French Banks' Investment In Innovation Backfires

LONDON -- French banks, though acknowledged as technology innovators, have unwittingly opened up the nation's payment systems to more competition at home and abroad, a government study found.

The study, released by the National Credit Council, an advisory body attached to the French central bank, found that banks have largely failed to convert their technology advances into solid earnings streams.

More than 100 bankers, insurers, and securities industry representatives took part in the study.

It was undertaken in response to a recommendation that was made two years ago by the research ministry that France's financial system be subjected to a "technological audit."

Investment Is Heavy

Technology expenditures among France's big banks in the past decade approach $10 billion.

The banking system invests about 8% of revenues in technology, compared with 3% for French state organizations, 2% for insurance companies, 1.5% by services industries, and 1% by manufacturing industries.

Among innovations in France is the Carte Bancaire network, which ensures that a card issued by one French bank is fully functional at all others. The project cost about $32 million plus start-up expenses.

Costly Systems

France's automated interbank clearing system, now going into operation, cost about $70 million to develop.

Most expensive of all is the Relit securities-clearing system.

The total bill for the system, developed by the French banking and securities industries, now tops $175 million.

According to the study, these and other projects have put the French banking industry ahead technologically.

Cooperation vs. Competition

However, the innovations have also tended to make it easier for foreign competitors and French nonbanks, which have not contributed to the development costs, to obtain access to French payment systems and markets.

Banks placed "excessive emphasis" on cooperation at a time of sharpening banking competition internationally, the study contended.

Also, banks often find it difficult to charge realistic fees in order to recoup their technology investments.

The study links this to a mentality inherited from a time when banking in France was considered to be a public service more than a business, and when regulations closely dictated the way banks should operate.

The survey recommended that banks concentrate more on the profitable exploitation of technology resources that have been built up over the last decade.

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