Helena Walsh is head of the Cicero communications agency in Brussels. She previously worked for the European Parliament’s Economic and Monetary Affairs Committee and the Irish Industrial Development Agency.
The European financial reform programme has overhauled many aspects of the sector. The Capital Requirements Directive (CRD IV) will significantly increase the prudential standing of Europe’s banks and introduce stricter curbs on remuneration. Hedge funds are now brought within a single European framework. Over-the-counter trading must now be centrally cleared and reported to trade repositories.
Despite these sizeable reforms, it is the directive on payments accounts that is likely to be most visible to the consumer.
The dossier, which was first proposed as a separate directive on access to a basic bank account and a regulation on account switching, is the first phase of the follow-up to the Commission’s Green Paper on an integrated European market for card, internet and mobile payments published in January 2012. The second phase – a regulation on cross border payments which deals with the more controversial multilateral interchange fees - is now expected on 26 July.
The bank accounts package contains three distinct but related proposals: increasing transparency and comparability of payment account fees; facilitating account switching; and requiring access to a basic bank account.
Consumer groups are strongly supportive of the proposals as presented this week. The Commission’s summary of responses to its consultation that was published in July 2012 shows near unanimous support among consumer groups for all three elements of the package and there is no doubt that correcting the imbalance of information between the banking sector and consumers is a worthwhile cause. Furthermore, facilitating the ability of consumers to switch bank accounts to secure a better service should focus attention on the quality and value of services provided to customers.
However, a number of questions have been raised by the industry and particularly the question of whether this consumer-orientated legislation will result in a significantly improved service for consumers.
Increasing fee transparency may only have limited effect as the costs levied on a bank account are only one aspect of the overall cost associated with providing customers with a bank account. While the proposal will increase the transparency of the cost of withdrawing money or using an overdraft, they do not reference the significant costs incurred by banks to provide services that are often considered by consumers to be free.
Banks invest in the payments infrastructure, including allowing free withdrawals and the use of internet banking and it would be a significant unintended consequence if increasing the transparency of bank account fees caused services that were previously considered to be “free” to become a charged service.
A second and perhaps more fundamental concern that has been raised by the industry is whether the introduction of pan-European legislation is proportionate. While the Commission’s research outlines consumer discontent, the industry has pointed to a Eurobarometer survey in 2011 showing that 88% of consumers did not have an interest in switching their bank account. This could be because account switching is currently so complicated but it is difficult to ignore the fact that consumers tend to be relatively inelastic once they have opened a bank account.
The directive will also make it easier to switch bank accounts across borders but the European Banking Industry Committee has stated that relatively few consumers actually want to switch their accounts across borders. Once the Single European Payments Area is fully integrated, the rationale for switching bank accounts across border is further eroded.
A further question has also been raised about the value of introducing a pan-European measure to offer access to a basic bank account when the supporting evidence for such a move cites issues in only a small minority of Member States. According to a Eurobarometer report in March 2012, the average rate of bank account ownership in member states was between 67% and 100% with the exception of Bulgaria and Romania where rates were 28% and 27% respectively.
The industry’s main grievance however, is that today’s package will replace existing industry self-regulation that has been in force since 2008. Speaking on behalf of the Commission before he left post, Commissioner John Dalli said: “I would have liked to see this self-regulation initiative to have worked better and banks doing more to make switching easier for European consumers.” In response, the industry has claimed that self-regulation was not given enough time to bed in, and coupled with the existing Payments Services Directive, sufficient legislation exists to meet the Commission’s objectives.
This debate over the effectiveness of self-regulation versus pan-European legislation is likely to rage on throughout co-decision. Consumers will certainly see benefits when they open a new bank account or try to change their bank account, but the fundamental question remains of whether new legislation can change previously engrained consumer habits.
