30 November 2006

FT: Regulators press banks over ease of transactions

Europe’s Single Euro Payments Area, or Sepa, is supposed to start on a pilot basis in 2008. Financial institutions and regulators are engaged in detailed preparations.

An informal group of competition regulators is pushing for a greater say in the preparations for Sepa. It has expressed concern that bank customers will not gain the full benefits of competition in financial services unless banks take steps to ease switching of accounts between banks.

One measure being promoted by regulators is “account number portability”, which would require banks in the EU to allow customers to change banks and keep their account number, so making it easier to transfer services tied to their accounts such as direct debits and credit card payments.

Alberto Heimler, an Italian competition regulator who also heads competition bodies at the European Commission and the Organisation for Economic Co-operation and Development, said regulators were concerned by how infrequently customers switched accounts, possibly indicating that the costs of switching were too high.

The costs of switching accounts “allow banks to maintain high rates of customer retention and high market power”, Mr Heimler told the Financial Times in an interview. “When you get married you have a higher probability of divorce than in changing your bank account.”

The goal of Sepa is to make money transfers within the single currency zone as quick, cheap and easy as transactions within member states.

EU governments and the European parliament are finalising a new EU directive that will set the legal framework for Sepa, including minimum standards and consumer protection rules.

The technical preparations for the new regime, which is set to come into force by the beginning of 2008, are spearheaded by the European Payment Council, which represents the region’s financial services industry.

Between 2008-10 there will be a transition period in which national and Sepa schemes will co-exist and products that do not comply with Sepa rules are gradually phased out.

The European Payment Council expects that by the end of 2010 a critical mass of national credit transfers, direct debits and card payments will have migrated to the new Sepa payment instruments.

Mr Heimler said there would be meetings between competition regulators in the next few weeks.

He hoped that a common position on account number portability, which is not being considered in the Sepa framework, could be agreed by the end of the first quarter of next year.

Regulators in countries including the UK, the Netherlands, Sweden and Ireland, as well as Italy, wanted to start a debate on switching costs and number portability, Mr Heimler said.

“When you increase the possibility of switching [accounts] it will make banks behave better and extend the benefits of competition,” Mr Heimler said.

He added that Italian authorities had demonstrated last year the benefits to consumers of pushing banks on switching charges when an inquiry was opened into charges levied on customers closing accounts.

“It is interesting to note that the mere opening by the Italian competition authority of a sector inquiry ... led to an immediate reaction. Some major banks spontaneously eliminated closing charges,” Mr Heimler said.

But he warned that Sepa procedures were being written now and additions at a later stage would be costly. “Banks should be forced to develop now an account code system that would minimise the investment needed at a later stage should number portability be considered essential.”

© Financial Times