A single currency in search of a payments area

Two MEPs discuss retail payments.

Gianni Pittella

The integration of retail financial markets has yet to reach its full potential. In fact the level of competition in various markets, particularly in areas such as payments and retail banking, is still too low.

The main goal of the European Union in the field of payment services in the internal market must be achieving reasonably cheap, secure and convenient national and cross-border payments, and to make cross-border payments, by credit card, debit card and electronic bank transfer, as efficient as national payments. These objectives represent the right way forward because the most sensitive elements of criticism for this sector mainly cover information, fees, and efficiency.

Firstly, information on the terms and conditions of payment services is not always clear. Moreover, consumers often have to pay charges to switch from one provider to another, in case they are not satisfied or find a better deal. Cross-border payments remain generally more expensive, slower and less reliable than national ones. Finally, the multiplication of tariffs and the lack of clarity about the services offered also fuel confusion. The green paper and the sectoral enquiry into retail financial services provide the European Parliament with the opportunity to include, in the general discussion on the integration of the internal market, the main issues affecting the retail payments sector. It is important, during this process, to define a series of measures for the ‘mobile’ consumer as well as for those consumers who continue to shop ‘locally’.

How should we proceed if we want to shape the European policy on retail payments according to the needs of the consumers? There are major elements to be taken into consideration. Consumer choice has to go hand-in-hand with consumer education, which is the best way for empowering consumers. It is essential to provide legal certainty to consumers and to facilitate access to quick redress mechanisms or alternative dispute resolution measures, in the event of a legal challenge, both at national and European level. Furthermore, in the field of payment cards, the Commission should fully apply the existing competition law when schemes artificially raise costs for users. A possible way forward to enable consumers to deal more effectively with financial products is to provide them with more professional, independent, high-quality advice - the so-called best possible advice.

The concept of ‘best possible advice’ can be useful not only for the payment service sector but also for the general system of retail financial services.

A high level of consumer protection is necessary to foster confidence and, in this field, it is indeed important that harmonisation does not hamper existing levels of consumer protection. On the one hand, the Commission and the member states must continue to stimulate financial education and rely on the expertise of consumer organisations in the policy making process. On the other hand, industry has the responsibility of providing consumer-friendly information and offering ‘comprehensible’ and user-friendly products.

Considering the future implementation of the Single Euro Payments Area (SEPA) in 2010, users will be able to conduct transactions throughout the SEPA area from a single account, under the same conditions as current national systems. Making payments will become easier for all consumers traveling within SEPA since their payment cards will be easily accepted by merchants. Users will also be able to manage all transactions from a single account, irrespective of their location in SEPA. Finally, it will be easier for them to compare prices offered by payment service providers and thus reap the benefits of the integration process. Nevertheless, SEPA can properly work only if a real level of competition is guaranteed in retail banking services. Otherwise, SEPA products could also end up being more expensive for consumers than current national payment products.

The Parliament has been called to express its views on the integration of payment services with two reports: the green paper and the sector enquiry on retail financial services. Both texts will be ready for the next year. This represents an important chance to give clear political guidelines on how to face the difficulties I have just stressed. And for all these reasons, the European Parliament must play a leading role in this debate.

• Italian centre-left (PES) MEP Gianni Pittella is Parliament’s rapporteur on the sectoral inquiry on retail banking and shadow rapporteur on the green paper on retail financial services.

Othmar Karas

In 1999 the European Union launched the Financial Services Action Plan (FSAP). Its aim was to systematically foster the creation of a single market for financial services. The FSAP is widely regarded as a success, especially as far as the financial wholesale markets are concerned: nowadays wholesale providers of financial services as well as professional clients face fewer hurdles when offering or receiving cross-border financial services.

Unfortunately the same cannot be said of the financial services retail markets. The term retail financial services includes products such as current accounts, payment services, loans and mortgages. Currently, only 1% of European consumers purchase financial services in a member state other than their home state. Given the feeble progress in this field, the creation of a single market for retail financial services has thus become another focus in the European Commission’s work programme. It has recently published a green paper on retail financial services in the single market, in which it is considering strategies for how to achieve progress.

The Commission’s intentions are undoubtedly noble and deserve to be supported. However, the green paper already gives, here and there, signs of a strategic misconception. It seems essential to point to three basic thoughts that one should consider, especially if the EU intends to stick to its newly found credo of better regulation.

First of all, the creation of a single European market for retail financial services is not all about consumer- protection law. The Commission seems to go in this direction, basing its strategy mainly on consumer confidence and their empowerment. But the retail sector concerns not only consumers. Small enterprises face the same potential problems. And even if it was only about consumers, are the different levels of consumer protection the real reason for clients to stay in their home state? Countless studies show that the reason that most citizens do not search for the cheapest loan from Portugal to Estonia is that language, culture and personal relations with their provider are of equally high importance. Of course this does not mean that consumer protection will not play an important part. But it should just be used where it will foster the single market. Going beyond would be a transgression of the principle of subsidiary.

Secondly, rather than bringing consumers to the provider, it is probably easier to facilitate financial service providers’ access to new national markets. To achieve this one does not need innovative and elaborate new legislation. The key lies with the four freedoms. Effectively enforcing and implementing the four freedoms or, more precisely, a non-discriminatory legal framework in the member states is (relatively) simple and will be hugely effective. However, enforcing European law via individual procedure against member states or trusts may be too burdensome, which is why some new legislation, explicitly reiterating and specifying obligations arising out of the treaties will be necessary. A good example would be the access to credit data, which is a prerequisite for any bank to offer credits in a new market. Here either legal procedures or legislation could make sure all providers get access to member states’ national registers on a fair and non-discriminatory basis.

A third and final thought should be spent on the question of time. The FSAP was adopted only eight years ago, the euro a mere five. And only now European banks are beginning to establish SEPA, the Single Euro Payments Area. The Commission sometimes appears to be unduly impatient with the progress made in the retail sectors. But people and minds do not change from one day to another. The generation of our parents and grandparents will not start out to explore the advantages of internet banking and long-distance contracts. However, our children are much more open to new ways of communications. The number of consumers purchasing cross-border financial services will thus certainly rise beyond 1%. Still, some patience and realistic expectations would be appropriate to avoid hasty and improper regulation.

• Austrian centre-right (EPP-ED) MEP Othmar Karas is a member of Parliament’s committee on economic and financial affairs and rapporteur on the green paper on retail financial services in the single market.

Two MEPs discuss retail payments.