A comparative analysis of the US and EU retail banking markets - Wsbi

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6.3.2.1.2 Financial intermediaries (other than National Central Banks) Under current regulatory and legislative dispositions, payment services can usually be provided either by financial institutions which fall under the dispositions of the Second EC Banking Directive, or those regulated by the e-money Directive. Transposition of these Directives into the national legislation of EU Member States may however at times cause differences of interpretation, meaning that depending on the country of supervision a range of institutions may or may not act as a financial intermediary. Under a legislative proposal prepared by the European Commission and currently under review by the European Parliament and Council (for enactment into national legislation provisionally by 2008 at the latest), many other institutions than those covered by the Second Banking Directive could in the future be allowed to provide payment services, provided they do not take deposits. However, the proposed legislation still requires a great deal of clarification, notably as regards the distinction between deposit taking activities, the acceptance of funds in transit when making or receiving payments on behalf of endcustomers, and the protection of such funds in case of payment service provider bankruptcy, or otherwise). Equally a process to review the e-money Directive was launched by the European Commission in July 2005. 6.3.2.2 Retail and commercial payments in the European Union Note that in this section we are referring exclusively to the pre 2004 enlargement EU, composed of 15, as opposed to the current 25, Member States. The reasons for this limitation are twofold: first, the cashless payment instruments used in the new Member States show an (even more) extreme level of diversity, second, overall the 10 new Members States only account for 4% of the total volume of non-cash payment transactions. The table below summarises the evolution of the volumes of cashless retail and commercial payment transactions in the EU, by type of payment instrument or channel: It should be noted that the exchange of payment instructions between customers of different European Union Member States (up to now referred to as “cross border” payments with the EU) represents a mere fraction of overall EU payment instructions. According to the latest research conducted in this field (McKinsey 2002), intra-EU payment instructions represent 1.3% of total EU payment instructions. In addition, cards account for 83% of these “cross border” payment transactions, and are used at point of sale in 90% of these situations. Table 25: Annual volume of non-cash payment transactions in the EU (billion transactions) 2000 2004 Av. % change p.a. Credit transfers 15 18 5% Direct debits 12 16 8% Cheques 9 7 -6% Debit card transactions * 10 16 13% Credit card transactions 3 4 9% ATM cash withdrawals 8 10 6% Total cashless transactions 57 71 6% Excluding ATM cash withdrawals 49 61 6% Excluding cheques and ATM cash withdrawals 40 54 8% Source: European Central Bank Blue Books (*): E-money transactions included - overall volumes of the latter are very small though. 134
It should also be observed that the euro was introduced on 1st of January 2002 as the single currency for 12 out of 15 of the pre enlargement Member States of the European Union (the Members not having converted their currency are Denmark, Sweden, and the United Kingdom – although Sweden has “opted in”). Therefore such “cross border” transactions will not be subject to any specific consideration in this rubric. The following remarks can be made as to the overall evolution of the usage of various payment instruments in the European Union: - Overall cashless payment transactions have been growing at an average annual rate well outpacing both growth in real Gross Domestic Product and growth in real personal consumption expenditure. - Cheques: it is probably a mere coincidence that the average decrease rate for cheques is fairly similar (5% vs 6%) in the US as in the EU over the period under consideration. Indeed cheques are far less used in Europe (10% of market share of total cashless payment instruments) than they are in the US (39%), and such usage is pretty much concentrated in three large or relatively large payment countries (France, Spain, United Kingdom). At any rate, the usage of cheques is expected to continue its decline, as cheques are substituted by other payment instruments, both for face-to-face and remote transactions (although due to regulatory arrangements in a country such as France banks have currently little option but to continue and issue cheques). - Cards: in Europe many national debit card schemes have been built on the foundations of ATM schemes, and debit cards continue to enjoy growing acceptance, at twice the average growth rate for non-cash transactions (ATM withdrawals excluded). Credit cards grow at one and a half time that rate, and many experts consider this instrument ripe for far higher growth rates in the future, as many European countries today are mostly debit card countries. - Electronic credits and debits: direct debit transactions are growing at one and a half time the annual rate for credit transfers. As significant growth for direct debits can also be witnessed in countries which have no cheque tradition, (most of) this growth is genuine and not fuelled by migration. For the time being, all direct debit transactions are “national”, as no “cross-border” direct debit scheme is yet in operation (in the absence of commonly accepted and enforceable rules). Beyond the above consolidated figures there are some very distinct national situations and usage patterns. Countries where cheque usage has fully or virtually disappeared (Austria, Belgium, Denmark, Finland, Germany, Greece, Luxembourg, Netherlands, Spain, Sweden) can be presented in two groups: Countries where cheque usage has fully or virtually disappeared and where card usage (either credit or debit) is high (over 50% of all non cash transactions, ATM withdrawals excluded) Denmark Greece Luxembourg Sweden Countries where cheque usage has fully or virtually disappeared and where credit and/or debit transfer usage is high (over 50% of all non cash transactions, ATM withdrawals excluded) Austria Belgium Germany Spain Italy Netherlands 135
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September 2006 RESEARCH A COMPARATI
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IE UK FR BE NL LU DK DE SE CZ AT SL
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The following WSBI/ESBG committees
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4 Regulation and supervision compar
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6.5 Issues of competition in retail
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To finish, if we had to pick from a
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In the US, credit institutions have
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Following the same logic, the EU co
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In that context, it is tempting to
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3. INSTITUTIONAL COMPARISON 3.1 Sec
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The market share of the US banking
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FDIC-insured commercial banks are i
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The subsidiary stock institution is
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Regulatory reform over the past thi
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State credit unions were first exem
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There has however been much effort
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3.2.2.2.2.2 Ownership and corporate
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Hermann Schulze-Delitzsch and Fried
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In contrast, building societies in
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The commitment of savings banks is
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4. REGULATION AND SUPERVISION COMPA
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In addition, for regulations define
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The European Parliament has to be k
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In fact, it should be mentioned her
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As far as coordination at the feder
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Despite the trend towards the estab
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Another important factor in the cho
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In the European Union, contrary to
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Although younger than CESR, both CE
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4.2.5.1.1.1.1 Limitation of the geo
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4.2.5.1.1.3 Recent trend: regulatio
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Another important common feature be
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The best execution rule was first m
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4.3.2.2.4 National Market System ru
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The ISD set a basis for the develop
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Best execution rules exist in both
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The decline of savings institutions
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Relative to population, the Europea
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5.2.2 Size of credit institutions 5
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5.2.2.2 European Union In Europe, t
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