess the true value of Shine's customer portfolio, which claims 150,000 customers.

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Are we at the dawn of an era of liquidation of fintech nuggets acquired by banking groups?
In a tense economic climate, it is natural for venture capitalists or groups that have made acquisitions to rationalize their investment portfolios. The objective is to focus their resources on the most promising startups, even if it means separating from those that are far from reaching financial balance or that would require considerable investment and risk taking. Nuggets such as Compte-Nickel or Worklife by Crédit Agricole illustrate that some acquisitions still have a good future ahead of them.

In addition, the investments and trust of major groups in startups has not been broken, as supported by the latest Fintech financed by BNP Paribas and co-built with 321.

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