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31 december 2006

Retail banking survey : the FBF replies to the Commission

To promote the integration of the retail banking sector in Europe, the European Commission is undertaking a survey of payment cards, current accounts and related services in Europe. As part of this investigation, it has published two intermediate reports, for consultation purposes.


The FBF understands the Commission's wish to act, given the importance of these activities in the smooth operation of the economy. However, it regrets the lack of methodological rigour and is critical of some of the Commission's conclusions.

Methodology questioned on cards

In its June 2006 response to the Commission, the FBF said that the report on bankcards did not reflect the reality of the business model for payment services developed in France. It made no mention of the contribution of cards to the economy and omitted some special card features in use in France, such as the payment guarantee, secure use and protection from major system risks.

The report's statement regarding the high profitability of the card sector overlooks banks costs' for cash withdrawals, the cost of capital for credit cards, etc.

The FBF also challenges the report's finding that there is a lack of competition, noting that participants operate in open and competitive markets, even if these markets are still very local in nature, as they feed on the convenience that is central to retail banking.

Competition on the retail market confirmed

Regarding the report on current accounts and related services published in July 2006, the FBF shares the Commission's view that the European retail banking sector is highly fragmented, but is surprised at some of the interpretations of this fact.

In the FBF's view, this disparity is not due to anti-competitive practices, but to a combination of historical factors, legislative and regulatory practices and consumer behaviour, which varies from one country to another. The French banking market, in particular is highly competitive. The range of services is very broad, customer satisfaction very high, and prices are in the European average. Moreover, financial service fees make up just 0.6% of the average French household budget.

The Commission also points to a low rate of customer mobility, but without noting the connection between the rate of customer mobility and customer satisfaction. With a rate of customer mobility of 7.75%, France is within the European average.

The Commission also accuses France's national payment systems of blocking competition and the arrival of new market entrants. In its reply, the FBF pointed out that France's payment systems were specifically designed for national banking practices that are acknowledged as being efficient.

Generally speaking, the FBF is favourable to retail banking consolidation in Europe, as it believes that this would benefit consumers, banking institutions and the European economy in general. The FBF believes, pragmatically, that such consolidation should be done through full harmonisation by focusing on specific measures to promote the development of cross-border banking services.

After consulting on these two reports, the Commission is expected to release its final report on retail banking in January 2007.

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