Retail or consumer financial services are financial services offered to ordinary consumers, meaning they are sold to and used by citizens at retail level. This covers a wide array of products: retail banking and current accounts, payment services, credit cards, mortgages and other credit and different kinds of insurance (e.g. life, travel, motor, health or home insurance).
2. Why is this consultation needed?
Retail financial services markets are not yet as integrated as they could be in the EU. These services and structures still operate largely on a national basis and it remains impossible for consumers to access or transfer certain financial products cross-border (e.g. most insurance products or mortgage credit).
In that context, the Commission is asking consumers what barriers prevent them from purchasing the best services available in the EU and it is asking providers what prevents them from selling across borders. Depending on the outcome, we will look into the potential actions we could take at EU level to overcome those barriers.
A better integrated Single Market for retail financial and insurance products would bring greater product choice, better value for money and lower prices for consumers. It could also mean more opportunities for firms to market their products on a larger scale at lower cost.
3. The European Commission has already adopted several legislative measures in the area of retail financial services over the past years. Why is it launching a new consultation?
Several EU measures have recently been adopted in the retail financial services area, for instance in mortgage credit (Mortgage Credit Directive), payment accounts (Payment Accounts Directive), investment products (Markets in Financial Instruments Directive – MiFID 2, Packaged Retail and Insurance-Based Investment Products – PRIIPs) and the distribution of insurance products (the recently-agreed Insurance Distribution Directive). The priority of the Commission is to guarantee that the measures adopted recently at the EU level are adequately implemented and enforced in Member States. The Commission hosts regular implementation workshops with Member States to ensure timely enactment of these new rules into national laws.
However this consultation aims to look at what else can be done. The Green Paper does not set out to prepare the review of any particular Directive as such, but feedback received will of course inform any further action. The consultation will identify the barriers that stand in the way of a more integrated and competitive Single Market for retail financial services, and that still prevent consumers and providers from purchasing or offering the best services available in the EU. Based on this consultation, we will then look into the potential solutions to overcome those barriers.
4. What is the link between this Green Paper and other recent Commission initiatives, such as the Capital Markets Union, Digital Single Market and Single Market Strategy?
The Green Paper and its potential follow-up actions complement these three major initiatives. The objective of the Capital Markets Union is to open up and enhance EU capital markets, including for retail investors. The Capital Markets Union action plan announced this Green Paper, which will look on how providers and consumers of retail financial products can make better use of the Single Market.
The Commission's strategies for a Digital Single Market, and for the Single Market more broadly, follow a broad, cross-sectoral approach; the Green Paper will focus the debate on retail financial services only, including the impact of digitalisation on such services. Furthermore, this consultation can support the aims of these initiatives: consumers will feel more confident about shopping cross-border with other currencies if they can trust that the exchange rates will be properly disclosed.
5. Who can respond to the consultation and how?
Anyone can respond: the consultation will be as broad as possible. Views are welcome from consumers or users of financial services, consumer organisations, existing providers of retail financial services such as banks or insurance companies, would-be providers such as digital start-ups, or companies in the Financial Technology (FinTech) sector, to name just a few. Supervisors, national competent authorities, EU institutions and international organisations are also invited to take part.
You can respond to the consultation by filling in the questionnaire available here.
You can also follow us and share your own experiences in this area via social media using the hashtag #MyMoneyEU and can find more details see here.
6. What are the next steps after this Green Paper?
The consultation will last for three months. Depending on the contributions received, an Action Plan might be proposed around summer 2016, potentially including legislative and non-legislative initiatives such as guidelines.
7. Who stands to benefit?
All European consumers and firms could benefit from initiatives to remove unjustified barriers in the Single Market in retail financial services. Consumers could get access to the widest range of deals with more competition and more choice. Providers can benefit from access to wider markets and opportunities to develop greater scale in their businesses. Innovative and digital companies and consumers alike could capture the benefits of a market that is changing rapidly due to the digital revolution.
8. There are already many retail financial services on offer. Why do we need more competition?
The EU's consumer scoreboards regularly underline that the retail financial services market is among the worst performing markets. The combination of a high level of dissatisfaction, differences in prices across Member States, and low levels of switching between products signals that competition is not working to the benefit of consumers in these markets or that there are barriers to entry and exit. Not all consumers want to buy cross-border but those who wish to do so should not face unjustified obstacles.
9. Does the Commission think that consumers really need more products? Don't they rather need simple and safe products?
While there may be many good reasons why consumers would want a financial service product from their own Member State, they may find they can get a more suitable product or a better deal from elsewhere. But they also need to know that products from other countries are safe and trustworthy.
10. Prices are different in different markets for a good reason (e.g. motor insurance). Is the Commission trying to harmonise prices across the EU?
The Commission is in favour of greater price transparency but it has no intention of harmonising prices of retail financial products in national markets or across the EU. Different price levels can be the result of different purchasing powers or different risk profiles. Nevertheless, consumers should be able to benefit from a wide choice of products, including from other Member States, if these products suit their needs better. Equally, providers of retail financial services should be able to offer their products directly across borders easily, if they so wish, reaching consumers in other Member States. Online services and platforms could make this easier to achieve in practice. A better integrated Single Market can ensure more competition and more choice for consumers—as has been shown in many other sectors.
11. Don't online providers of financial services already have a bad reputation? Should you really be encouraging these?
Many financial services are going online, whether from established or new providers, and offer a number of advantages to consumers. The emergence of new digital services offers opportunities, but also challenges, including consumer protection. This is one of the areas on which we are seeking feedback in the consultation.
12. Structural barriers, such as different languages and currencies, prevent consumers from shopping cross-border. Can these barriers be overcome?
Barriers that prevent consumers from purchasing across borders are very diverse. This consultation should enable the Commission to identify these barriers better and with potential solutions that will help to overcome them. As regards structural barriers, such as languages or currencies, the consultation will help determine whether these obstacles are major or not, in which segments, and how they could be tackled. For instance, consumers living in non-euro Member States might be interested in retail financial services from euro Member States if they can be sure that the information they receive about currency conversion rates or conversion costs is sufficiently clear.
13. What about structural barriers that can prevent firms from offering services cross-border, such as legal reasons and taxation?
While many barriers may be structural and difficult, or impossible, to resolve in the short or medium term, others may be easier to tackle. An example could be location of risk principle in the insurance field, which is not always understood in the same way across Europe. The Green Paper will seek views whether a clarification would be necessary, and if so, how this should be done.
14. Will financial providers be able to offer their services at a distance without a physical presence?
Most banks and insurance companies already make extensive use of digital sales channels, providing most of their local products and services to their customers online through various applications. These firms generally decide to be physically present in their main markets to be close to their customers. However, others such as IT firms or more innovative financial technology (FinTech) firms may opt for different business models, providing retail financial services purely online. In the long run, the current trend of digitalisation could help foster cross-border activity and improve competition in the financial sector, provided there are adequate levels of security and investor protection.
15. 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.
16. Don't digital sales channels and platforms already solve the problem of cross border access?
Digitalisation and innovation are transforming the financial industry. Banks and insurance companies have massively digitalised their sales channels. At the same time, innovative firms are offering new services, through platforms in the lending or payment areas, for instance. However, these innovations mostly benefit consumers on the domestic market and are not always accessible to consumers located in other Member States. This consultation aims to determine the measures needed to further open up the Single Market for retail financial services taking digitalisation and innovation into account.
17. Offering retail financial services online means that firms will increasingly have to identify customers at a distance, potentially across borders. Will it not bring more risks for companies?
Identifying customers at a distance can be an issue for those providing digital financial services across Europe. Potential solutions that would enable identification of customers at a distance will have to ensure the same level of security as face to face identification. Of course, such solutions should not weaken the effectiveness of EU measures on money laundering or the financing of illegal activities.
18. Isn't the Green Paper addressing the problems of 3% of consumers who regularly travel across the EU to the exclusion of the remaining 97% of EU consumers who only purchase financial services in their Member State?
Many citizens do face problems when they move to another Member State – for example if they wish to retire abroad but cannot take their bank account or health insurance with them.
However, better cross-border access will help all citizens. People may be able to get more competition and more choice, so they can get access to better deals from across Europe that may be better suited to their needs or budget.
19. Are you encouraging people to take out mortgages from other countries/currencies? Isn't that risky?
More competition in mortgage markets may be useful, both at national level and cross-border. The Commission does not encourage the taking out of foreign currency loans. This is a choice of the consumer. The Mortgage Credit Directive, which enters into force on 21 March 2016, will grant European credit intermediaries a European passport and should lead in the long run to greater mortgage choice for consumers. These credit intermediaries will need to comply with strict admission criteria which will be supervised by national competent authorities. This consultation will consider what more can be done to bring down cross-border barriers.
Of course, a mortgage from a provider in another country will not necessarily be in another currency. The Commission does not encourage the taking out of foreign currency loans by unhedged consumers. However, the Mortgage Credit Directive provides that borrowers who take out foreign currency loans after 21 March 2016 will have the right either to convert their loan into an alternative currency under specified conditions; or to alternative arrangements (e.g. caps, additional warnings) to limit the foreign currency risks. In any event, the consumer must be informed about the potential risks linked to foreign currency loans.