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Cedric Pariente

IT and Market Finance

Cedric Pariente - Racine Alpha

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Crisis and Credit Situation in France

29 May 2009  |  5206 views  |  4

The situation in France is pretty unique in these times of crisis. Here is how credit is structured and how French people see it and use it.

CREDIT IN FRANCE

What is the credit situation in France and how do French people see the credit?

Well, as a matter of fact granting of credit in France has always been strict. Actually it’s already been like this for years. In France, when you say “credit”, it means that you apply for a loan for your house, a simple vanilla loan, nothing exotic, no second mortgage, no derivative on your increasing equity.
It’s never been simple to get a loan in France. You need to be qualified, sometimes even overqualified.

The only other loan that a French person would apply for is a small loan for the car. And that’s it. Period.

Now that being said, the facts: in France, out of all issued cards, 95% are debit cards, 5% credit cards.

French people are literally scared of credit and for good reasons, certainly related to the country’s laws. Punishment for delinquencies is severe.

Attempts to sell credit products in France have typically failed. A few years ago, ZeBank (then called EGG, now called Oney) tried to sell a credit program to French people offering “points” or cash-back. It was a total failure. They approached the French market like the UK market. Consumer protection agencies in France turned against Egg and the leading French banks were only too happy to be ‘on the side’ of the consumer protection agencies. Most recently though, Credit Agricole for example, has been offering a hybrid card account wherein the cardholder can choose to use the card as a debit card or a credit card.

One has to know that in France, it is very easy to be listed on one of the files of “Banque de France”.
You can easily be FCC or FICP. When you are FCC, you are not authorized to use checks or cards. When you are FICP you are not authorized to get a loan. It usually lasts 5 years.

France has almost no under-qualified borrowers being granted credit. Even quality ones sometimes have a hard time being granted a loan.

To sum up, the credit situation in France is certainly one of the cleanest of the world.

CRISIS IN FRANCE

In times of crisis, you can usually see some typical behaviors:

  • Less people in the shops
  • People buy cheaper items or less items
  • They usually go only for the essential
  • Mid-class/Upper-class shops are empty

Basically everybody is paying attention to what they are paying for. They only buy what they need. And when they buy, they really want something that’s worth the money.

Well… The situation is not really like this right now in France. I live in Paris and travel a lot for business and I am in a really good position to analyze the situation.

  • Malls are full of people buying (galleries Lafayette, Printemps…)
  • People are buying the same things as before
  • Restaurants are also full
  • And it’s even harder than before to get a loan.

THE BEHAVIOR OF FRENCH COMPANIES DURING THIS GLOBAL CRISIS

Like all the countries that are hit by the crisis, French companies are:

  • Asking for bailout money
  • Firing employees “because” of the crisis
  • In other words they are trying to “clean” the mess

Fortunately not all the companies in France do this, but some are taking advantage of the situation to leverage on their position.

When you travel a little bit and see what the situation is really like in other countries, you get a feeling of unfairness.  Of course  some companies certainly had some risky positions via financial instruments outside of the country, but when a business makes a risky investment in exchange of a good ROI, then it should not be surprised and should just blame itself for being greedy when the wind does not blow in the right direction…

Much like in the U.S, there are a number of French companies which did not expose themselves to sub-prime.  Granted that the French consumers have always been disciplined with very strict credit for years, it’s not fair to bail-out French companies that took these risky positions while there are enough French companies that can continue on because they have not exposed themselves to the same risks.

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Comments: (6)

Chris Antone
Chris Antone - Buzzlending p2p - Marseille | 04 June, 2009, 22:05

Any thoughts on under-qualified borrowers? more precisely any ideas on how credit brokers or bank can have a wider market approach and start to pay attention to these "risky" consumers? Are they really?

For internet, I have the feeling that we could build some specific credit score integrating new criterias provided by social behaviours on the internet (e-mail address, thread, post comments...).

Cheers

Chris

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Cedric Pariente
Cedric Pariente - Racine Alpha - Paris | 05 June, 2009, 09:16

 

Hi Chris,

Thank you for your comment.

Concerning under-qualified borrowers, in France they almost do not exist. P2P lending is an excellent idea in itself, I really like the concept.
But France would be the last country I would target for this kind of credit.

I have been working on ratings/scorings a long time ago. All I know is that a good rating is very hard to build, especially when you are targeting a specific part of the population. Here we are talking about people who could not find a credit in a bank or who did not want to pay the rate proposed by the bank. In both cases you have someone that is outside of the average target for credit. Thus trying to give a score the same way you would do if you were in a bank would be useless. But that's an interesting question though.

Concerning Social Networks, I truly believe that they need to evolve before being able to do P2P credit on them.
Right now, either you use a social network for fun (facebook, myspace...) or for work (finextra, linkedin, xing...).
Today people don't do serious things at the same place they have fun. But these places evolve fast, it might happen later...

 

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Chris Antone
Chris Antone - Buzzlending p2p - Marseille | 05 June, 2009, 22:45

Hi Cedric,

Well I see under-qualified borrowers as a direct consequence of the good credit situation you have perfectly described for France.

The cleanest the market can appears, the highest number of under qualified borrowers you can also get...if you see what I mean.

Basically some of these "bad" profile that could not find a credit in a bank regarding french rules and "regular"credit score are not that "bad". The question is how can we differenciate the right person from the wrong one?

Our view is that Social Networks, and p2p credit creates news usage and behaviours that could be dynamically integrated in our algorithm.

I have been working in the finance for more than 15 years and I saw internet coming first in the insurance sector where I've started as a broker for AXA...

In less than 5 years (I mean From 2003-2008) internet becomes a real channel that drives more and more business for e-insurance. It goes so fast...

That's the beauty of evolution: tools creates usages when user can directly use it. Most of the time new usages you didn't even think about when you've first created the tool (for another usage...).

Anyway that's another subject...

Cheers

Chris

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Cedric Pariente
Cedric Pariente - Racine Alpha - Paris | 06 June, 2009, 16:18

Hi Chris,

I am wondering if it's a good thing to offer credit to people who did not "pass" the first test.

When a bank refuses a credit, it's not only to avoid loosing money, it's also to protect consumers from themselves.

The way it is structured in France is not that bad when you look at the situation right now. People are not "that" affected by the crisis.

There is a difference between living with "debit" and entering a crisis (you just have to lower you life standards) and living on "credit" and not being able to keep up with the payments when entering a crisis.

In the second case you can immediately see that the person needs to generate more money, when in the first case, the person needs to spend less.

I am also wondering if in terms of ethics it's a good thing to offer credit to under qualified borrowers.

 

Your point on the new behaviors is definitely true. The relation between people and internet is always evolving and new behaviors (sometimes unexpected) appear everywhere.

I'm gonna release pretty soon a blog on the evolution of the web. Please feel free to comment also on this one, I'd really like to have your opinion.

Thank you,

Cedric

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Chris Antone
Chris Antone - Buzzlending p2p - Marseille | 06 June, 2009, 17:00

Hi again,

Actually some of these people "pass" the first test and already have one or more credits. Broadly we found that 20% of the lenders are in a bad position because they have too much credit.

In that case bank or credit brokers didn't protect consumers from themselves at all. They've just created more consumption with money consumers didn't have to buy product we didn't manufacture for a while...

So the purpose here is not to deliver some more credit to these people. This will be a nonsense.I totally agree.

This where I come from when we use the term "ethic" and also responsible.

The purpose is to identify the (tight) path where we can trust people because they have a real project in the real life and cannot get any credit from bank. What could they do?

These people will creates new jobs, develop some existing business, or need to complete their studies...

Usually it "small" amounts and you can also secure the process with trusted people using p2p platform.

I'll give a look to your new blog. Gimme a shout when it goes live

Cu

Chris

 

 

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A Finextra member
A Finextra member | 05 July, 2009, 07:07

Hi Chris,

I was reading your responses to Cedric's blog concerning tight credit in France : "These people create new jobs, develop some existing business, or need to complete their studies...". Amen to that!

I have lived in France since 2000. I owned a company in Sophia Antipolis and this company was a recipient of ANVAR funds for almost 500.000,00 euros. So I know that these programs exist.

What I have heard are several programs offered by MINEFI such as ANVAR and more recently I heard about funds from ISF. This is basically people in France with 'fortunes' or that have to pay taxes based on 'fortunes' are allowed to invest on companies and get a tax break for what they invest.

When I check for more information, there does not seem to be any comprehensive website that provides information or guidelines concerning how to 'participate' in this kind of program at least to let these ISF people know that 'hey, here is a new company and you might want to invest in it.'

Have you heard of this ISF program? What would be great if someone can create a website that introduces the businesses in need of funding to the ISF people that want to get a tax break.

Marite

P.S. I tried writing to you via FINEXTRA's messages but my sent messages to you show as blanks...

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I'm Cedric Pariente, a Stanford Certified Project Manager, working in both IT and Market Finance.

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