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European Commissioner for Internal Market and
Conference on Financial Inclusion
Ladies and gentlemen,
It is a great pleasure for me to be here today and to see that so many people from a great diversity of areas have accepted our invitation to discuss access to basic financial services. It is particularly reassuring to see that many NGOs and citizen associations are present. We, in the Commission, are sometimes blamed for focussing too much on the supply side of the market, and for neglecting the impact of our policies on ordinary citizens. This is not the case. I do not see any contradiction between market development and social inclusion. Rather the opposite.
Well functioning markets, with clear rules and strong competition are indeed strong drivers of social inclusion. They provide jobs, higher salaries, growth and opportunities. They also stimulate businesses to look at ways in which they might be able to profitably serve what at first may appear unprofitable niches. But market forces alone might not be sufficient. In order to benefit all citizens, appropriate structural policies are needed to accompany the Internal Market. But we need to be careful not to create unintended consequences and not to hamper or overload economic operators with something that is excessively burdensome either on business or the taxpayer while being only marginally beneficial.
This Conference, organised jointly by my services and those of Commissioner Špidla, shows how dedicated the Commission is to seeking to get the balance right between the social and economic agenda, although often those agendas need not conflict and one can stimulate the other. It comes at a very timely moment. Financial markets have never been so global and the new challenges that they pose are enormous.
Impact of financial exclusion
During the last decades, the importance of financial services in the life of European citizens has developed considerably. Access to basic financial services has indeed become a necessary pre-condition for participating fully in the economic and social life of a modern society.
That is why it is important to guarantee all Europeans a genuine and adequate access to basic financial services. Considerable numbers of our fellow citizens are still unable to access such services, and have to deal with the unfortunate consequences of this situation. We have to improve this.
Being financially excluded can create extra costs for those who can least afford them, increasing poverty. People who are financially excluded are most often in a very vulnerable position in society – often they are living on low incomes, they are single parents or recipients of social assistance.
These already vulnerable people find themselves in a vicious circle – without a bank account it is difficult to find a job. Without employment it is difficult to lead a decent life.
The widespread move from cash to electronic payment makes the situation even more difficult. It costs more to pay bills in cash while it is cheaper to use direct debit. Paying in cash is also more time-consuming. People who only operate in cash are also more vulnerable to loss or theft. And for accessing credit, individuals will have to go to alternative providers who offer much less attractive conditions than the mainstream market.
It takes a lot of effort and confidence to break out of this downward spiral since, on top of everything, such individuals often do not have access to financial advice that could help them find a solution to their financial situation.
Financial education and financial inclusion are closely linked
For the financial services industry it is important to have customers who are informed, confident and have at least access to basic banking services. "Banked" people are potential customers for other financial services, increasing the size of the overall market. The inability of the "unbanked" to get access to financial services, for the reason that they are not profitable clients in the short term, could lead to increased marginalisation of the poorest members of society, which in itself is a loss of potential new participants in the financial services market, and might also stand in the way of those people helping to propel economic activity further, and thus diminish the overall market opportunity for financial services. So if we get it right in this area, it could be a "win win" for all sides.
A recent Eurobarometer survey on Services of General Interest showed that the third biggest barrier to access to banking services was a lack of understanding of financial services. According to a report published by the OECD in November 2005, the increase in the variety and complexity of financial products available on the market today, combined with worryingly low levels of financial literacy, are factors that contribute to having a large number of EU citizens without bank accounts.
Last year the Commission adopted a Communication on Financial Education. The Commission is of the view that financial education is best provided closest to the people who need it, namely at national and regional level. Presenting some basic principles for the provision of high-quality financial education schemes, the Communication also announced some future initiatives in this area, including the creation of a European network of practitioners, the publication of an online reference database of financial education programmes and research and the Commission patronage of selected events on a continuous basis.
But financial education is not enough
We are convinced that financial education alone is not enough to tackle the question of financial exclusion. Our Single Market Review, adopted a month before the Financial Education Communication, announced our ambitious goal that nobody should be denied access to a basic bank account. We invited all stakeholders to reflect on the possibilities to achieve it. We are extremely grateful that you came to share your reflections with us today.
Some mechanisms are already in place
This morning, the extensive study on financial exclusion was officially presented by its authors. It shows that there are considerable variations in the levels of financial exclusion in the EU. But as we also heard throughout the day, various solutions have been proposed to tackle this problem.
We heard that the financial services sector has developed simple low-cost transaction bank accounts. We also learned that, in some Member States, the financial services sector has developed voluntary charters and codes of practices to provide basic bank accounts. We were also glad to hear confirmation that corporate social responsibility is now fully accounted for in the core business of most financial services providers. It is reassuring to hear that social and environmental responsibility is no longer seen just as a threat to profit margins. For the financial services sector, financial inclusion is both a societal challenge and a business opportunity; a win-win situation in the long run.
We heard from governments that there is great public interest to promote access to basic financial services. Government intervention is different, from one country to the other. Some governments have intervened and have passed legal requirements ensuring that every citizen or resident should have access to transaction banking services. Other governments have played a crucial role in facilitating contact, dialogue and negotiations between key stakeholders. In several countries, pressure from the government and public opinion has encouraged the banking sector to adopt codes of conduct.
We heard from consumers that financial inclusion has to be real, and that increasing the number of bank accounts opened does not automatically mean decreasing financial exclusion. What is of equal importance is the quality of services offered and the performance of operators. Consumers also raised the legitimate concern that while financial education is a necessary component in achieving more financial inclusion, it cannot be considered sufficient in itself in tackling the problem. We can only agree with their claim for more transparency and monitoring of corporate social responsibility obligations by independent agencies.
There is a role for Europe
Although financial inclusion is being discussed in some Member States, and certain actions have been launched, it is a topic that may benefit from a European response. Because there is no “one-size-fits-all” financial inclusion strategy, I believe sharing best practices is of utmost value. The practical knowledge that you have acquired from your daily involvement with these questions will lead to solutions on a Europe-wide scale.
We were very interested to hear that so many of you see a clear role for Europe in ensuring access to basic financial services. This role will have to be carefully defined.
This Conference is a good example of how the social and the financial sector can and should work hand-in-hand. The Renewed Social Agenda that the Commission is expected to adopt soon may promote such cooperation.
But there is still a great deal to be done before we have achieved a truly financially inclusive society. Many important reflections were shared today, and many ideas were floated. We will have to analyse them and design adequate initiatives.
Today's discussions were not the end but rather the beginning of a debate on financial inclusion. We will continue our consultations. We will also carefully assess the impact of various solutions, such as a Recommendation, that the Commission could propose to address this particular issue.