EC publishes interim report on core retail banking services

The sector inquiry is looking at the markets for payment cards and for core retail banking services in the EU. In its interim report on payment cards, published in April, the Commission highlighted significant market barriers which pushed up prices for firms and consumers. The Commission has now published its interim report on core retail banking services, including current accounts and related services, which shows clear evidence of fragmented markets and of areas where markets are not working as well as they should. The Commission is keen to learn the views of all stakeholders as to the causes of these problems, before reaching final conclusions.

Competition Commissioner Neelie Kroes said: "Our competition analysis of the retail banking market shows that markets across the EU remain fragmented, that there are still significant entry barriers and that consumers and SMEs have difficulties in finding the best offers for them. We want to discuss with stakeholders how best to tackle these problems."

At the public hearing the Commission is presenting the preliminary findings of the sector inquiry to stakeholders, including industry, consumer groups and regulators. Participants are discussing the Commission's preliminary findings on payment cards, published on 12 April, and debating the main points raised during the written phase of public consultation. The Commission has now also published its preliminary findings on the market for core retail banking services, including current accounts and related services. A twelve week public consultation on the preliminary findings will end on 9 October 2006.

Payment cards

The interim report published in April on the payment cards sector confirmed that businesses and consumers do not yet benefit from a fully competitive internal market in payment cards. The large price differentials in the Single Market are a clear sign of this. There were also indications that banks issuing cards may be obtaining significant economic rents.

While the Commission is still analysing the more than eighty written comments received, it is already possible to say that:

• most replies agree that the interim report has identified important obstacles to competition, in particular as regards network rules and acquiring joint ventures that constitute a factor of market fragmentation
• in contrast, 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.

• Overall retail banking markets remain fragmented along national lines 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 across the EU. 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 from providing retail banking services in some Member States
• 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. Banks in other Members States such as Ireland, Spain and Finland 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).