Speech Kroes bij hoorzitting over concurrentie in 'retail banking' (en)

SPEECH/06/458

Neelie Kroes

European Commissioner for Competition Policy

European Commission

Brussels, 17th July 2006

I am delighted to see so many of you here today, and particularly pleased that we have such a diverse range of interests represented! I think this reflects the importance of our inquiry into the retail banking sector, both for consumers and for industry - it is a sector which is key to the competitiveness of our economy, but it also impacts directly on almost every EU citizen.

As you know, there are two parts to our inquiry into competition in the retail banking sector. Firstly, the payment cards industry - where we published our preliminary findings in April. I would like to thank those of you who have already given us your input on our preliminary report on payment cards, both by answering our questionnaires and responding to the consultation. The second part of our inquiry concerns the market in core retail banking products. This means current accounts, savings deposits, and loans to consumers and small businesses. This preliminary report was published on Friday for a public consultation which will be open until 6 October.

I look forward to hearing your views today and in writing. The engagement and co-operation of everyone involved in and affected by retail banking are essential to help us understand the current barriers to competition, and work out the most effective way to remove them. So thank you for coming today, and thank you in advance for your continued contribution to the debate.

Sector inquiries as a policy tool

Before I present the preliminary report on retail banking, I would like to take a few minutes to recall why we opened these inquiries in the first place.

The financial services sector is key to the competitiveness of the European Single Market. Properly functioning financial markets are a pre-condition for achieving the Lisbon objectives: effective access to finance encourages innovation and competitiveness. It helps to stimulate the sustainable economic growth needed to secure the wealth and social stability of EU citizens for the future. But it also impacts directly on individual consumers - `banking' generates half of all financial services output, and `retail banking' accounts for almost half of Europe's banking activity. The reach of the payment cards market - for example - is so extensive that inflated tariffs will have an impact on every single one of us here. If businesses have to pay excessive costs for payment card transactions, then those costs are ultimately borne by the consumer - you, personally!

Progress has already been made in integrating the EU financial markets under the framework of the Financial Services Action Plan. But, when we launched our inquiry, we could already see major signs of weakness in the strength of competitive forces the retail banking sector:

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  First, there were clear signs that markets were still fragmented along national lines.
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  Second, we could see widespread barriers to entry - particularly for market players who wished to do business in other Member States.
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  Thirdly, there was evidence that consumers and SMEs were facing a range of obstacles in getting efficient and good value banking services - from narrow product choice to difficulties in choosing and moving between providers.

Sector inquiry' are proactive tools to identify barriers to competition, and work out how best to remove them. Sector inquiries are also an excellent way to ensure that internal market and competition policy work in harmony, following the principles of better regulation are joined up policy-making. Therefore, together with my colleague Charlie McCreevy i, I hope to use the results of this inquiry to bring tangible benefits directly to consumers, and to the wider European economy.

Payment cards

So what have we discovered so far? And what are we going to do about it?

Our preliminary report on payment cards has already confirmed that Europe has yet to overcome the legacy of fragmented national markets. Generally, banks charge a 2.5% uplift on every retail purchase made with a payment card, and the profitability of this sector has been abnormally high for a sustained period of time. Large price differentials within the EU - up to 100% for consumers and 650% for businesses - clearly show that market forces are not yet working at full strength. There is clearly scope for significantly reducing prices in some Member States.

Since April we have received more than eighty responses from across the spectrum of stakeholders - including banks, academics, businesses and consumers. I am firmly supporting Commissioner McCreevy in his work to create a single payment area - and this consultation was an opportunity for the banking industry to put forward constructive, corrective solutions to help overcome existing barriers and make that a reality.

Most of the replies agree that the Interim Report has identified important obstacles to competition at both domestic and cross-border levels. Of particular concern are some of the `network rules' which present a barrier to new entry. ` Joint ventures' are also worrying as a major factor in market fragmentation. However - as you would perhaps expect - there is a divergence in views between banks and businesses concerning the current level of fees. Whilst industry is truly shocked by the level of fees in some countries, the majority of banks consider that such differentials reflect differing levels of maturity in national markets.

We are analysing these comments carefully before coming to any conclusions, but I can give you some flavour of the sort of changes that we feel will be necessary.

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  First, we must have more competition between banks who provide card acceptance services to merchants. In some Member States there is only one provider - typically in the form of a joint venture owned by the local banks. In other Member States, only a handful of banks offer such services. This must change.
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  Second, we must open up the networks to enable other service providers to join in. This will not only increase competition, it will also encourage innovation in the provision of payment card services.
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  Third, changes must be made to the pricing model. The current system - where banks collectively set fees - amounts to a `tax' on businesses and consumers.
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  Finally, we need to break down the barriers to cross-border competition. A single payment area is our goal, and we must find ways to generate more Europe-wide payment schemes.

How are we going to achieve this?

By far the best way is for market participants to really tackle the problems themselves. The preliminary results of the sector inquiry have provided all stakeholders with valuable market information and gone some way to correcting the endemic lack of transparency. The Commission hopes that this will help those within the industry - and potential new entrants - to correct some of the problems themselves. The more that players in the payment card industry can do on their own initiative, the less likely they are to face action under the anti-trust rules. Prevention is better than cure!

Core retail banking inquiry

I would now like to turn to the report that we have just published on current accounts and related services. There were two big questions at the heart of this inquiry:

Firstly, why is it so hard to for banks to successfully break into new markets in Europe? Bertolt Brecht famously asked, what is breaking into a bank compared with founding a bank? I can't comment on breaking into banks! But I can comment on breaking into markets, and I think that in today's Common Market, founding a bank in another Member State - or at least acquiring one - should be viable. Across Europe, retail banking is quite a profitable business these days - and many banks who abandoned it a few years ago, returned a short time later. So, why is it that so few banks are major players outside their home Member State?

We in the Commission are well aware of the remaining regulatory barriers in the European banking sector - and we are working hard to remove them, particularly in relation to banking supervision. But we are still missing some pieces of the puzzle, and industry is holding some of those pieces.

The inquiry therefore provided an opportunity for banks - on a confidential basis - to highlight any barriers that they could see in Member States. But, with a handful of exceptions, industry failed to respond. I find this very disappointing - it indicates that market players place more emphasis on defending and protecting their current market position, than they do on seeking to expand and create new opportunities throughout Europe. So I would like to call on you today to use the next three months to respond to our consultation and tell us more about barriers to fair competition in the retail banking sector. You know the problems best and we will be happy to listen. That is the best way for us to work together towards a competitive, dynamic and integrated financial services market.

The second fundamental question which we asked is: why is it so rare for consumers to switch between banks? We found that less than 8 per cent of European customers decided to switch their current accounts in 2005 - and this low level of customer mobility is worrying. We see it across the board in the retail banking sector and it means that European customers are not putting competitive pressure on banks to force them to provide better services and value for money. It also increases the risk that some banks may take advantage of their customers. This was supported by the findings of our inquiry - overall profits were higher in Member States where customers were less likely to switch banks.

We found a range of possible explanations for this lack of mobility. Some consumers might be very happy with their current bank - no problem there! But there are consumers who would like to switch but can't find the right product, or the best price, or find it too inconvenient or expensive to change. Our evidence shows that this sort of experience is widespread and the costs of switching bank accounts are very high, which is very bad news for consumers. And it is bad news for potential new entrants too, because it is far harder to get a foot in the door. During our public consultation on this preliminary report, we want to hear the views of all parties on this issue. I really want to know how we can make it easier for European consumers to switch banks and reward the best performers with their custom.

Next steps

So what happens next?

Once you have read our new report on core retail banking products - from cover to cover, I hope - you are very welcome to contact our sector inquiry team, who you will be hearing from during the course of the day. After all, some things are easiest said face-to-face. And if you require any clarification before responding to our public consultation, the inquiry team will be very pleased to provide it. Otherwise, I am very much looking forward to hearing your views on this new report. It is clear that this is a sector which engages the interests of every single EU citizen who has a personal bank account. And so, whilst our goals of economic growth demand that Europe has a competitive and integrated internal market in financial services, our consumers also demand genuine choice and good value for money. I am committed to achieving both!

As far as payment cards are concerned - as I have said, we are looking carefully at the responses to our consultation paper, and your input today is a key part of that process.

Our preliminary reports have already identified a number of problems in the retail financial services industry. As promised, by the end of this year we will publish the final report, in which we hope to do a number of things:

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  Firstly, update the market analysis in light of the valuable additional information which we receive through the consultations and from you today;
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  Secondly, catalogue all the barriers to competition that we have identified, and recommend remedies where we can;
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  Third, we will look to build on and develop the Commission's strategy on retail financial services, drawing on the experience gained through the inquiry;
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  Finally, we aim to publish all the market data that we can in order to correct the endemic lack of transparency, and to facilitate new entry, cross-border activity and diversification by existing players.

In the meantime don't' be under any illusions that we'll not be active. Our investigations into the payment cards sector suggest that problems in the market result from anti-competitive behaviour by market players, we are not waiting, and I suggest that payment cards companies do not wait either - those involved in the industry should continue to examine their practices and improve them where possible. We have plenty of work to do already - and I think everyone would agree that the last thing anyone in the sector wants is to have to face anti-trust proceedings by the Commission!

In core retail banking, our analysis is not as far advanced. We can clearly see problems, but the cause of those problems is not yet clear. Is it anti-competitive behaviour, structural problems with the markets, failures of regulation or other causes? I invite you once again to let us have your views on this on the basis of the interim report. But again, those involved in the industry should examine their practices and improve them. Consumers are not being well served. And that should be of concern to us all.

Ladies and gentlemen,

Thank you very much for your interest and participation. I hope you enjoy the day and I look forward to hearing how the debate went and any conclusions you may draw.