Brussels, October 2017
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Published: 6 October 2017
We would like to firstly state that we welcome the Action Plan as proposed by the European Commission. We agree also with the Commission's assessment that cross-border activity is rather low in the area of retail financial services. However, we would like to hereby point out that this corresponds to the demands of consumers. As a result many entities exist within the EU, which function only locally. Retail and savings banks are often such entities as retail business is by definition almost always a local business. We therefore believe that potential actions aiming at facilitating voluntary cross-border activities should take this into account. We would also like to note that while fully supporting the concept of the Internal Market as enshrined in EU law, we do not believe that an increase in cross border activity of retail financial services is an integral part of its effectiveness. Contrary thereto, we believe that an update of relevant legislation, taking into account the developments brought forth by digitalisation, would be to the benefit of consumers as well as financial service providers and should therefore be identified as the underlying goal.
Notwithstanding this, we would like to draw attention to the fact that cross-border demand of consumers with respect to retail financial services is mostly limited to border regions with similar cultures and languages. Moreover, recently an increase in cross-border shopping with respect to financial services and products can be observed. One cannot overlook the fact that there exists a general preference towards receiving these types of services locally, in the same Member State and in the native language. Furthermore, even within a Member State, a third of customers never switch the supplier of these services. The reason for this is satisfaction with their current supplier. This is replicated in many other product areas and is not unique to financial services.
Furthermore, the Action Plan states that (fifth paragraph in section “1. Introduction" on page 3) “technology alone will not be sufficient to address all the obstacles to a Single Market for financial services" without specifying what obstacles would prevail today. It would be interesting to know what obstacles the EU has identified. The three main strands listed mostly relate to customers trusting and being satisfied with their existing local providers. Such a brand value created over many years of good service can hardly be defined as an “obstacle".
We would like to emphasise that we do not oppose the Commission undertaking the task of making the process of product switching across borders of Member States as seamless as possible for the consumers. Notwithstanding this, we firmly believe that suppliers should continue to be conferred the freedom to decide where and when they offer their goods or services to customers. The EU is multi-faceted, combining many different languages and cultures, which have in turn helped shape the financial products offered in the local markets. Therefore, the multi-cultural nature of the EU should not be considered as a barrier for trade that should be combatted but rather a natural division into a number of markets where the local end-users continue to receive the best possible service by local providers with services on attractive terms and conditions in their native language.
There exist a range of practical, risk-based considerations, which currently restrict the ability of firms to serve potential clients from other jurisdictions (such as AML rules, the implications of the fight on terrorism financing, a range of consumer protection legal regimes, etc.). On the other hand, such territorial restrictions are often the consequence of the exercise of contractual freedom. As required by relevant EU law, consumer protection legislation of their home country applies for consumers. Suppliers may consciously refrain from targeting consumers in certain countries so that they do not need to fulfil consumer protection rules applicable there (since this would possibly generate the additional expense of adapting their products to ensure these rules are met). In order to protect themselves from consumer protection legislation, which they might not currently satisfy or in relation to which they might not obtain exhaustive information without investing excessive time, effort and financial resources, suppliers make use of an enquiry on residence of a customer. This was mentioned several times as a negative practice in the Green Paper on Retail financial Services. We believe that, for reasons stated above, banks should be allowed to continue this practice.
In some Member States, banks have to comply with national prudential regulators' minimum requirements for risk management. This has to be done before commencing business activities with new products or in new markets. From a legal and business perspective, therefore, geo-blocking may be a sensible decision in certain circumstances because it allows financial service providers to determine their own “radius of action" and the associated regulatory requirements they need to fulfil. In view of this, we believe that geo-blocking should not be considered a negative practice per se, but rather the result of a functioning supplier market. In certain circumstances, there may be further practical reasons for not supplying certain individuals with financial services. Take, for instance, the need for the client to be physically present at the bank to furnish an initial proof of identity, money-laundering and tax requirements, or the lack of domestic security for a loan.
Furthermore, it is worth noting that new regulation can effectively increase geo-blocking: In the telecommunications area the recent roaming pricing alignment regulation has caused some providers to block roaming outside the native country in order to avoid a price hike on roaming in their home market.
With respect to this point, we would like to explain that in general, cross border payment transactions that involve a currency conversion entail a considerably higher cost than transactions limited to a single currency. According to the McKinsey Global Payment Map for 2016, the cost of an international payment transaction lies between 25 and 35 USD (made up of the following elements: Payment operations 7%, Nostro-Vostro liquidity 35%, Claims and treasury operations 27%, Compliance 13%, FX costs 15%, Network management and Overhead).
So, for banks, especially within the Euro area, all non-euro transactions attract higher costs than transactions in Euros within the Euro area. This is because banks within the Euro area can process all cross-border transactions denominated in Euros in batch using common pan-European standards on efficient and bespoke Clearing and Settlement Mechanisms that have been designed to process Euro transactions in bulk. The underlying payment systems within the Euro area and non-Euro currencies differ significantly. In contrast to transactions within the Euro area, every non-Euro transaction must be individually processed using a plethora of different and separate payment systems that are required to fulfil the different legal and payment requirements globally. Furthermore, a bank processing such a transaction must individually check how the foreign currency amount may be transferred to the recipient bank. Moreover, the fluctuation of the currency values on a daily basis creates risks to the providers and these risks need to be covered.
Compared to the world of fashion, one can say that a Euro cross-border payment transaction is a mass-produced T-shirt whereas a non-Euro cross-border payment transaction is a tailor-made suit. However, new technologies, like distributed ledger technology, have the potential to cut down on costs.
We believe that current pricing that reflect the actual costs is well presented in the customer framework agreements required to meet PSD2 requirements and that no additional regulation should be considered on the eve of the PSD2 entering into force. Besides, there are 19 Member States that are part of the Euro area, there is one Member that already opted in (Sweden) so there remain 8 Member States that are not part of the Euro area (and the largest one of those is in the process of leaving the Union). The total number of credit transfers in the EU, according to the European Central Bank, were 30.638,6 million in 2016. If we subtract the UK share from that, 26.405,3 million transactions remain. Out of these, 20.576,4 million were within the euro are plus Sweden, so a minority of credit transfers (22%) was processed in non-Euro. This is summarised in the table below.
Millions of Credit Transfers
Total Relevant Transactions in the European Union (ex UK)
Euro area plus Sweden
Non-Euro transactions (ex UK)
Share of non-Euro transactions (ex UK)
It should be noted though that the figures mentioned so far are the total for domestic transactions plus cross border transactions. Looking at cross-border transactions only, the European Central Bank states that for the European Union as a whole, only 2.9% of all credit transfers are carried out cross border – and this figure includes the cross border transactions within the Euro area. Estimating the non-Euro cross border transactions by taking 2.9% of all non-Euro transactions means that 169 million transactions are in scope. This is only 0,82% of all transactions within the Euro area.
Besides, it could be questioned what incentives would remain, from a payments point of view, for countries that are willing to join the Euro area when their citizens are given the same advantages by harmonising their transaction fees.
In view of this, we encourage the Commission that when considering eventual proposals in relation to this action, it takes into account the fact that possible individual higher fees for non-Euro transactions are largely based on higher transaction costs and that the proposal reflects the size of the institution performing such transactions and the frequency thereof.
We would like to point out that further channels exist which can be, and already are, used to raise consumer awareness in addition to the applicable provisions of the PAD. These are represented in personal consultations with banks' financial advisers. Moreover, mobile platforms as well as intermediary platforms have to be taken into account in this respect. In addition to this, we would like to bring to your attention the fact that many of the difficulties with switching are not caused by banks. Some service providers (such as telecommunication and electricity providers) require the conclusion of new direct debit SEPA-mandates in such cases. The correspondence may take several days or even weeks. In addition, IBAN discrimination persists within the EU, indicating that perhaps Art. 9 of the SEPA Regulation (prohibition of specification of the Member State where the payment account is located) is not enforced to a sufficient extent. There is no such discrimination when a contract is not possible because of another characteristic of one of the contracting parties.
Regarding comparison sites, we would like to note that comparisons of financial products are only effective if those products are comparable or if the comparison in question only refers to the basic characteristics thereof (minimum information). This might apply to certain (simple) products, but cannot be broadly applied to all retail financial services. The language barrier is another important issue to consider in this regard (there are 24 official EU languages and three alphabets). In addition, product and service comparisons would have to take into account cultural differences and diverging national laws. An aspect of great importance with respect to this would be ensuring the independence and impartiality of such websites.
Furthermore, no quality certification for the comparison activities exists and it should be noted that most comparison sites today are commercial entities and accept commissions and advertisements from the providers compared, and therefore, are more similar to sales agents and not un-biased advice channels.
Finally, we feel that additional endeavours in facilitating the switching of financial products should be the last step on the way to a real European single market. Before any such complex and likely costly system is established, the demand for this should be ascertained and comparable products and services should be available on the market. The Commission correctly observes on page 6 of the Action Plan: “Consumers rarely change their financial service provider […]". This is often so because, as described above, these consumers are happy with their current financial service provider. Moreover, we believe that before switching is attempted to be improved existing legislation should be properly adapted to the most recent digital innovations.
In addition thereto, we are also concerned by the Commission's plans to further their work on the “Key Principles for Comparison Tools". These principles have been drafted with the purpose of applying them horizontally irrespective of the type of products compared or of the sectors involved in this comparison. Given their general and horizontal nature, they need to be flexible enough, and as a consequence, cannot be easily taken and transferred to the very specific financial sector.
ESBG understands the importance of granting loans across borders. We would, therefore, be willing to support a set of high level principles common in several Member States, as long as the specificities of different Member States are born in mind in their preparation. We would firstly like to point out that there exists a very practical barrier to cross-border granting of credit – difficulties creating and enforcing a mortgage cross-border, in another Member State. Furthermore, the approaches to creditworthiness assessment differ across Member States because the customers differ as well. Therefore, a locally rooted savings or retail bank is best equipped to assess the creditworthiness of a given customer. As a consequence, it is important that such banks retain some level of discretion in these procedures. For instance, we feel that banks should not be obliged to obtain data from credit databases. Moreover, if a bank can obtain the information necessary to make a lending decision by other means (e.g. “know your customer" owing to familiarity with the client), it should, in principle, be permitted to do so. The general backdrop should be that banks should be able to decide by themselves which additional data is needed to assess a consumer's creditworthiness. It is, therefore, difficult for us not to oppose the adoption of common creditworthiness assessment standards (in addition to what was written above, we believe it could be detrimental to EU wide financial stability). This applies even more so when taking into account the fact that potential common creditworthiness standards would not be based on the most flexible or severe risk policy, but would instead set an average. This would exclude smaller borrowers financed by more specialised institutions. A single set of rules for the whole of the EU could do the opposite of facilitating cross-border credit; it could effectively limit the granting of credit to the national level of each Member State.
However, if these standards would nonetheless be adopted, then we would prefer if they would be principle based (for instance the credit granting institution must assess the creditworthiness as it exists at the point of time of the assessment). We strongly oppose any specification on how the results of the assessment are to be reached. Such developments would also not be in accordance with new developments with respect to algorithm based creditworthiness assessments (CreditTech). We believe that ensuring a level playing with respect to all types of FinTech is vital, and that this principle should apply here as well. Lastly, practical experience teaches us that if a common creditworthiness standard is to be adopted, this would entail a high risk of exclusion of atypical clients from standardised solvency valuation. In any case, access to a common set of data would not be sufficient to effectively assess the creditworthiness of consumers in another Member State. The reason for this lies in national specificities (differences in welfare systems, pension systems, unemployment compensations …)
With respect to the type of data that should be entered into credit registers, we are of the view that “internal data", i.e. data the bank has compiled itself during the loan approval process and over the life of the loan (confidential information), should not be collected. We assess that this would not be in line with applicable data protection legislation (the GDPR states that the customer needs to give his clear consent on any use of his data).
We would also like to highlight the link between good creditworthiness assessments taking into account the principles outlined above and the prevention of the issue of over-indebtedness. Namely, for the consumer, a good creditworthiness-assessment is the most effective tool to prevent future over-indebtedness because it helps to offer a credit which is aligned with the consumer's repayment capacities. On the other hand, for financial institutions, a better creditworthiness-assessment translates into better business by avoiding insolvencies and write-offs. Better data also helps financial institutions to react at a very early stage in case of errors and payment difficulties.
Furthermore, ESBG agrees with the Commission that over-indebtedness is a very real problem and that in order to combat it financial education is of vital importance. Today there is no shortage in credit offerings in the EU area. More loans are offered than any market can absorb and making it even easier to hand out consumer credit without the local market know-how should not be an EU priority. We therefore urge the Commission to include financial education as a key competence in its current Review of the 2006 Recommendation on Key Competences for Lifelong Learning. However, we would at the same time like to remark that numerous studies mandated by the European Commission have shown that no direct link exists between over-indebted households and the granting of loans. This is because instances of over-indebtedness are in essence the result of individual factors (life accidents such as death, serious medical issues, unemployment, and divorce) taking place after the granting of loans. As a consequence it is believed that over indebtedness is not related to irresponsible lending practices. Therefore, it is worth noting that, in this respect, budget management is of the essence. As a result, we feel that to solve the issues associated therewith, the Commission should focus on promoting financial education rather than coming to the problem from the opposite side, the creditworthiness assessment.
We welcome this particular action as a means to identify and eliminate unjustified gold-plating by Member States. However, we would advise the Commission to adopt a more holistic approach here and not to focus only on consumer protection legislation in the narrowest possible sense as we believe there are more instances of gold-plating to be found this way.
We support this action as planned by the Commission. This is because we are in favour of providing a broad scope of possible methods to be used in the process of digital onboarding, ranging from those notified in line with the eIDAS Regulation to others. As different national requirements still apply to the remote identification of customers, in our view, as a first step, harmonization is required, notably to allow for digital onboarding including via video. We also support the Parliament's stance on this issue within the targeted amendments to the 4th Anti Money Laundering Directive (specifically, those related to Art. 13(1)a: "identifying the customer and verifying the customer's identity on the basis of documents, data or information obtained from a reliable and independent source, including, where available, electronic identification means as set out in Regulation (EU) No 910/20141 or any other remote identification processes recognised and approved by the competent authority."
It should be noted that the launch and expansion of an electronic identity scheme needs incentive models to enable this. An example of this is the Swedish and Norwegian electronic identity schemes offered by local banks to physical individuals and relying parties on clear, fair commercial terms. The commercially driven electronic identity schemes outperform any other schemes in the market place. Local banks are best placed to create and maintain such services that absolutely need a reliable first Know Your Customer process before handing over the digital identity credentials. If this initial identification is not managed, there is a major risk that the electronic identities cannot be trusted.
ESBG brings together nearly 1000 savings and retail banks in 20 European countries that believe in a common identity for European policies. ESBG members represent one of the largest European retail banking networks, comprising one-third of the retail banking market in Europe, with 190 million customers, more than 60,000 outlets, total assets of €7.1 trillion, non-bank deposits of €3.5 trillion, and non-bank loans of €3.7 trillion. ESBG members come together to agree on and promote common positions on relevant regulatory or supervisory matters.
European Savings and Retail Banking Group – aisbl
Rue Marie-Thérèse, 11 ￭ B-1000 Brussels ￭ Tel: +32 2 211 11 11 ￭ Fax : +32 2 211 11 99
Info@wsbi-esbg.org ￭ www.wsbi-esbg.org
Published by ESBG. October 2017
 “Amongst respondents who have purchased at least one of the listed products and services [financial products and services], just 7% have done so in another EU Member State (+2 percentage points)." See the Summary of the Special Eurobarometer no. 446 (Financial products and services) published in July 2016, p.7.
 See ibid., p. 10.
 Source: European Central Bank, Payment Statistics over 2016, published 15 September 2017
 ECB Economic Bulletin, Issue 3 / 2017 – Articles Harmonised statistics on payment services in the Single Euro Payments Area, p71
 To that end, Austrian savings banks participate in the so-called Zweite Sparkasse aimed at providing consultations to people with solvency related difficulties.
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