Comments. of the Association of German Banks on the European Commission consultation on Transparency and Fees in Cross-Border Transactions in the EU

Transcription

1 Comments of the Association of German Banks on the European Commission consultation on Transparency and Fees in Cross-Border Transactions in the EU 30 October 2017 Ref. BdB: BT.32 Prepared by: St/By/PC Register of Interest Representatives Identification number in the register: Bundesverband deutscher Banken e. V. Burgstraße Berlin Telefon: Telefax: USt.-IdNr. DE

2 2 Transaction fees 2.1 Non-euro transactions (1) Cross-border transactions in currencies other than the euro can be priced differently than transactions in euro. Do you know the cost of making transactions from your country to other EU Member states in currencies other than the euro? How expensive are fees for making transactions from your country to other EU Member states in currencies other than the euro? 1 (not expensive at all) (very expensive) Market data not available to us. (c) How transparent/clear are fees for making transactions from your country to other EU Member states in currencies other than the euro? 1 (not transparent at all) (very transparent) Fees are set out clearly and transparently in banks List of Prices and Services (Preisund Leistungsverzeichnis) in compliance with the statutory requirements, including, in particular, those set by the EU Payment Services Directive and the EU Payment Accounts Directive. The List of Prices and Services is available through different channels. Seite 2 / 16

3 (d) Could you provide examples of fees that you have paid for such transactions? (e) Should the EU regulate the cost of these transactions or should this be left to individual Member States or the market? It should be regulated at the EU level It should be left to individual Member States It should not be regulated (be left to the market) Pricing (also of banking services) should, in principle, be left to the market. Political intervention is only necessary and admissible should the market fail in this respect. Due to the intense competition in the area of cross-border payments, which features a large number of providers from the banking sector as well as a wide variety of product offerings and pricing models, there is no sign of such market failure. (2) An option is that the Regulation on cross-border payments is fully extended to all currencies of Member States. This would mean that a money transfer to another Member State would cost the same as a similar domestic transaction. Should the scope of the Regulation be extended so that a money transfer to another EU Member State costs the same as a money transfer within the country? If not, what would be the main reasons for not doing so? [Not included in the online questionnaire] The 2001 EU Regulation on cross-border payments governs payments in euros. This prompted the European banking industry, in line with the objective of establishing a European internal market, to create the Single Euro Payments Area (SEPA). This infrastructure measure reduced the cost of processing cross-border payments in euros significantly; it required considerable investment by banks. However, this measure cannot automatically be extended to all Member State currencies. According to the payment statistics compiled by the European Central Bank, cross-border payments as a whole made up just over 2% of the total volume of payments in Germany in These included payments in euros, in other Member State currencies and in third-country currencies such as the US dollar. So non-euro Member State currencies alone will account for a share that is actually well below 2%. Seite 3 / 16

4 For such a small number of transactions, investment costs on the same scale as for SEPA would not be economically justified. Furthermore, the issuer of the currency, i.e. the respective national central bank, is responsible for processing payments in this currency. A measure taken by the European legislator alone would not, for example, make common central clearing in all Member State currencies possible. Yet such central clearing is crucial to achieving the desired reduction in costs. (3) Cross-border transactions in currencies of Member States other than the euro are often priced ad valorem i.e. as a percentage of the total amount transferred. Do you consider that this type of pricing practice make transactions too expensive? What is the rationale behind such a pricing model? In general, this pricing model makes low-value payments less costly than payments involving a higher amount. In addition, some cost and risk factors are dependent on the transaction value and the liability risk costs, for example. (c) Does this practice reflect the internal costs of payment services providers? (4) Often, a minimum fee has to be paid for cross-border transactions in currencies of Member States other than the euro. Is this practice preventing low-value transactions? Very much so To some extent What is the rationale behind this practice? The execution of cross-border payments is subject to fixed costs that are independent of the amount. These include costs for operating correspondent bank accounts and processing costs. Seite 4 / 16

5 (c) Should minimum fees be regulated to avoid disproportionate costs of low-value transactions? (d) What rules on minimum fees would be reasonable and fair, taking into account internal costs? Minimum fees that are cost-covering. (e) What would be the economic or social impact of your proposed rules? The same as today. Consumers are able to make low-value payments at a reasonable price. (5) Sometimes there is no maximum fee for cross-border transactions in currencies of Member States other than the euro. What is the rationale behind this practice? Some cost and risk factors are dependent on the transaction value and the liability risk costs, for example. Is this practice reflecting internal costs of payment services providers? Very much so To some extent (c) Should there be a mandatory cap on fees? (d) If yes, at which amount should this cap be set? [Not included in the online questionnaire] (e) What would be the economic or social impact of such cap Setting maximum prices often leads to the market price quickly moving towards such a maximum price and thus impairing price competition. The Studie zu Dispozinsen/ Ratenkrediten ( Study on overdraft interest rates/instalment credit )* states the following with regard to mandatory usury ceilings for overdraft credit (chapter 13, page 210, our own translation): Setting the interest rate cap could be influenced by political motives that are at odds with the market. Seite 5 / 16

6 Providers could take their lead from the interest rate cap set, and the price of overdraft credit could actually rise as a result. Interest rate caps probably do not lead to lower interest rates on average but merely prevent outliers. With regard to concrete interest rate caps that are designed to influence the market, the study says (our own translation): The state assumes market functions (pricing) that are quite alien to a market economy. If the interest rate caps are set too low for some providers, these may not grant customers with a higher risk of default any overdraft credit or may cut or cancel existing credit lines. If interest margin surpluses are used to cross-subsidise other account-management fees, payments may be made more expensive by the interest rate cap. *Study by the Centre for European Economic Research (ZEW) and the Financial Services Institute (IFF) on behalf of the German Federal Ministry of Food, Agriculture and Consumer Protection (BMELV) ( (6) Markets may be developing solutions to the problem of high costs of cross-border transactions. What market practices or solutions do you know that reduce the costs of cross-border transactions in currencies of Member States other than the euro? Competition and innovation potentially reduce prices for consumers. Should they be encouraged and, if so, how? If these practices should be encouraged, please explain how. New solutions should be market-driven. Legislative effort is not needed. (7) The costs of cross-border transactions in currencies of Member States other than the euro are determined by various factors, including correspondent banking fees, Swift fees and currency conversion fees. What is the weight of each of these factors in the total cost of transactions? Are there other factors that come into play? Seite 6 / 16

7 From the PPI study Zahlungsverkehr im SEPA-Raum verursacht Milliardenkosten (SEPA payments impose billions in costs) ( gastbeitrag-zahlungsverkehr?jjj= , our own translation): Payments in SWIFT format include urgent payments in euros via TARGET, euro and foreign-currency payments within SEPA and classical cross-border foreign payments. With the launch of SEPA, the number of SWIFT-based foreign payment orders dropped significantly. While they previously made up 1% of total payment orders, their share declined to 0.4% following the launch of SEPA. Yet the costs of the required IT infrastructure could not be lowered at the same time. Quite the contrary, increasing compliance-related requirements led to significantly higher costs. And although the majority of banks did not, as a rule, generally overhaul or replace their systems for processing foreign payments and thus no additional write-downs affect their unit costs, the costs of foreign payments are disproportionately high. At EUR 1.8 billion, they make up 24.3% of overall SEPA payment costs (sum total of processing and distribution costs). On average, every order generates unit costs of EUR In addition, cheques, which still account for a large share of payments, cost between EUR 15 and EUR 18 per transaction. Complaints processing is also a significant cost factor. For foreign payments, the complaints ratio is 1% of all orders on average and thus much higher than that for SEPA payments. This is due partly to the still poor banking infrastructure conditions in many developing countries, particularly in Africa and parts of Asia and South America. The average costs per complaint are therefore in the EUR range. (c) What scope is there for reducing such costs and how can this be achieved? Better regulation with a sense of proportion. (8) Are there further comments that you would like to make in relation to cross-border transactions in a currency of a Member State other than the euro? The 2001 EU Regulation on cross-border payments governs payments in euros. This prompted the European banking industry, in line with the objective of establishing a European internal market, to create the Single Euro Payments Area (SEPA). This infrastructure measure reduced the cost of processing cross-border payments in euros significantly; it required considerable investment by banks. However, this measure cannot automatically be extended to all Member State currencies. According to the payment statistics compiled by the European Central Bank, cross-border payments as a whole made up just over 2% of the total volume of payments in Germany in These included payments in euros, in other Member State currencies and in third-country currencies such as the US dollar. So non-euro Member State currencies alone will account for a share that is actually well below 2%. Seite 7 / 16

8 For such a small number of transactions, investment costs on the same scale as for SEPA would not be economically justified. Furthermore, the issuer of the currency, i.e. the respective national central bank, is responsible for processing payments in this currency. A measure taken by the European legislator alone would not, for example, make common central clearing in all Member State currencies possible. Yet such central clearing is crucial to achieving the desired reduction in costs. 2.2 Euro transactions (9) Euro transactions are priced at a very low level in euro countries. However, this is not the case in non-euro countries even though payment services providers offering these services can benefit from the same infrastructures as payment services providers from euro area Member States for transactions in euro. Do you know the cost of making euro transactions in non-euro area Member States? How expensive are fees for euro transactions in non-euro area Member States? 1 (not expensive at all) (very expensive) Market data not available to us. (c) How transparent/clear to you are fees for euro transactions in non-euro area Member States transparent? 1 (not transparent at all) (very transparent) Seite 8 / 16

9 Fees are set out clearly and transparently in banks List of Prices and Services (Preisund Leistungsverzeichnis) in compliance with the statutory requirements, including, in particular, those set by the EU Payment Services Directive and the EU Payment Accounts Directive. The List of Prices and Services is available through different channels. (d) Could you provide examples of fees that you have paid for such transactions (e) Should the EU regulate the cost of these transactions or should this be left to individual Member States or the market? It should be regulated at the EU level It should be left to individual Member States It should not be regulated (be left to the market) Pricing (also of banking services) should, in principle, be left to the market. Political intervention is only necessary and admissible should the market fail in this respect. Due to the intense competition in the area of foreign payments, which features a large number of providers from the banking sector as well as a wide variety of product offerings and pricing models, there is no sign of such market failure. (f) Which elements still justify such a difference in pricing for euro transactions between payment services providers of the euro area and payment services providers outside the euro area? Volume Correspondent banking fees Other (g) Should the Regulation on cross-border payments mandate that euro transactions in non-euro area Member States be priced as domestic transactions in local currency? (h) If not, what would be the best way to bring these transaction costs for consumers to a lower level? [Not included in the online questionnaire] Due to the intense competition, prices are already comparatively low. Seite 9 / 16

10 (10) Are there further comments that you would like to make in relation with cross-border transactions in euro between two Member States of which at least one does not have the euro as national currency? The 2001 EU Regulation on cross-border payments governs payments in euros. This prompted the European banking industry, in line with the objective of establishing a European internal market, to create the Single Euro Payments Area (SEPA). This infrastructure measure reduced the cost of processing cross-border payments in euros significantly; it required considerable investment by banks. However, this measure cannot automatically be extended to all Member State currencies. According to the payment statistics compiled by the European Central Bank, cross-border payments as a whole made up just over 2% of the total volume of payments in Germany in These included payments in euros, in other Member State currencies and in third-country currencies such as the US dollar. So non-euro Member State currencies alone will account for a share that is actually well below 2%. For such a small number of transactions, investment costs on the same scale as for SEPA would not be economically justified. Furthermore, the issuer of the currency, i.e. the respective national central bank, is responsible for processing payments in this currency. A measure taken by the European legislator alone would not, for example, make common central clearing in all Member State currencies possible. Yet such central clearing is crucial to achieving the desired reduction in costs. 2.3 United Nations Sustainable Development Goals (11) The costs of remittances (the transfer of money by expatriates to their home country) can be significantly higher than the goal set by the United Nations. How far is the EU from attaining the goal set in the context of the Sustainable Development goals? To what extent can the market be expected to drive down costs in the foreseeable future, notably through FinTech innovations including virtual currencies? Doctrine holds that more competition will bring down prices. Seite 10 / 16

11 (12) Remittances occur both within the EU and between EU Member States and countries outside the EU. The most important flows of remittances involve countries outside the EU. Should an amendment to the Regulation on cross border payments aim at implementing the UN target and explicitly prohibit fees higher than 3% for all transactions within the EU? Pricing should, in principle, be left to the market. Political intervention is only necessary and admissible should the market fail in this respect. Due to the intense competition in the area of foreign payments, which features a large number of providers from the banking sector as well as a wide variety of product offerings and pricing models, there is no sign of such market failure. Setting maximum prices often leads to the market price quickly moving towards this price and thus impairing price competition (see answer to 5e). Furthermore, a 3% cap is politically motivated and ignores the actual costs incurred, for example, for a payment to a country without any comprehensive banking and account infrastructure. In addition, it is not clear to us how a bank can ascertain a customer s status (migrant/non-migrant). With regard to non-eu countries, should the target be achieved through action at EU level or should this be left to individual Member States or the market? It should be regulated at the EU level It should be left to individual Member States It should not be regulated (be left to the market) Pricing (also of banking services) should, in principle, be left to the market. Political intervention is only necessary and admissible should the market fail in this respect. Due to the intense competition in the area of foreign payments, which features a large number of providers from the banking sector as well as a wide variety of product offerings and pricing models, there is no sign of such market failure. Seite 11 / 16

12 (c) In particular, should the Regulation be amended to apply also to remittances between Member States and third countries? (d) Should another EU instrument be envisaged? Establishment of an EU-wide online price comparison portal for remittances along the lines of the GeldtransFAIR portal already in place in Germany, which was set up by the German Federal Ministry for Economic Cooperation and Development (BMZ). (e) What actions could non-eu countries take in particular with regard to limiting the costs of crossborder transactions? Establishment of an international online price comparison portal for remittances along the lines of the GeldtransFAIR portal already in place in Germany, which was set up by the German Federal Ministry for Economic Cooperation and Development (BMZ). 3 More competition in currency conversion (13) Currency conversion can be done for the consumer by the payment services provider (PSP) of the consumer/payer, the PSP of the payee or a dynamic currency conversion provider working with the merchant or ATM operator. How big are the differences in the costs between these various options? Which one is less costly for payment services users? Detailed information on cost differences is not available to us. We assume that conversion by the payee s PSP is less costly. How are currency conversion costs priced by payment services provider and what is the usual pricing model applied? Seite 12 / 16

13 (c) How aware are consumers of the different options for currency conversion that exist and their prices? 1 (not aware) (fully aware) (d) How empowered are consumers to make the best choices for service provider for currency conversions? 1 (not empowered at all) (fully empowered) (14) Better information would allow consumers to choose the most advantageous currency conversion option. Are the current transparency and information obligation regarding currency conversion in title III of the Payment Services Directive fully complied with when consumers are making cross-border transactions? Very much so To some extent Issuing banks have implemented the legal obligations. Are the transparency and information obligations regarding currency conversion in title III of the Payment Services Directive sufficient for consumers nowadays? Very much so To some extent Issuing banks have implemented the legal obligations. Seite 13 / 16

14 (c) If changes are needed, what could be the changes required and in which time frame? Question is addressed to consumers, as issuing banks comply with transparency requirements. (d) Could real-time exchange rate quotation and estimates of real time final fee/price quotation be a reasonable target for all currency conversion service providers? Very much so To some extent Global card payment infrastructure does not provide this information. (e) Could, over the longer term, terminal upgrades be envisaged to provide this information to users? Very much so To some extent Global card payment infrastructure does not provide this information. (f) How much time would be required to implement these changes? Less than 3 years 3 to 5 years More than 5 years (g) Should ancillary transparency measures be taken on the technical side (e.g. imposing obligations on currency conversion service providers or users banks to offer publicly available online calculators and applications on currency exchange) No ancillary measures are required. Seite 14 / 16

15 (15) Dynamic currency conversion (DCC / option to pay or withdraw cash using a service converting the amounts into their home local currency see explanation in opening paragraph) could, in principle, provide more choice for consumers and bring more competition into the market for currency conversion. How justified are concerns about DCC services misleading consumers towards more costly currency conversion options? Information not available to us. Are there situations in which DCC services enhance competition and allow consumers to benefit from better currency conversion deals? (c) Please provide examples of good practices. Information not available to us. (d) If this is not the case, should DCC services be banned or are there ways in which it could be ensured that they benefit consumers? (16) DCC users may not be aware that merchants proposing the service may receive as a reward part of the margin earned on the transaction through the DCC service provider. Should consumers be made aware of the interests of merchants/atm operators to promote their own DCC services? (17) It may be technically too difficult to provide full information on the different currency conversion options at the point of sale or cash dispenser. Could merchants or ATM operators be obliged to reimburse customers making a payment within the EU if the currency conversion they proposed was not economically beneficial to their customers? Seite 15 / 16

16 How could a consumer be made aware of the prejudice suffered as a result of having been oriented towards an unfavourable currency conversion option? We cannot always protect customers against decisions that may be financially detrimental to them. Providers should instead merely make available, prior to any transaction, the information required for an informed decision by the customer. (18) EU consumers travelling to countries outside the EU and non-eu consumers travelling in the EU may also face high currency conversion costs. What measures could be envisaged to protect EU consumers against high currency conversion charges in third countries and should such measures be taken? General information by issuing banks on currency conversion. What measures could be envisaged to protect non-eu consumers staying in the EU against high currency conversion charges and should such measures be taken? (19) Are there further comments that you would like to make in relation with currency conversion or DCC services? Seite 16 / 16