There's No Single Market For Consumer Finance: What Next?

Perhaps it's not what the European Commission intended, but its green paper on retail financial services is a great explanation of why there is so little cross-border activity in consumer finance: 3% for payment cards, current accounts and mortgages; 5% for loans (less than 1% between Eurozone countries!) and only 3% of gross insurance premiums. For a very long list of reasons, it's just not practicable for most retail financial services providers to operate across EU borders, as the EC has known since at least 2007. Could it be time, therefore, to scale back EU requirements for firms that only focus on their national market, so consumers have a clear choice between national and genuinely cross-border suppliers and products?

The Commission concedes that its vast, confetti-like attempt to harmonise EU financial regulation  has proved futile in catalysing a single retail finance market, yet it continues to ask what more can be done.

One issue in particular that the Commission is huffing and puffing about is 'geo-blocking', the use of technology to identify and block or re-direct consumers based in certain countries.

But the Commission's own findings are that few players have the resources to focus on cross-border markets. Suppliers who do target multiple countries typically use separate local operating entities to deal with all the problems listed in the green paper, so they don't even properly qualify as 'cross'-border. At any rate, how can you force a Spanish motor insurer to sell policies to Germans if it simply can't afford to administer claims in Germany? How would that be in the policyholders' interests? Even assuming the focus solely on Spanish customers is the supplier's own choice, rather than due to some legal restriction, wouldn't requiring the firm to deal with Germans or Swedish consumers put it at risk of going bust, leaving the whole market to a few big players who can afford to serve customers everywhere?

In its response to the green paper, the UK's Financial Conduct Authority quite rightly urges caution on the economic impact of more (futile) regulation, as well as careful analysis of consumer needs and behaviour before churning it out. The FCA points out that existing regulation must be allowed to 'bed-in' before assessing its real impact; and the Commission needs to consider that EU consumers are not some amorphous clump of flesh waiting eagerly for Greek insurance policies homogeneous, but diverse in their needs and behaviours - so a 'one-size-fits-all' approach won't be universally acceptable and risks crushing local financial services that are working well.

The FCA hints at the idea of a range of EU-approved products that might be provided by any EEA firm to any EEA consumer in a standard way, though this still begs the question whether the providers are able to manage this operationally. 

I guess it's possible that those able to target cross-border markets would benefit from some kind of voluntary EU-cross-border safe harbour scheme that enables them to adopt the same approach to marketing, contracts, customer service, complaints handling and enforcement and so on throughout their target market(s). It could even be very a attractive product in some national markets that are currently under-served or where consumers are being fleeced.

But that's more or less what the current regime allows, yet few firms are bothering to do it: the whole point is that we know it is futile to impose a cross-border scheme on firms and consumers who just want to focus on their own national, regional or local market.

Which begs the question: rather than add more regulation, why not allow member states to scale back EU requirements for firms that wish to remain nationally focused? This would allow further differentiation between national and cross-border suppliers and products, presenting consumers with a clearer choice to make.

Is There Really A Single EU Market?

Some sobering figures from the European Commission for single market fantasists enthusiasts (as if Greece wasn't sobering enough).

EU cross-border services account for 4% of all online services, as opposed to national services within the US (57%) and in each of the EU member states (39%). 

15% of EU consumers bought online from other member states, compared to 44% who bought online nationally, with online content seeing double-digit growth.

Only 7% of SMEs sell online across EU borders - and it costs an average of €9,000 to adapt their processes to local law in order to do so. 

The cost/price of delivery is (obviously) cited as a major problem, as well as differing VAT arrangements. But suggested solutions seem to ignore these and other key barriers to cross-border retail that have been cited in previous market studies, such as lack of marketing strategy, preference for national brands, language barriers and local employment law challenges. Presumably, that's because the Commission can do little to address such fundamental practicalities. Instead, they want to focus on:

• stronger data protection rules;
• broadband/4G roll-out;
• use of 'Big Data' analytics; and
• better digital skills amongst citizens and e-government by default.

The sense of futility that permeates such reports by Eurocrats only emphasises the fact that the law follows commerce; it doesn't catalyse markets.  

Yet, ironically, in areas where commercial and consumer pressure to enable cross-border activity is emerging, such as crowdfunding and crypto-technology, we find European institutions taking an unduly restrictive approach.

When will they simply get out of the way?

EC's Consumer Markets Scoreboard

Meglena Kuneva, the EC's Commissioner for Consumer Affairs, appears to be trying hard to compile meaningful data on "how markets ultimately perform and deliver to citizens".

The Consumer Markets Scoreboard - only in its second edition - provides data on prices, complaints, degree of satisfaction, switching rates and safety. However, it finds that "more quality data are needed to develop a solid consumer evidence base... The current evidence... is still not enough to draw definite conclusions."

Nevertheless, the report makes a series of "observations", including:

• "consumers are less satisfied and experience more problems with services than with goods markets. The most problematic surveyed sectors are energy, transport (bus and rail) and banking services."
  
  
• "in the banking sector switching is low and offers difficult to compare. The substantial variation in bank fees between Member States is not explained by differences in expenditure levels". In the first half of 2009, the EC will "assess the problems consumers face resulting from a lack of transparency in retail financial services."
  
  
• higher switching rates (e.g. in the market for car insurance) means "consumers are less likely to report price increases". Though I'd observe that the number of TV ads for the plethora of price comparison web sites focused on car insurance suggests there is still plenty of fat in that market - 25% of consumers reportedly switch, but prices are reported as steady.
  
  
• "Cross-border retail trade is stalling. The proportion of consumers shopping cross-border has not increased since 2006, while the proportion of retailers selling across borders has declined. Nevertheless, while 25% of consumers have shopped cross-border in the last 12 months, 33% are considering doing so in the next year. If harmonised consumer regulations were put in place across the EU, 49% of retailers would be interested in selling cross-border. This would be a significant improvement compared with the 20% that currently sell cross-border. Online shopping is becoming more widespread but cross-border e-commerce is not developing as fast as domestic online shopping."
  
  
• "While complaints data are important to detect malfunctioning, the absence of complaints does not always mean that there are no problems... in some markets consumers have a low tendency to complain even though they experience problems, for example, in bus and rail and some food markets such as fruit and vegetables." Source: IPSOS consumer satisfaction surveys 2006 and 2008.
  

The report cites the following "Action points for 2009:

• A market study on the retail electricity market.

• A chapter on online geographical market segmentation in the retail market study which will analyse the problems consumers have when shopping online across borders.

• A communication on enforcement which will set out a global strategy to ensure the effective enforcement of the consumer acquis.

• Development of a regular collection of average prices of comparable consumer products and services by Eurostat and the national statistical offices.

• Development of a voluntary harmonised methodology to classify consumer complaints.

• Work to develop appropriate indicators to measure enforcement and empowerment with national stakeholders."