According to recent studies, around 30 million consumers over the age of 18 in the European Union do not have a bank account. Out of these 30 million ‘unbanked’ citizens, it is estimated that between 6 and 7 million do not have a bank account because they have been denied access to one. These individuals cannot currently benefit fully from the Single Market. Today’s Recommendation from the European Commission on access to a basic payment account will promote financial and social inclusion for consumers across Europe. The Commission invites Member States to ensure that such accounts become available at a reasonable charge to consumers, regardless of their country of residence in the EU or their financial situation. It will assess the situation in one year’s time and propose any further measures as necessary, including legislative measures.
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1. What does this Recommendation cover?
The aim of this Recommendation is to ensure that any consumer who does not have access to payment services can open and use a basic payment account at a reasonable charge. His financial situation and his place of residence should not be used as an excuse to refuse him access to a basic payment account in a Member State where he seeks to open such an account. However the Recommendation only covers individuals who are legally resident in the European Union and who wish to have an account for personal purposes, i.e. not for activities linked to their trade, business, craft or profession.
2. Lack of access to payment services – what is the scale of the problem?
The situation regarding access to a bank account varies widely across the EU, particularly between Member States who joined the EU before 2004 (EU15) and those who joined since then (EU12).(i). Studies and polls available on this subject indicate that about 7% of EU consumers – approximately 30 million adults – do not have a bank account (ii).
As banks generally do not keep data concerning applications which they have turned down, it is difficult to have precise figures but it has been estimated that out of those 30 million consumers, between 6 and 7 million (iii) do not have a bank account because they have been denied access to one. The main reasons are that they do not fulfil certain eligibility conditions, some of them stemming from legal requirements (e.g. identity checks), or from industry practices and requirements (residency requirements, proof of income, profitability, risk assessment, credit history etc.). This does not mean that only 7 million consumers will benefit from the proposal: the creation, accessibility, suitability and affordability of such a product will encourage other people to avail of the service too.
Another issue which is not covered by the figures cited above is the needs of people who travel to and temporarily reside in another Member State as they often face difficulties opening a bank account in the host Member State. From the complaints received by the European Commission, it is obvious that this problem exists in several countries (iv).
3. What kind of services will a basic payment account offer?
A basic payment account should enable the consumer to deposit and withdraw cash, to receive payments (e.g. salary, benefits, pension including by means of credit transfers) and to execute payment orders (e.g. paying bills, purchasing goods and services, transferring money to third parties including by means of direct debits). A payment card should be included, enabling the withdrawal of money from ATM machines and the purchase of goods and services from either physical providers (e.g. grocery store, petrol station) or online merchants (e.g. books, hotel bookings) who accept debit payment cards. Access to online banking services should be provided where technically possible.
While ordinary payment accounts often include overdraft facilities, a basic payment account should not allow for a negative balance on the account.
Payment service providers (mostly banks) should not be prevented from adding other services to a basic payment account, except overdraft facilities which are prohibited (see also question 13). However, access to a basic payment account should not be made conditional on the purchase of additional services by the consumer.
The characteristics of basic payment accounts are defined in the Recommendation in a sufficiently broad manner to allow for product innovation and commercial freedom, while guaranteeing that, at the end of the day, the consumer really has the possibility to carry out essential everyday payment transactions. The determination of the specific features of basic payment accounts is left to Member States and payment service providers, depending on the national provisions adopted by Member States.
4. What will change for “unbanked” consumers thanks to this initiative?
Unbanked consumers are people who do not have access to mainstream financial services. This Recommendation will ease the conditions that unbanked consumers have to meet in order to have access to essential payment services. Grounds such as nationality, place of residence in the Union, expected profitability, employment status, or minimum number of transactions to be carried out in the future should not be valid reasons for refusing access to a basic payment account to a consumer. Nevertheless the applicant should still have to comply with requirements pertaining to the anti-money laundering legislation, in particular identification requirements.
5. What impact will this Recommendation have on payment service providers?
Determining which payment service providers – or which category thereof – should be in charge of providing basic payment accounts at national level is left to the discretion of Member States, on condition that the accounts are effectively available to consumers within their jurisdiction. Consequently, Member States could designate one, several or all payment service providers. By doing so, they should take into consideration their geographical location or market share.
Whilst the development of basic payment accounts might require additional investment from payment service providers, it will also offer them access to new customers and will improve their image.
6. Does the Commission define a specific maximum price that consumers should pay for a bank account?
It is not the intention of the Commission to recommend a specific price level for basic payment accounts. However it is necessary at EU level to ensure that the total amount to be paid by the consumer should be such that he is not prevented from opening a basic payment account and using its associated services.
This principle should be implemented by Member States in the light of their specific national circumstances. Member States are invited to refer to such criteria as national income levels, the average charges associated with payment accounts in the Member State, the total costs relating to the provision of the basic payment account, and national consumer prices. Member States remain free to introduce compensation mechanisms for payment service providers, if justified.
7. How does the initiative address the fact that many consumers choose not to have a bank account?
Lack of access to a basic payment account is both supply- and demand-driven. However, demand is influenced by the availability of suitable products as well as by the criteria applied by providers. If consumers perceived as commercially unattractive or risky to providers are not offered suitable products to meet their needs, they are obviously not in a position to access them effectively. That is why the Recommendation focuses mainly on the supply side while requiring the availability of a certain type of account.
The reasons for ‘voluntary exclusion’ from accessing a bank account vary and include factors such as low levels of financial education, lack of awareness, and mistrust of providers. It is expected that this initiative will be one of the factors that will contribute to the gradual reduction of the ‘voluntary’ unbanked consumers. The Recommendation also addresses the demand side while requiring information to be given to the public in general about the availability of basic payment accounts, their main characteristics and how to proceed to benefit from such accounts.
8. Why not limit access to basic payment accounts to the consumer’s country of residence?
The aim of this Recommendation is to enable those consumers who want to open and use a payment account but are not offered suitable products in the mainstream financial markets to access basic payment services for their everyday payment transactions.
Residency should not be used as a barrier to accessing essential payment services for those who need them. For many years, the Commission has been receiving letters from citizens who are refused a bank account for the only reason that they are not resident in the country concerned. Such consumers are often, but not exclusively, temporary workers, students, and trainees temporarily or partially residing in the host Member State. In the Commission’s view, consumers are unlikely to open a basic payment account in a Member State if there isn’t any genuine rationale for them to enter a banking relationship in that Member State. As far as the risk for criminal exploitation of the financial system is concerned, such practices are covered under the Directive on the prevention of anti money laundering and terrorism financing.
9. The Commission recently proposed a regulation to accelerate the completion of the Single Euro Payments Area (SEPA). Against this background, is there a need for an initiative at European level on basic payment accounts?
The SEPA aims at ensuring that one bank account will be enough to carry out all national and cross-border electronic transactions in euro. However, SEPA is not completed yet. If SEPA has a potential to respond to the issue of access to cross-border payment services within the Euro-zone, it would not be a solution for consumers who can’t access payment accounts within their own national borders. Moreover when consumers move temporarily to another Member State, if the latter does not belong to the Euro area, it may still be more beneficial for them to open a bank account in that Member State. Furthermore, while SEPA has been created to eliminate any distinction between national and cross-border payments in euro, consumers cannot benefit from its advantages if they are deprived of a payment account. It thus follows that the two initiatives complement and reinforce each other: access to a payment account facilitated by the proposal on basic payment accounts will also allow the consumer to reap the benefits offered by SEPA and SEPA’s overall value will be enhanced as more consumers acquire the possibility to use it and benefit from it.
10. The Commission announced few months ago that it would bring forward a legislative initiative on access to basic payment account. But it has adopted a Recommendation. Does that mean that the Commission considers the issue as less important now?
The Commission believes that every European consumer should have access to a payment account with essential characteristics and functionalities as a minimum. Convergent standards as regards the provision of basic payment accounts throughout the Union are key, not only as a step towards creating a more efficient and competitive single market but also in order to promote financial and social inclusion in the future. That is why the Commission committed to work on the issue of access to basic payment accounts.
Having considered all possible policy options, the Commission decided, at this stage, to opt for a Recommendation. A Recommendation presents the advantage of sending a clear message to Member States as to what actions are expected to remedy the current market deficiency, while leaving sufficient flexibility at national level as to how to achieve this. By setting the objectives to be attained, it should act as a catalyst for the development of consistent principles to be applied throughout the European Union.
The Commission approach is therefore progressive. Member States are invited to take measures within six months. The situation will be reviewed in one year’s time. Should it remain unsatisfactory, the Commission will consider proposing binding measures to meet its objective.
11. Granting access to or closing a payment account is a commercial decision. Why is the Commission willing to interfere in the contractual freedom of payment service providers?
Evidence has shown that consumers happen to be denied access to regular payment accounts as a result of industry practices when it comes to the financial situation of the consumer and his place of residence in the Union. Such denials are conducive to high level of consumer detriment, leading to negative impacts on the internal market and the whole society.
This Recommendation does not state that payment service providers will have to accept any application from an individual in any case: it focuses on what is strictly necessary to enable consumers to use payment services. It concerns a specific product for a specific targeted population. Besides payment service providers will not be prevented from refining their offer in connection with the basic payment account.
12. With this Recommendation, does the Commission intend to lower the identification standards imposed on payment service providers?
The Recommendation invites Member States to take the measures necessary to ensure that it is no longer possible to impose restrictive criteria as an excuse to limit access to basic payment accounts according to what providers understand as their obligations under the Anti-Money Laundering and Terrorist Financing Directive (AMLTFD). That does not mean that due diligence requirements under the AMLTFD will be watered down. They will continue to apply.
13. Why not include access to overdrafts? Certain types of credits such as a buffer zone of a minimum amount for withdrawals may be useful for consumers.
While granting access to certain types of credit such as an overdraft facility would seem positive at first sight, it would in reality not achieve the objective of ensuring that a product designed for consumers perceived as commercially unattractive is offered throughout the Union. While the Commission acknowledges that a buffer zone for withdrawals might be useful for those people who have a hard time making ends meet at the end of the month, it believes that allowing for an overdraft facility even for a small amount would not help the case of wide accessibility to basic payment accounts.
In order to grant a credit line, providers would need to carry out a risk assessment. Therefore, this product would not meet the needs of consumers with poor credit histories, people in debt or who are unemployed or on low incomes. Similarly in the case of non-residents, the lack of access to credit histories would prevent banks from offering them such a product.
On access to other types of credit for consumers holding a basic payment account, the Recommendation does not prevent payment service providers from offering credit agreements to such consumers.
14. How does the Commission envisage improving the availability and comparability of data as regards access to banking services in the EU?
The Recommendation invites Member States to compile reliable data on the number of basic payment accounts opened, the number of applications for basic payment accounts refused and the grounds for such refusals, the number of terminations of basic payment accounts as well as the charges associated to basic payment account, on an annual basis.
Notes
i : On average, 91 % of the adult population in the EU12 holds a bank account, compared to 97 % for the EU15. In the case of Romania and Bulgaria, only around half of the adult population has a bank account. Flash Eurobarometer 282
ii : Study on the Costs and Benefits of Policy Actions in the Field of ensuring access to a Basic Bank Account, Centre for Strategy and Evaluation Services, July 2010, p.80.
iii : Impact Assessment, p.21. http://ec.europa.eu/internal_market/finservices-retail/inclusion_en.htm
iv : Over the past three years, the Commission services have received complaints concerning payment service providers in Austria, Belgium, Czech Republic, France, Germany, Italy, Ireland, Luxembourg, Netherlands, Poland, Portugal, Slovakia, Spain and United Kingdom.
Source: European Commission
