French bank BNP Paribas is spending €3 billion to ‘build the bank of tomorrow’

LONDON — BNP Paribas, France’s biggest bank, plans to double investment in technology to €3 billion (£2.5 billion, $3.2 billion) over the next three years as part of plans to adapt to changing consumer behaviour and cut costs.

BNP announced its new 2017-2020 transformation plan alongside full-year results on Tuesday, saying it wants to “build the bank of the future by continuing to grow the businesses and implementing an ambitious programme of digital transformation, new customer experience, and cost savings.”

Banks around the world are investing millions in new technologies as consumers increasingly favour digital — Deutsche Bank has committed €750 million investment by 2020, for example. But BNP’s three-year transformation plan is perhaps the most ambitious and costly investment yet publically outlined.

The huge investment will go into tech labs, company incubators, and new internally developed apps and platforms. The bank aims to streamline internal processes, create new ways for customers to access services online, improve its use of data, and become more “agile” — an industry buzzword for being about to quickly adapt to change.

Chief Executive Officer Jean-Laurent Bonnafé says in a release announcing the plan:

“After the success of its 2014-2016 plan, which allowed to attain the defined targets, the Group now unveils its 2020 business development plan that announces an acceleration of digitalisation and targets an average growth of net income of more than 6.5% per year until 2020. Serving its customers all over the world, the Group is thus building the bank of the future.”

Bonnafé told the Financial Times that some of the €3 billion investment would go towards retraining staff in new skill such as data analytics but warned that branch closures would continue and headcount reduction is likely. He told the paper: “We are in an environment where we don’t create jobs — we are managing the transition.”

Banks around the world are struggling to adapt to the post-financial crisis world, which has seen profitability hobbled by regulation and low interest rates. At the same time, customers are quickly moving towards online financial services rather than face-to-face or telephone interaction, spurring new fintech challengers for the banks and leaving them to deal with increasingly costly branch networks.

However, investment in digital is not only a necessary to please customers, it also offers banks a way to cut costs and deal with their profitability issues. Accenture estimates that blockchain technology, for example, could save investment banks up to $12 billion a year in back office costs. BNP has been one of the most forward-thinking of Europe’s big banks in its adoption of blockchain and in December its clients conducted the first real-time payment using the technology.

BNP says the €3 billion investment is expected to generate €3.4 billion in savings by 2020 and €2.7 billion in annual recurring savings after that.

BNP announced its digital transformation alongside strong 2016 results. Here are the highlights:

  • Revenue up 1.1% to €43.4 billion;
  • Operating expenses up just 0.4% to €29.3 billion;
  • Annual profits up 15% to €7.7 billion.


Why Silicon Valley VCs Are Giving Up on On-Demand Delivery

Michael Moritz—chairman of Sequoia Capital and one of the most successful venture capitalists in history—says a simple vision led him to invest hundreds of millions of dollars in on-demand delivery startups.

“The movement of goods and services and people, by easier, more convenient means,” he said in an interview. “That’s a huge trend, enabled by smartphones.”

Led by Sequoia and another blue-chip Silicon Valley firm—Kleiner Perkins Caufield & Byers—venture investors have poured at least $9 billion into 125 on-demand delivery companies over the past decade, including $2.5 billion this year, according to a Reuters analysis of publicly available data.

But that torrent of money has slowed to a relative trickle in the last half of this year, and many VCs have lost faith in a sector that once seemed like the obvious extension of the success of ride-services juggernauts such as Uber.

The bulk of this year’s investment—about $1.9 billion—came in the first half of the year. Only $50 million has been invested so far in the fourth quarter, the Reuters analysis found. Several prominent Silicon Valley venture capitalists said in interviews that they now believe many delivery startups could fail, leaving investors with big losses.

“We looked at the entire industry and passed,” said Ben Narasin, of Canvas Ventures. “There is more likely to be a big, private equity-style roll up than a venture-style outcome.”

Reuters analyzed investment in on-demand delivery startups using publicly available data from the companies, their backers and third-party websites including Crunchbase, PitchBook and MatterMark. The analysis likely missed some investments because private firms and their investors do not always disclose funding details.

Delivery startups continue to grapple with fierce competition, thin margins and a host of operating challenges that have defied easy solutions or economies of scale, venture capitalists told Reuters. Widespread discounting and artificially low consumer prices have made on-demand delivery “a race to the bottom,” said Kleiner Perkins partner Brook Porter in an interview.

That firm has not invested as heavily or broadly in the sector as Sequoia, but has backed U.S. startups DoorDash and Instacart and China-based Meican.

This year has seen high-profile failures, including U.S. meal delivery firm SpoonRocket, which went down in March, and PepperTap, an Indian grocery delivery service backed by Sequoia that folded in April. DoorDash, another of Moritz’s investments, was able to close its latest venture funding round last March only by cutting the value of its share price by 16%, according to data from CB Insights.

The entry of Uber last year into the delivery business with UberEats, for food, and UberRush, for packages, promises to make life more difficult for smaller start-ups. Established logistics companies including Amazon and DHL are also exploring local on-demand delivery.

Sequoia has backed at least 14 local delivery firms, among them four in the United States, five in China and four in India. Sequoia did not respond to Reuters requests for a response to rising VC skepticism of delivery firms.

Venky Ganesan, of Menlo Ventures, said the sector has no clear way to cut costs or boost revenue.

“You can’t raise prices on consumers, and you can’t cut labor costs,” he said. “The core unit economics didn’t make sense.”

Dalton Caldwell, a partner at Y Combinator—the prestigious tech incubator that birthed a number of delivery startups—was also skeptical, though he thought companies with top-notch operational capabilities could succeed.

Many delivery startups, he said, “make the assumption that once you get bigger, things will get easier, and that’s wrong. There is driver churn, operations people that cost money, more support costs.”

Local Delivery “Dashers”

DoorDash, founded in 2013 by four students in a Stanford University dorm room, has raised nearly $200 million from top venture firms.

Focusing on food and alcohol delivery, DoorDash has agreements with local restaurants, including franchised outlets, in dozens of cities in the U.S. and Canada. But Doordash still has to figure out comparatively simple challenges—like how to economically deliver pizzas to the fifth floor of a college dorm with no easy street access.

“There is an opportunity to redefine local commerce in cities,” says DoorDash co-founder Stanley Tang. “But we have to figure out, what are the operational challenges, and then how we can scale it up.”

Deliv, a same-day small-package service aimed at online shoppers, uses a model similar to Uber’s, with contractor drivers delivering packages. The company has venture investors and has also lured funds from United Parcel Service and some of the largest U.S. mall owners and operators, including Taubman Centers and Simon Property Group.

Founder and CEO Daphne Carmeli says that because Deliv does not maintain warehouses or a vehicle fleet, traditional couriers such as FedEx would be “challenged” to match the startup’s low costs.

Uber, however, doesn’t face those same challenges. The company has not said how much it has invested in UberEats or UberRush, or whether either turns a profit, and a spokesman declined to comment on those businesses.

But Uber does turn a profit on rides services in many cities across the globe and has amassed a war chest of $15 billion, providing ample resources to expand into delivery.

Carmeli is sanguine about the Uber challenge.

“Moving people is fundamentally different from moving packages,” she said. “Predictability trumps speed.”

Robots to the Rescue?

Silicon Valley veterans have long recognized the difficulty in the local delivery business. The online grocery firm Webvan and the urban delivery company Kozmo were two of the highest-profile flops in the late-1990s dot-com boom.

Technology was supposed to make things different this time, and smartphone apps that connect customers with fleets of independent drivers have helped.

But the technology that some believe could transform the sector—driverless vehicles and sidewalk robots—remains far from a practical reality, leaving many startups with no clear path to innovate their way to profitability anytime soon.

“We think automated deliveries can complement our human fleet of dashers,” said Tang, of DoorDash.

But the company has no timetable for deployment.

Deliv’s Carmeli is more skeptical.

“An autonomous vehicle is not going to pick up a package at your retailer, then walk the stuff up to the customer’s doorstep and get a signature,” she said.

Any delivery company looking to replace humans with robots will have to catch Uber. The company has hired robotics experts from Pittsburgh’s Carnegie Mellon University and executives with deep automotive expertise, and is working with major automakers including General Motors and Toyota.

In August, Uber acquired Otto, a startup outfitting long-haul trucks with self-driving technology. Since the acquisition, the Uber-Otto alliance has delved into logistics, mapping and tracking, which can be deployed for delivery trucks even as work continues on self-driving systems, said Otto co-founder Lior Ron.

But delivery companies who can’t find a business model that pays with human drivers aren’t likely to find one that will work without them, Ron said.

“I don’t think you can bank on the robots to come and save the day.”