A single market in retail financial services has been a goal of the EU ever since the Single European Act of 1987 made the “Four Freedoms” (free movement for people, goods, services and capital) a fundamental objective of the Union. The 1999 review of the progress of the Single Market produced the Financial Services Action Plan (FSAP) and sought to make retail markets `open and secure’. In the halcyon economic times of 2006, the Commission published “A citizen’s agenda – delivering a Europe of results”. But the financial crisis that began to explode on Europe in 2007 buried such ideas for many years.
However, the political imperative to answer the question “What has Europe done for me today?” has risen sharply – matching the rise of eurosceptic political parties around the EU. A component of the answer must include a demonstration that the single market delivers cheaper financial services – especially in those states that use the euro.
Back in 2007, the Single Market Review could only include calls for efforts to deliver the Single Euro Payments Area (SEPA) as a necessary requirement for a genuine single market in retail financial services. If you cannot pay for the services easily, securely and cheaply, no-one will buy them! Today, SEPA is fully operational and the ECB is pushing the payments industry hard to capitalise on the technology of mobile phones - owned by everyone – to make instant payments. The debate is about how many seconds is `instant’. Yet it feels like only a moment ago that UK banks were trying to persuade their customers that it was quite impossible to clear cheques in less than five days!
So the latest Green Paper re-heats a number of familiar topics but the main evidence base remains the 2012 Eurobarometer survey which showed that 1 in 10 EU citizens did not even have a bank account. It also showed the reluctance of consumers to switch suppliers but the prices quoted for annual credit card fees (ranging from about €40 Germany to just over €50 in Italy) do not suggest that many people will rush to change card supplier – unless they come to the UK for a €0 annual charge. But is that for a sterling-based card where transaction fees to convert from the euro can be 2.75% and the exchange rate (if known) may be quite penal? It seems to be precisely these unknowns and fears that put consumers off exploring across borders.
The reality today is that only 13.5 million citizens live outside their own country and experience the full range of disadvantages in keeping bank accounts, insurances, etc. in their home country. But they are only the tip of an iceberg if the EU is to make a success of Capital Market Union. Financial literacy and investor education must be enhanced so that citizens are willing to purchase securities or UCITS funds whose returns that will have serious impact on their life. EIOPA is proposing pan-European personal pension as a means to obtain economies of scale and keep the costs down at a time of very low returns on the assets anyway.
The Q&As on the Green Paper put the role of digitalisation very succinctly: Q15. Why does the Green paper focus on the use of digital technology? Digitalisation of financial services is already happening and progressing quickly. Many consumers get insurance, organise loans, transfer money or open bank accounts using online or digital services; this will only grow in future. This offers many opportunities for both consumers and providers, but also raises many questions, such as how to ensure that these services are safe and the appropriate response to the industry's use of 'big data'. We would like to better understand these risks and challenges and to assess whether any action is needed at the EU level.
As consumers - and especially the younger ones – shift to digital suppliers, it will not make any sense to them to say the provider must be located in their own country. Then “Know Your Client” anti-money laundering rules can be used by the industry to segment the market and charge accordingly. The rising generation of sophisticated consumers know that `stuff’ is stored on `the cloud’ – but where does the cloud live? It is these consumers just coming into the market who may actively seek out best-value services. They may never switch again in their remaining 60 years of life, but if regulators can force suppliers to offer the `best deals’ to existing customers as well as new ones, then the new generation will indeed have deployed `fintech’ to create a competitive pan-EU market that was only a dream just a few Commissioners ago.
The consultation runs until 18th March – via an online questionnaire. If you feel your financial service provider has taken advantage of you by purporting to hide behind “EU rules”, then Commissioner Hill wants to hear from you – but citing chapter and verse!
© Graham Bishop
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