Payment cards under scrutiny
Retail banks should expect more scrutiny from the European Commission over their operations, especially in the area of payment cards, following a public hearing in Brussels on July 17.
The hearing discussed the preliminary findings of the European Commission’s sector inquiry into competition in retail banking.
The sector inquiry is looking at the markets for payment cards and for core retail banking services in the EU.
“Significant market barriers”
In its interim report on payment cards published in April, the Commission highlighted significant market barriers which pushed up prices for firms and consumers.
The Commission has now published its interim report on core retail banking services, including current accounts and related services.
In a press release before the public hearing, the Commission said that its report “shows clear evidence of fragmented markets and of areas where markets are not working as well as they should.”
The Commission is keen to learn the views of all stakeholders as to the causes of these problems, before reaching final conclusions.
Competition Commissioner Neelie Kroes said “Our competition analysis of the retail banking market shows that markets across the EU remain fragmented, that there are still significant entry barriers and that consumers and SMEs [small and medium-sized enterprises] have difficulties in finding the best offers for them. We want to discuss with stakeholders how best to tackle these problems.”
A 12-week public consultation on the preliminary findings will end on October 9th 2006.
MAIN FINDINGS
The main findings of the report are as follows.
*Large price differentials on payment cards.
*Significant barriers to entry in retail banking, including access to payment systems and credit databases.
*Highly fragmented clearing systems with fee structures and membership rules that can be used to deter new entrants from providing retail banking services in some Member States.
*Low customer mobility. Consumers hold their personal current account with the same bank for around 10 years on average, compared to nearly 8 years on average for SMEs.
*Large differences in profitability of retail activities, from pre-tax profits as a % of gross income of 11% in Austria and 17% in Germany to
over 40% in Ireland, Spain and Finland.
*Large differences in the cost of banking services, with banks earning EUR 265 gross income per personal current account in Luxembourg and EUR 204 in Italy, but only EUR 15 in Lithuania and EUR 22 in Sweden.
The final report of the retail banking sector inquiry – covering payment cards and current accounts and related services – will be published by the end of 2006.
