Prof. Dr. Włodzimierz Szpringer Warsaw School of Economics and University of Warsaw

1. Prof. Dr. Włodzimierz SzpringerWarsaw School of EconomicsandUniversity of Warsaw Customer Loyalty v.Mobility in Relation to Bank Accounts. Is It a Real Issue on the Background of EU-Social Inclusion Process?

2. Session I • Overindebtedness and Social Inclusion

3. Social inclusion • National Social Inclusion Programm, Task Force for Social Inclusion – to be effective? • Passive rather than active policy of social inclusion in Poland • Mixture of social care and consumer protection (usury) • Not proper addressed, wide-dispersed, weak and not systemic measures, so without essential effects (unemployment benefits, social or church charity) • No tax reliefs for families with children, no adequate public support for education, no reasonable policy for start-ups and smes, no accesible public health care • Counteracting digital divide but still poor Internet acces and computational skills • Market-oriented policy, risk-oriented society, rapid economic growth and liberal policy as background • Economic analysis of law or legal analysis of economy? – not only economic efficiency determines the quality of life • Financial stability – social inclusion – lifelong dignity - quality of life

4. Social exclusion • No adequate definition of social exclusion or overindebtednes • No special care for vulnerable consumers, the Directive 29/2005 – without result? • No account for all (credit scoring as obstacle), no social credit, discrimination of the poors, predatory lending • Excessive, aggressive marketing strategies on the financial market • Financial education urgently needed, • Transparency should be reasonable – information overload makes financial services expensive • Usefullnes of information for customers – the key issue (knowledge, skills, confidence) • Financial education can not replace the quality of (and acces to) adequate financial services • Concept of the activity in the foreground of the consumer bankruptcy (financial education, responsible lending and borrowing)

5. Overindebtedness • Over-indebtedness is usually defined as the inability of a debtor to meet all his/her debts which become a major burden for him/her • Financial exclusion is usually defined as non-access to mainstream financial products • Interdependencies • Weaknesses: • . No clear link with social exclusion and vulnerable consumers • . Reference to mainstream providers • . No consideration given to use difficulties

6. Social consequences - . „Financialisation of relations” • . Bank account, means of payment and creditare social needs • . Inappropriate perspective of access: “mainstream financial products” are not a cure of social exclusion • . Inability and inappropriateness:cause of access difficulties: - Supply side: selection - Demand side: self-exclusion

7. A new definition: • Financial exclusion is the process whereby people encounter such access and usedifficulties that they can no longer lead a normal life • Over-indebtedness as a consequence of financial exclusion and/or a result of access and/or use difficulties • Overindebtedness is mainly a consequence of financial exclusion creates access difficulties to credit as well as other financial services • Overindebtedness is mainly the problem of vulnerable consumers („credit for needs”) • However, overindebtedness can be an effect of light-minded lifestyle of mainstream consumers („credit for convenience”)

8. Open Coordination Method • NATIONAL REPORT ON STRATEGIES FOR SOCIAL PROTECTION AND SOCIAL INCLUSION FOR 2006-2008 Ministry of Labour and Social Policy • Document approved by Polish Government on the 9th of October 2006

9. NATIONAL ACTION PLAN ON SOCIAL INCLUSIONKey challenges and leading objectives • Support for families with children • 1. Development of the integrated family support system • 2. Development of the income support system • 3. Supporting reconciling work and family life • Inclusion by activation • 1. Reform of tools and instruments for active inclusion • 2. Development of the public-social partnership • 3. Development of the social economy institution • Mobilisation and partnership • 1. Programming of social inclusion policy • 2. Integration and development of social services • Better governance • 1. The process of the development of the National Action Plan on Social Inclusion • 2. Policy coordination • 3. Mobilisation and involvement of partners 4. Mainstreaming social inclusion • 5. Monitoring and evaluation arrangements

10. GOOD PRACTICES IN THE AREA OF SOCIAL INCLUSION • Social employment • System of family benefits • Governmental Programme – Civic Initiative Fund (CIF)

11. Analysis of poverty and social exclusion.Areas of activities: • - pensions, • - health care and long-term care • -optimizing access to benefits leading to early employee deactivation. • improving farmers’ social insurance system. • - reform of the disability pension system • reform of tools and instruments for active inclusion • activating formula of social welfare benefits - new application of social tools • activation and inclusion of the disabled • defining the terms of public utility social services • unifying the procedure for contracting public utility social service tasks • improving the effectiveness of co-operation between • public entities and non-governmental organisations • in the performance of tasks

12. Creation and retention of new jobs and reducing unemployment. Activities within this priority include: • Reducing the charges imposed on employees with the lowest income. • Implementing new organisational and financial solutions in order to increase access to labour market services provided for the benefit of the unemployed, job seekers and employers. • Increasing the range and quality of services provided by the county and voivodship labour offices. • Better information about labour market. • Activation of members of the groups particularly underprivileged on the labour market. • Professional activation of the disabled. • Increasing the flexibility and diversification of employment forms and work organisation. • Investing in human capital.

13. Session II Customer Mobility

14. Special importance of bank accounts • Bank account is „framework contract” which becomes a „customer`s gateway” • Bank account is without time-limits • Bank account is met most frequently as bank product on the market • Bank accounts give chances of bundling and tying

15. Current account for everybody? • Mandatory conclusion of a current account agreement needed • Defining the functioning of a current account and related services • Should this be deleted in light of Article 30 of the PSD?

16. What kind of account for everybody? • current accounts, including payment facilities attached to the latter (credit transfers, direct debits and cash withdrawal), and • simple savings accounts (excluding savings such as securities accounts or life insurance) • obstacles and solutions are the same or similar as for current accounts.

17. Exclusion criteria to acces to bank account • Without any exclusion • (Czech Republic, Iceland, Malta, Sweden, Spain, Slovenia, Switzerland, the Netherlands), • Exclusions by lack of identity card and/or negative registration and/or low income • (Belgium, Norway, Italy, Portugal), • Exclusions by negative registration and/or low income • (Austria, France, Germany, Hungary, Luxemburg) • Exclusions by lack of identity • (Finland, Greece, Irland, Lithuania, Slovakia, UK).

18. Most frequent reason for refusing the opening of an account • The insufficient knowledge of the customer • The non-compliance with the: - “know-your-customer” rules - anti-money laundering rules

19. Information asymmetry • Financial services as „trust goods” • Complexity of products and limited signalling • Bounded rationality and inertia of consumers` choices • Unproper proxies (reputation) as substitute of proper proxies (prices and conditions)

20. Are banks always interested in overcoming the information asymmetry? • Free riding problem when near-banks or other financial intermediaries come to the market as competitors of banks. • Are better informed consumers able to diffuse the adequate information among other ones? • The creditors rely on probability on the basis of determining the market offer and the credit risks • The “good” consumer receives the credit which is “too expensive”, the “bad” one – has “too advantageous” conditions. • The individual valuation of the particular customer does not play the main role („rationing” of credit)

21. The market for “contracts patterns” (statutes, interior rules and regulations). • Because of the lack of transparency there is no real quality competition among banks. • Potential creditors which offer better credits must decrease the quality because in the other cases they do not have profits. • They offer the average quality with reasonable price which can be accepted by customers. • The trend to decline standards - „market for lemons“ or „adverse selection“. • The activity on the banking market of several information intermediaries (the economic newspapers, internet financial portals) mitigates the problem.

22. The third (“middle”) way approach to consumer credit regulation: • Attempt to empower consumers in market (information) controls on catastrophic risks and – simultaneously – protect individual autonomy, • Recognize importance of achieving affordable, accessible and „productive” credit for all • Address overindebtedness through a wide variety of preventive and regulatory measures, • Draft regulation as multifaceted, hybrid, influencing (facilitating) market interactions rather than merely policing infractions.

23. To address the imbalance of power between credit providers and consumers should be achieved by: • educating consumers about credit services and their rights, • promoting independent information and advice, • providing consumers with adequate information in the form of standard disclosures, so they can make informed decisions, • protecting consumers from deceptive, unfair and fraudulent conduct by credit providers, credit agencies, debts` collection firms • improving the accuracy and appropriateness of information of credit agencies, and the regulation of them, • preventing consumers from getting into too much debt and providing mechanisms for resolving overindebtedness, and • providing an adequate (out-of-court) dispute resolution system.

24. Mobility substitutes • Multi-banking (customer has more than one bank account) • Shopping around (buying other products in other banks where there are more convenient prices and conditions) • SEPA (going to study or to work abroad nobody must open the new account in the host country) • In consumer finance services customer`s strong preference to have a bank near home • Internet, IT technology, distance selling

25. Three scenarios: • National switching • Cross-border switching • Cross-border opening: • With physical presence, • Without physical presence

26. Barriers of mobility: • Information assymmetry, • Bundling and tying, • Administrative burden, • Closing charges

27. Bank strategies • Focus on domestic provision of bank services, • Expansion cross-border by joint-ventures, • Expansion cross-border by take-overs of local banks, • Expansion cross-border by focused penetration, • Expansion cross-border by selling across borders • The role of factual and legal barriers in a „target country”: (e.g. Competition law, privacy law)

28. Consumer experts: • The transparency – key issue • The issue of transparency should be addressed at EU- level • Binding measures are needed to provide consumers with clear, transparent, and comparable information • Legislative measures obliging banks to provide consumers with a list of charges for retail banking products in branches and on the banks' websites • Consumers should be informed about the prices of the services before they actually use them, as a general rule, free of charge • The creation of a public domestic glossary of retail banking vocabulary in order to facilitate customers' understanding of the terminology ("same words for the same services”) • Examples: PattiChiari (Italy), TestAchats (Belgium), Price-Display-System-List (Germany), Banking Glossary (France)

29. Banking experts • The transparency – key issue • However, the transparency should be addressed at national level either, preferably through voluntary initiatives of the private sector (self-regulation) aimed at improving financial literacy of customers or providing comparability tools in order to facilitate their choice of the provider • Several informations „on request” rather than automatically • Information charged adequately if frequently requested

30. Principle-based Directive? • Obliging banks to provide consumers with yearly statements of bank charges which they have actually paid (both fees and interests) in order to create post-transparency • Providing that a database comparing prices of products/services should be made available for consumers in order to create overall pre-transparency

31. Information before or immediately, obligatory or „on request”? • customers should have access to accurate current account statements • showing banking operation charges on a regular basis (e.g. on a monthly basis), • Consumers should be informed about bank driven modifications to price lists, 3 months before the application of new prices. • Market driven modifications (linked to changes in interest rates, for instance) could apply immediately • Provided they are linked to an independent index and customers are informed immediately of the changes. • Delete in the light of Article 33 of the PSD (2 months)?

32. Common symbology? • A common symbology to inform retail customers of the services included in a bundle, in order for them to compare packages • Otherwise proxies (e.g. reputation) substitute prices and conditions: consumers are not well-informed • However, many experts are not clear on what 'symbology' means and how to harmonize it

33. Financial education programmes • National authorities are strongly encouraged to develop and provide financial education programmes • Three dimensions of consumer financial capability: knowledge – skills - trust • Suited toa range of age groups and life-cycle-approach (school children, young people, families and older people) • To enhance the skills of these groups in respect of financial decision making • central banks should disclose information about interest rates on bank level, which would give customers information about real prices (MFI-statistics)

34. A review needed? • A review identifying existingregulatory information requirements, at both domestic and EU level, in respect of the products • The information so provided should then be subject to scrutiny from an educational and psychological perspective • To see howto address best the issue of information overload versus transparency • Who should bear the cost of adequate and reasonable transparency?

35. Solutions at national level should necessarily encompass: • payment providers should report on a defined set of tariffs quarterly, while each change of prices/introduction of a new service should be reported to the national regulator • comparative tables should include for instance: payment instruments, tariffs of traditional/electronic/phone banking, cancellation fees, national/international transactions, debit/credit card operation tariffs, link to the price lists on providers’ websites • a modelling tool should be provided, simulating yearly cost of operations typed in individually by the consumer using the tool, thus delivering a price comparison according to the needs of an individual consumer (for instance Test-Achats, Belgium) • in order for this information to be consumer friendly, consumer associations should be involved in the national solutions, either by providing the same information as the regulator or providing the information on their own, or in liaising with the providers. • consumer organisations should be given the appropriate means if necessary to fulfil these missions.

36. Tying or bundling? • Tying occurs when two or more products are sold together in a package, and at least one of them is not sold separately, • Bundling means selling two or more productstogether in a package, they may only be available as a bundle (pure bindling), or separately but offered as a discount relative to their individual prices (mixed bundling)

37. Tying or bundling? • the consumer, when offered a bundle of products, should also be informed about the price of the different products when offered separately • information should be provided to the consumer about the precise consequences of terminating the contract for the bundle or one or several of the products constituting the bundle (necessary steps he has to take to terminate the contract/transfer the product(s), maximum time taken for closing/transferring, termination or transfer costs) • the price information should include the information on the bundled product. For example when it is required to open a bank account in order to obtain a consumer credit, the cost of bank account should be part of the APRC. • also the cost resulting from the early repayment or withdrawal from the contract should include the cost of closing the bank account. The same should apply in case of credit/debit card insurance and savings/investment accounts, when they are bundled with the bank account. • according to consumer experts tying shoud be prohibited, but it must be cleared precisely what tying is (e.g. current account + payment card is a usual issue)

38. How to facilitate switching? • facilitation of customer switching should be left for competition between banks in gaining new customers. • each bank should produce a switching guide, explaining the steps that a consumer needs to take if he wishes to switch accounts. • pragmatic sample forms can be provided in order to facilitate the process, i. e. sample letters to credit or debit originators. • according to consumer experts switching codes should be available in all Member States • a minimum standard for switching services should be set by means of a regulation, which should be based on identification of existing EU best practices (e.g. Dutch or Irish model). • need for definition?. A general idea is that it involves some more assistance to consumers by banks than only information and provision of relevant forms.

39. The standards of interbank switching service should be: • a precise description of the steps to be taken, who is responsible for them and the maximum amount of time they will last • the consumer contacts the new bank and informs it about his intention to switch • the information on the switching service should be provided in bank offices, bank web-pages and when the customer opens his account • the new bank opens a bank account for the consumer, informs the old bank on the consumer’s intention with a standardized form • the old bank informs the direct debit originators, sends a list of direct debits and standing orders to the new bank, transfers the account balance and closes the account • the new bank reinstalls the standing orders and direct debits with the consumer’s consent • In case of SEPA instruments, the old bank sends the consumer exact instructions on how to report the account switching to the creditors

40. Cross-border opening – information? • binding measures for promotion of accessible information for European consumers on banking institutions, which provide basic banking and payment services. • the promotion of bank websites in more than one linguistic version, especially regarding fees, main contractual conditions and contact forms. • a structured network, which would centralise relevant information on banking customers, such as incapacity of honouring overdraft facilities or misuse of means of payment, is created (a network already exists (ACCIS)? • a unique mobility form, to be filled in by a customer's bank, which would include relevant and useful information on the customer's ability to contract. This unique mobility form could be used as an instrument to promote cross border mobility without physical presence of the customer. • access to national credit databases (negative and/or positive) should be open to every bank within the EU, which intends to open accounts and credit to persons from another Member State.

41. Cross-border opening – real issue? • Identification – crucial issue for cross-border opening of bank accounts - money-laundering provisions are the main obstacle • Certainty in areas of e-commerce and digital signatures is critical for true cross border banking (no uniform standards exist) • The Commission could propose legislation allowing customers to open an account throughout the EU by means of a qualified electronic signature. • the Commission and national authorities explore whether T.I.N (Tax Identification number) could be made a direct proxy for residence under Savings Tax Directive in order to remove address verification requirements which impede new bank account opening.

42. Account number portability - Swedish „Bankgiro” as the model? • Swedish "Bankgiro" system isnot an example of a bank account number portability. It is an example of number portability, since the number that is portable is a "Bankgiro" number and not an underlying bank account number • The introduction of portable bank account numbers would mean that the current IBAN and BIC standards would have to be replaced. This would impose an unacceptable burden on both banks and customers • Complete conversion of customer databases at both: banks and other commercial undertakings, replacement of all payment cards, alteration of customer letterheads containing account numbers, etc. • The costs would probably outweigh the benefits • Account number portability: Obligatory or not? Who will bear the cost?