Analysis: EU retail banking – Drivers for the emergence of cross-border business

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This research paper, published by Deutsche Bank, examines the prospects for the growth of cross-border retail banking in the EU. 

The aim of the European Union’s policy in the financial services sector is to create an integrated Europe-wide single market through a framework of legislation, co-operation and practice within which financial services can operate as a whole across borders to achieve the free movement of capital and services.

The report comes to the following conclusions:

  • Cross-border provision of retail banking services is expected to increase in Europe in the medium term, thanks primarily to four driving forces. These are evolving cross-border demand, a change in the mix of distribution channels, limited opportunities for domestic market expansion and various regulatory initiatives on the EU level. 
  • A customer segment with increasingly international preferences is emerging. The proportion of EU citizens intending to purchase cross-border retail finance is growing, up to 15% of EU citizens plan to open a foreign bank account, and up to 12% plan to acquire a foreign credit card. 
  • The growing importance of direct distribution channels is expected to give a strong impetus to the evolution of direct cross-border business. The historically prominent role of branches as primary point of sale is constantly shrinking, as on average more than 20% of EU citizens already use the internet for financial services. 
  • Market expansion across the border is an attractive avenue for EU retail banks to explore further growth opportunities in the light of high domestic concentration. The market share of the four largest retail banks in many EU countries exceeds 70 %.
  • The current and forthcoming set of regulatory measures on the EU level will bolster the investment case for cross-border retail banking consolidation. With regulatory harmonisation, synergies can be reaped for suppliers on the production side while customers benefit from a broader product-range offered at lower prices. 
  • Nonetheless, various barriers to the integration of retail markets persist, such as discrepancies in consumer protection rules, national taxation, civil law and product specifications defined by national regulations. In contrast, so-called “natural” barriers such as language, cultural preferences and the desire for (geographical) proximity no longer constitute “insurmountable natural obstacles” but rather management challenges. 
  • In order to shape regulatory frameworks in accordance with business strategies, policymakers must adopt cost-efficient regulatory measures and strictly adhere to better regulation principles.

To read the full report, click  here.

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