Brussels, 18/07/2006 (Agence Europe) - As we previously indicated, the European Commission held a public hearing in Brussels on 17th July to discuss the preliminary findings of its sector inquiry into competition in retail banking. On 13 June 2005, the Commission launched an investigation into competition on the payment card and retail banking services (EUROPE 8967). In its interim report on payment cards, published in April, the Commission highlighted significant market barriers which pushed up prices for firms and consumers (EUROPE 9173). As it pursues its analysis and observations in this context, the Commission has identified important obstacles to competition, in particular as regards network rules and acquiring joint ventures that constitute a factor of market fragmentation; the views of banks and businesses about the current level of fees across in the EU differ. While businesses are truly concerned about the level of fees in some countries, most banks consider that such differentials are due to varying degrees of maturity in the markets.
The main findings of the Commission's Interim Report on competition for core retail banking are that: overall retail banking markets remain fragmented and there are significant entry barriers, including access to payment systems and credit databases; the clearing systems for inter-bank payments are also highly fragmented. A bank operating in different Member States has to join the various national systems, adapt to different standards and face varying membership costs. Fee structures and membership rules can be used to deter new entrants; customer mobility is low. 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. On average banks are more profitable in markets where customer mobility is low; the profitability of retail banking activities varies widely across the EU. In 2004, banks in Austria and Germany generated pre-tax profits of 11% and 17% respectively as a share of gross income, one of the lowest in Europe. In Ireland, Spain and Finland, however, banks were far more profitable, with pre-tax profits of over 40% of total retail banking income in 2004. The cost of banking services for customers also varies between Member States. In 2004, banks in Luxembourg and Italy reported the highest gross income per personal current accounts (€265 and €204 respectively), whereas banks in Lithuania and Sweden reported the lowest figures (€15 and €22 respectively).
The public hearing on Monday will help the Commission back its conclusions up. The final report is expected out at the end of the year. In a speech at the opening of the public hearing, Competition Commissioner Neelie Kroes was critical of the discouraging environment for consumers who wanted to compare prices, obtain information or indeed change bank, “there are consumers who would like to switch but can't find the right product, or the best price, or find it to inconvenient or expensive to change”. She warned the different parties, “don't be under any illusion that we'll not be active”. The Commissioner invited them to “continue to examine their practices and improve them where possible”. In connection with the payment card investigation Ms Kroes was critical and calling on the banks to cooperate she stated, “We can clearly see problems but the cause of those problems is not yet clear…We are still missing some pieces of the puzzle and industry is holding some to those pieces”. She called on the banks to collaborate. The banks have till 9 October to send the Commission their information, which is when the public hearing ends.
In a press release the European Consumers Organisation (BEUC) pointed out that most European consumers are dissatisfied with their banks but few of them change banks. The reasons why are down to being badly informed and because changing bank can prove to be very laborious and complex, explains the consumers' organisation. Jim Murray, BEUC Director, said: “The time has come to put an end to these unfair practices. Consumers must be able to compare services and related fees and switch banks. The key is more transparency, more information and putting an end to disproportionate fees”.