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

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It should be noted that two of the largest countries in terms of payment transactions i.e. France and the United Kingdom (which respectively represent 21.2% and 21.5%, or together nearly half of all EU cashless payment transactions) do not appear in either category, because they still boost a significant number of cheques transactions, as well as credit or debit card transactions, and electronic credits or debits (each representing close to one third of each respective country’s total national payment transaction volume). It is clear that there are rather different patterns of payment instrument usage across the various EU countries. These patterns are caused by a number of reasons, including legislation, habits, history and culture. One may however query whether and how these patterns would evolve, if the principle of payments instruments (including cash) competing for customer acceptance on the basis of transparent pricing, and in a context of similar rules and consequences, was generally accepted and implemented. 6.3.2.3 Settlement of high value transactions in the European Union 6.3.2.3.1 Real time gross settlement systems Currently in every Member State the National Central Bank owns and operates a real time gross settlement system which provides settlement finality to banking institutions supervised by that Central Bank. These independent systems are interlinked (for eurozone and non-eurozone countries as well) by the TARGET system, which allows the provision of – almost – real time settlement for participants operating within two national Real Time Gross Settlement (RTGS) systems. There are over 10,000 direct participants in the initial 15 Member State RTGS systems. During 2004 these national RTGS systems together processed over 69 million payment instructions (an increase of 3,9% over 2003) for a combined value of €444 trillion (an increase of 6,4% over 2003). Plans for migration in the last quarter of 2007 and the first quarter of 2008 to a “Single Shared Platform” (also called TARGET2) have been published by the Eurosystem. As stated by its name, TARGET2 would replace the current individual national systems, yet still allow a level of flexibility for how National Central Banks organise their relationship with banks under their jurisdiction (the details of that flexibility are currently being finalised). Furthermore the non-eurozone countries (Denmark, Sweden, the United Kingdom, as well as the 10 new Member States) each operate a real time gross settlement system to settle their own national currencies. Each new Member State is committed under the Adhesion Agreement to introduce the euro and consequently the relevant national Central Banks will join the TARGET system (the first one to do so will be Slovenia on 1 January 2007). 6.3.2.3.2 Net settlement systems In addition three countries (Finland, France, and Spain) each operate a large value settlement system in euro for (in total over 680 direct and indirect) participants of their respective national banking communities. These systems are either strict net settlement systems (Spain), or combine features of multilateral netting and gross settlement (Finland), or features of bilateral netting and real time gross settlement (France). During 2004 these three systems in total processed 8,63 million payment instructions (a decrease of 16% compared to 2003) for a (stable) combined value of €18,2 trillion. On a non-national basis the EURO1 system of the Euro Banking Association (EBA) provides settlement in euro on the basis of a “single obligation” contract to over 70 direct participants. In 2004 EURO1 processed over 44 million payment instructions for a combined value of €44 trillion. 6.3.2.4 Clearing of retail and commercial transactions in the European Union Across the 15 initial Member States there are some 18 retail and commercial payment clearing systems, owned and operated either by banking communities, or by a National Central Bank, or jointly. In addition the EBA operates a retail clearing capability (STEP2) which currently handles cross-border payment instructions within the EU yet is expected to process in the near future some “national” transactions as well, when smaller national clearing houses cease operation as the Singel Euro Payments Area is being established. 136
The existing clearing systems provide clearing and settlement services for electronic payment instructions and cheques to a combined total of over 11,000 direct and indirect participants (not counting third parties e.g. corporates who may input payment instructions directly into a system yet under the responsibility – “sponsorship” – of a direct participant). In 2004 these systems processed a combined total of over 25,6 billion payment instructions for a combined value of €25 trillion (note: no figures were available for the Netherlands). 6.3.3 Initial considerations as regards the US and EU payments markets At first glance any comparison between the US and EU payment systems would seem unfair. Indeed, even if the populations concerned are of a somewhat similar size (294 million in the US vs. 386 million in the EU15) this is about comparing payment systems which have evolved out of completely different historical, legal, regulatory, practice, market and pricing structure legacies. In addition one market has been relying on a single currency for over 200 years, whereas the other market has not only – partially – just migrated to a wholly new, single currency, but also it is not constituted of a single payments market, but of the consolidation of 15 national markets, all with their own legacies. Nevertheless, drawing a comparison is tempting, as we are dealing with the two largest cashless payment areas in the world, and as the European Union has embarked on the SEPA (or Single Euro Payments Area) project aimed at delivering the same level of ease and convenience for customers regardless of the location in the European Union where they make and receive payments. The table hereafter provides a summary of the relative weight of each payment instrument in each area, as well as the respective growth rates for these instruments over the period under review (2000 to 2004). Relative weight (%) Respective growth rates (%) of each payment instrument (2004) over 2000 – 2004 period (average over period) US EU US EU Credit transfers 5.7 24.5 6 5 Debit transfers 6.4 22.8 25 8 Cheques 38.6 10.4 -5 -6 Debit card transactions 21.5 22.8 24 13 Credit card transactions 21.2 5.9 5 9 ATM cash withdrawals 6.5 13.6 n.a. 6 Total cashless transactions 100 100 n.a. 6 Excluding ATM cash withdrawals 93 86 4 6 Excluding cheques and ATM cash withdrawals 54 77 12.5 8 Note: this comparison assumes that the number of cash transactions per capita in the US and the EU are comparable. Evidence to that effect – or to the contrary – is not readily available. 137
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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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5.2.3 Concentration and consolidati
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Page 120 and 121: In sharp contrast, the US mortgage
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