On 31 January 2007, the Commission published the final report of its inquiry into the retail banking sector. The inquiry has identified a number of market features which may raise the cost of banking for consumers and small businesses and deter new players from entering the market. The Commission's report concludes that competition in the retail banking sector could be improved by stricter enforcement of the competition rules, as well as the introduction of a number of both regulatory and self-regulatory measures.


The Commission has for some time now taken a keen interest in the financial services sector, which it sees as central to the competitiveness of the European economy. It wants to ensure in particular that consumers in the EU benefit from a competitive and integrated financial market, but despite the introduction of the Euro, retail financial markets continue to show a lack of integration.

The Commission has the power to launch a sector inquiry under Regulation 1/2003 where "the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the Common Market".

In June 2005 the Commission initiated a sector inquiry into the retail banking sector, examining two complementary aspects of retail banking – payment cards and payment systems, and current accounts and related services.

An interim report on the payment cards and payment systems aspects was published in April 2006, and an interim report on current accounts and related services in July 2006. Both reports identified a number of structural, technical and behavioural barriers to competition. In the consultation which followed, both consumer groups and retailers expressed support for the Commission's interim conclusions and urged the Commission to take tough action to tackle the issues identified.

Final Report

The final report identifies a number of concerns that competition may not function properly in the market for retail banking. The Commission places particular emphasis on the fragmentation of the retail banking market along national lines and the high profits earned by banks in some Member States. The Commission identifies two likely causes for weakened competition – high barriers to entry (both for new entrants and existing players wishing to expand into new markets) and the level of formal cooperation between banks.

The Commission's report focuses on the following areas:-

Card payment system fees

The Commission expresses concern at the discrepancies between merchant, cardholder and inter-bank fees charged in different Member States, with retailers in some countries paying fees up to four times greater than those in other countries. More generally the report has found large differences between the fees charged for use of domestic and international systems, and the Competition Commissioner has described the market for international card payments as "an effective duopoly". Rules and organisation of card payment systems The report highlights the fact that some national card payment systems are operated by the incumbent banks on those markets, which could have an incentive to impose undue restrictions on potential new entrants. High membership fees and membership rules which discriminate against foreign banks are also identified as creating barriers to entry.

Credit registers

The report identifies potential issues where credit registers in a Member state are operated by big national banks, potentially enabling them to restrict their competitors' access to vital confidential information on customers' creditworthiness. The Commission has also found significant barriers to cross-border data sharing and hints that this may be an area for future investigation and action.

Cooperation between banks

Some concern is expressed at the degree of formal cooperation between banks – for example in the setting of industry standards and establishment of infrastructure systems. The Commission acknowledges that this kind of cooperation can benefit consumers, but notes that cooperation between big national players can discourage outsiders from entering the market. The Commission has also stated that it will consider the extent to which national regulation contributes to issues in this area.

Customer mobility

The Commission has found that customer mobility in the retail banking market is low. Customers' ability to switch between providers is constrained by the lack of transparent price information and the relative complexity of the products sold. The fact that many banks package and sell different products together contributes to the difficulties facing customers.

What next?

Competition Commissioner Neelie Kroes has indicated that the Commission will make full use of its powers under Articles 81, 82 and 86 EC Treaty in order to ensure that the competition rules are respected in the retail banking sector.

The report specifically identifies the following areas as candidates for future investigation or enforcement action:-

  • The rules, fee structures and governance arrangements of some payment card systems and clearing and settlement fees.
  • The interchange fees charged in some payment card systems.
  • Cooperative arrangements between big national players where these limit the ability of companies to enter the market.
  • Selling of "packages" of products together by dominant players in the market.
  • Discriminatory rules governing access to credit registers.

The Commission notes that since the publication of the interim reports, some market players have already taken steps to modify the structures and rules to remove entry barriers: the Irish Laser payment card network has committed to cutting joining fees and Austrian banks have announced that a reduction in interchange fees can be expected in future. The Commission clearly hopes to see further voluntary action of this sort. A number of national competition authorities are looking into interchange fees on their markets.

In addition, the Commission suggests that a number of regulatory and self-regulatory measures could help to address some of the competition concerns identified in the report:

The Commission considers that the proposed Single European Payments Area (SEPA) (which aims to create a single market for payments within the Eurozone) has the potential to solve many of the problems highlighted in the report and hopes to see legislation in this area soon.

The Commission has proposed a Directive on Consumer Credit which would require Member States to ensure access to credit registers on a non-discriminatory basis.

The Commission has also established an expert group to examine customer mobility in relation to bank accounts, which is considering measures to facilitate the opening and switching of bank accounts.


Retail banking is a key area of concern for the Commission: it is an area where consumers – particularly within the Eurozone – are acutely aware of the extent to which different conditions prevail in different EU Member States. On a national scale, retail banking tends to be provided by relatively few large players and this has helped to focus the attention of a number of national regulators on this area. The Commission's report gives clear hints of issues which we can expect to see under the regulatory spotlight in future, both in the context of merger reviews as well as investigations of particular features of the market. The views of the Commission and national authorities may not always coincide, however. The Commission's hints that national regulation could contribute to the failure to develop an integrated European financial services market may lead to further battles with national regulators seeking to protect national champions, similar to that which took place in 2005 when Italian regulators intervened in the proposed takeovers of Banca Nazionale del Lavoro and Antonveneta.