STUDY OF THE IMPACT OF REGULATION 2560/2001 ON BANK CHARGES FOR NATIONAL PAYMENTS

Transcription

1 STUDY OF THE IMPACT OF REGULATION 2560/2001 ON BANK CHARGES FOR NATIONAL PAYMENTS FINAL REPORT PROJECT N MARKT/2004/11/F LOT 2 Prepared for the EUROPEAN COMMISSION Internal Market and Services Directorate-General Retail Banking Research Ltd London, September 2005

2

3 DISCLAIMER This Report was produced by Retail Banking Research Ltd, acting as consultant to DG MARKT of the European Commission. The views expressed in this Report are those of the consultants. These views have not been adopted or in any way approved or endorsed by the Commission and should not be regarded as a statement of the views of either the European Commission or of DG MARKT. Although the information and opinions contained in this report were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to their accuracy and completeness. All information and opinions are subject to change without notice. COPYRIGHT Copyright European Communities, Reproduction is authorised except for commercial purposes provided that the source is acknowledged.

4

5 TABLE OF CONTENTS EXECUTIVE SUMMARY...i 1. INTRODUCTION Context Objectives of the Study Scope Structure of the Report Methodology Terminology and Definitions OVERVIEW OF STUDY FINDINGS Credit Transfers Payment Card Purchases Cash Withdrawals at ATMs Evolution of Price Indices Conclusions INDIVIDUAL COUNTRY FINDINGS Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Denmark Sweden United Kingdom APPENDICES A. Organisations Contacted During This Study B. Glossary of Terminology C. Structure and Concentration of National Banking Markets... 65

6

7 EXECUTIVE SUMMARY Context and Objectives EC Regulation 2560/2001 establishes the principle of equality of charges for payments within Member States (national) and between Member States (cross-border). The Regulation has applied to ATM cash withdrawals and purchases by payment card since July 2002 and to credit transfers since July The base principles enshrined within the Regulation are the non-discrimination between corresponding national and cross-border payments made in euro on the basis of price and the requirement on institutions who offer cross-border payment services to provide customers with readily comprehensible ex-ante information on charges levied for affected payments. This study sets out to assess the impact of the implementation of the Regulation on bank charges levied for national payments made within a Member State. Throughout this report, therefore, all commentary relates to national transactions unless specified otherwise. Study Findings Banks across Europe are following increasingly differentiated pricing strategies, intended to discourage customers from using less cost-efficient service solutions and rewarding those costumers who use the most cost-efficient service delivery channels. Many would argue that such a pricing model results in charges, which reflect the true cost of service provision more correctly. For example, non-standardised services, requiring manual intervention at the teller or using competing banks ATMs tend to incur higher fees than internet-based services or using the bank s own ATMs. The trend towards price differentiation appears to have intensified in recent years. Banks cite a number of potential factors which have contributed to this evolution, ranging from increasing competition, price transparency brought about by the internet and regulatory pressures to improved technology and infrastructure. While price differentiation makes intertemporal price comparisons difficult, this study has found only limited evidence of price increases since the implementation of Regulation 2560/2001. Some banks argue that charges have become more differentiated and that minimum fees in many cases have either remained stable or even fallen in some cases. Consumer associations often take the view that many banks are now charging customers for services, which used to be free. It should be stressed that while it is not feasible to statistically isolate the impact the implementation of Regulation 2560/2001 has had on charges for national payment services, this study has found only limited evidence of price changes, which could be partially attributed to the Regulation. The area where the Regulation appears to have had the clearest direct impact is in terms of not-on-us ATM charges, whereas we have found no strong evidence in support of a causal relationship between the introduction of the Regulation and increases in charges for national credit transfers or payment card purchases. Differences in pricing structures across Member States mean that international comparisons are subject to considerable uncertainty. EXECUTIVE SUMMARY Report prepared by Retail Banking Research Ltd Page i

8 Credit Transfers Charges for national euro-denominated credit transfers have remained largely unchanged in half of the eurozone countries since Banks have introduced differentiated pricing in order to encourage customers to use more cost-efficient service delivery channels, such as the internet. Charges for STP (straight-through-processing) transactions are frequently free of charge for consumers whereas paperbased transactions tend to incur a fee. Business customers will typically always pay a transaction fee. Customer in France, Greece, Italy and Spain are likely to pay the highest charges for making national credit transfers with typical minimum charges ranging from 2 to 12. International price comparisons are, however, made difficult by the fact that national pricing structures differ significantly. The study has found some, albeit limited, evidence suggesting that the Regulation may have impacted the increases in credit transfer fees identified in Italy, Luxembourg and Spain. The introduction of the Regulation in July 2003 does, however, not appear to be the only contributing factor and it has not been feasible to isolate its direct impact on charges. An additional difficulty in isolating the influence of the Regulation is the tendency of banks in certain countries (e.g. Austria, Germany, Luxembourg) to charge bundled account fees, which include a number of free transactions. Payment Card Purchases Cardholder charges relating to card purchases at POS have not changed since the introduction of Regulation 2560/2001 in July 2002 and are in general free across all the Member States. The only exceptions we have identified during the study are for card payments at petrol stations in Italy and Portugal, and merchant fees (surcharges), which are sometimes passed on to customers in the Netherlands, Denmark, Sweden and the UK. Whereas transaction charges have remained stable, annual card fees have had a tendency to increase, in many cases above the rate of inflation. Many banks still issue basic debit cards free of charge as part of a general current account package, but a number of banks have recently either introduced or increased annual fees for such cards. There is, however, no evidence of a causal relationship between the introduction of the Regulation and the increases in cardholder charges. The ongoing migration to EMV standards is believed to be a more likely, albeit partial, explanation. Merchant Service Charges (MSCs) have been following a general downward trend in recent years partly due to reduced interchange fees brought about by improved efficiency, rising transaction volumes and greater price transparency, and partly due to market pressure (e.g. entry from foreign acquirers) and actions of regulatory and competition authorities (e.g. in Italy, the Netherlands and Spain). We have found no evidence suggesting the Regulation has had any impact on the evolution of MSCs. ATM Cash Withdrawals There are in general no customer charges for making cash withdrawals at ATMs, provided a debit card is used for the transaction and the ATM belongs to the cardholder s bank ( on-us transactions). The study has found that in six out of the 12 eurozone countries, not-on-us fees levied on customers when using another bank s or network s ATMs have either been introduced for the first time or increased since the introduction of the Regulation. This is the case in Belgium, Finland, France, Italy, Luxembourg and Spain. The study has found some evidence suggesting the existence of a causal relationship between the introduction or increase of charges and the Regulation. Some banks argue that offering free cross-border cash withdrawals in order to ensure compliance with the Regulation is not economically feasible, due to high interchange fees and increasing volumes of transactions. Page ii Report prepared by Retail Banking Research Ltd EXECUTIVE SUMMARY

9 1. INTRODUCTION 1.1 Context Payment systems in the EU are going through a process of integration, with the objective of creating a Single Euro Payments Area (SEPA) by One of the key steps in this process was the adoption of Regulation 2560/2001 on cross-border payments in euro in December The Regulation, which establishes the principle of equality of charges for payments within Member States (national) and between Member States (cross-border), has applied to ATM cash withdrawals and purchases by payment card since July 2002 and to credit transfers since July The base principles enshrined within the Regulation are the non-discrimination between corresponding national and cross-border payments made in euro on the basis of price and the requirement on institutions who offer crossborder payment services to provide customers with readily comprehensible ex-ante information on charges levied for affected payments. The obligation to apply the same charges to national and cross-border payments has created the need for the banking industry to deploy EU-wide infrastructures in order to cut the costs for cross-border payments. As a result of this process, the European Payment Council (EPC) was established and a pan-european Clearing House (STEP 2) started operations in April Currently, any credit transfer to any bank in the EU can be sent via STEP 2 and will be executed in three days, according to the Credeuro Convention. Whilst being a first significant step towards the achievement of a Single Euro Payment Area (SEPA) in the EU, the Regulation was followed by other measures, which are currently in preparation. These mainly include a proposal for a Directive on payment services, whose objective is to establish a modernised and simplified set of rules applicable to the provision of payment services in the EU. These rules are expected to cover all payments in the EU (national and cross-border, all currencies of the Member States and all payment instruments) up to 50,000. This comprehensive new legal framework is expected to remove significant remaining obstacles to the full integration of payment systems in the EU. When it was adopted, the Regulation on cross-border payments in euro raised vigorous opposition from the banking sector, because of its perceived price-fixing nature. The main argument was that the number of cross-border payments was small in comparison to national payments, and that the consequence of the Regulation would be to increase national prices. Whilst banks were unsuccessful with these arguments during the legislative process, concerns were raised in some Member States, which pleaded for the inclusion of a review clause in the Regulation. Such a review clause was added as Article 8 of the Regulation, requiring the Commission to present a report on the application of the Regulation in Article 8 stated that the review should consider: INTRODUCTION Report prepared by Retail Banking Research Ltd Page 1

10 1. s in cross-border payments infrastructures. 2. The advisability of improving consumer services by strengthening the conditions of competition in the provision of cross-border payment services. 3. The impact of the application of the Regulation on charges levied for payments made within a Member State. 4. The advisability of increasing the amount provided for in Article 6 (1) of the Regulation to 50,000 as from 1 January 2006, taking into account any consequences for undertakings. The Study on Bank Charges and Competition in the Internal Market addresses primarily part 2 (Lot 1) and part 3 (Lot 2) of the review clause. 1.2 Objectives of the Study Overall objectives The overall objective of the study is to investigate the impact of the application of Regulation 2560/2001 on competition and charges levied for payments covered by the Regulation (as per the Review Clause). The study sets out to explore the level of competition and compare price levels before and after the coming into force of the Regulation and try to isolate any influence the Regulation may have had. Specific Lot 2 objectives The objective of Lot 2 is to assess the impact of Regulation 2560/2001 on customer charges levied on payments made within a Member State (national transactions) i.e. to determine whether bank charges for national payments have fallen or increased as a direct result of the application of the Regulation on cross-border payments. Because the potential impact of the Regulation is not limited to transaction-specific charges, we have also analysed non-transaction specific charges, such as fixed account service fees, annual cardholder fees and general changes in charging practices (e.g. limitations in number of free transactions, increases in fees for non-standard transactions). 1.3 Scope This study sets out an assessment of changes in customer charges for national transactions in euro 1 using the following payment types: credit transfers and purchases and ATM cash withdrawals via payment cards with a value up to 12,500. For the purposes of this study, the following definitions shall apply: The term customers denotes originators and beneficiaries for credit transfers, cardholders and merchants for payment card purchases and cardholders alone for ATM cash withdrawals. Customers may relate to retail customers (consumers) as well as businesses. The term national denotes that both the originator and the beneficiary for a credit transfer, the merchant and the card issuer for a payment card purchase, or the ATM and the card issuer for an ATM cash withdrawal, have accounts and are domiciled in the same Member State. 1 Customer charges in national currency have also been assessed in the three non-eurozone countries: Denmark, Sweden and the UK. Page 2 Report prepared by Retail Banking Research Ltd INTRODUCTION

11 Charges before and after the Regulation came into effect, which was July 2003 for credit transfers and July 2002 for payment card transactions have been examined in order to identify potential changes in customer charges resulting from Regulation 2560/2001. The geographic scope of the study is the 12 eurozone countries together with Sweden, Denmark and the UK (EU15). Sweden has decided to opt-in and to extend the Regulation to its national currency, and this study will consider the Regulation s impact on national payments in Swedish Kronor. Denmark and the UK have not extended the Regulation to their national currencies and national eurodenominated payment transactions are negligible. The potential impact of Regulation 2560 in Denmark and the UK has been assessed for national euro-denominated transactions as well as for similar transactions in national currency. 1.4 Structure of the Report The Report is organised into three main parts: Part One: Introduction Part Two: Aggregate Study Findings Part Three: Individual Country Findings Part One explains the context, objectives and methodology of the study. Part Two reviews the general aggregate study results, which are further detailed in the Individual Country Findings. Part Three contains individual country findings, which comprise the majority of the report. Each country section has a common structure and will in turn examine changes in charges for credit transfers, payments by payment card and ATM cash withdrawals. The following documents are provided in Appendix: Appendix A: Organisations Contacted During This Study Appendix B: Glossary of Terms Appendix C: Structure and Concentration of National Banking Markets 1.5 Methodology The following methodology has been used in order to assess the evolution of customer prices and evaluate what impact, if any, Regulation 2560/2001 has had on charges for national payment services covered by the Regulation: 1. For each relevant country and payment type, data and information have been collected and analysed in order to establish the typical customer charges currently applied and whether and by how much they have changed since the Regulation came into effect. 2. Historical and current data on customer charges have been analysed in order to classify individual countries and payment types as follows: A. There were no customer charges for euro transactions both before and after the Regulation B. There were no customer charges for euro transactions before the Regulation but charges were introduced afterwards C. There were customer charges for euro transactions before the Regulation but these were removed INTRODUCTION Report prepared by Retail Banking Research Ltd Page 3

12 D. There were customer charges for euro transactions both before and after the Regulation For the three non-eurozone countries Denmark, Sweden and the UK the same classification has been applied, based on charges for national payment transactions in national currency. s in customer charges for euro-denominated transactions in the three non-eurozone countries have also been analysed as appropriate. 3. It is not feasible to isolate the impact Regulation 2560/2001 may have had on changes in customer charges using traditional regression analysis due to inadequate statistical time series data. The views of banks, regulators, consumer organisations and other relevant stakeholders have therefore been solicited in order to ascertain whether changes in customer charges could be attributed to the implementation of the Regulation. 4. Data and information have, as far as possible, been obtained from official statistical sources, financial institutions and other relevant organisations. This study is not intended to be a comprehensive survey of payment charges. Data and information obtained from publicly available sources have been supplemented with a limited number of interviews with relevant institutions in each Member State. The data contained in the report is intended to reflect typical customer charges rather than provide accurate statistical averages, and does not claim to be fully representative of all pricing practices within a given Member State. A comprehensive list of organisations consulted and sources used for the study is provided in Appendix A. 5. The analysis has, as far as possible, attempted to provide data that can be compared consistently between countries, different financial institutions and divers types of customers. However, it should be stressed that numerous factors make it difficult to consistently aggregate quantitative data which make such comparisons possible, including: Different approaches, at a country, institution and product level, to applying annual fees to bank accounts and to charging for payment transactions. Often such charges are bundled into the overall charge for an account, and transaction fees frequently only apply after a number of free transactions on the account have been performed in a period. Different approaches, at a country, institution and product level, to charging for credit transfer transactions. In Spain, for example, the fee for a credit transfer may depend on whether the transfer is intra-plaza (within a city/district) or inter-plaza. Differences between the charges incurred by retail and commercial (small business and corporate) customers. Different approaches, at a country, acquirer and inter-bank network level, to merchant service charges (MSCs). As just one example, in France MSCs for national transactions on CBbranded payment cards do not vary between card type (debit, credit or charge), while MSCs in other countries may vary as a function of the card payment scheme, card type and the transaction types performed by the merchant. In addition, MSCs may vary depending on a merchant s payment card turnover and geographic location. Different approaches, at a country, issuer, card type and product level, to charging cardholders for purchase transactions. Charges for ATM cash withdrawals may vary between intra-network and inter-network transactions, for example in Austria, Finland, Germany and Spain. Charges for ATM cash withdrawals may vary by card type. Page 4 Report prepared by Retail Banking Research Ltd INTRODUCTION

13 1.6 Terminology and Definitions The following terminology and definitions have been used throughout this report. For a comprehensive glossary of terms, please see Appendix B. Automatic Teller Machine (ATM) Electromechanical self-service terminal which may be either a mono-function cash dispenser or a multi-function automated teller machine capable of dispensing cash and which may offer additional facilities such as deposits, transaction enquiry, printed statement, account to account transfer, bill payment, PIN change or cheque book order passbook printing, bill payment, statement printing. Cardholder Charges Customer charges incurred as a result of holding (annual fees) or using a payment card to make purchases at point of sale or to withdraw cash at ATMs. Does not include surcharges (merchant fees) imposed by merchants for payments using a payment card. Credit Transfer Account-to-account transaction carried out on the initiative of an originator via an institution or its branch in a Member State, with a view to making an amount of money available to a beneficiary at a different institution or its branch in the same Member State. For the purpose of this study only nonrecurring (i.e. excluding standing orders and direct debits) same currency transactions have been investigated. Cash Withdrawal Withdrawal of cash by means of an electronic payment instrument and the loading (and unloading) of an electronic money instrument (e.g. credit, debit, deferred debit or charge cards) at cash dispensing machines and automated teller machines (ATMs) at the premises of the issuer or an institution under contract to accept the payment instrument. Merchant Service Charges Nominal per transaction charge paid by merchants for accepting payments by payment card to acquirers for processing each transaction. In certain countries the merchant has the option of passing on the charge to customers as a merchant fee or surcharge. Receiver Charges Transaction-specific customer charges incurred by the recipient of a national credit transfer (excluding currency exchange fees and account usage fees) and payable to the recipient s bank. Sender Charges Transaction-specific customer charges incurred by the sender of a national credit transfer (excluding currency exchange fees and account usage fees) and payable to the sender s bank. INTRODUCTION Report prepared by Retail Banking Research Ltd Page 5

14 2. OVERVIEW OF STUDY FINDINGS This section reviews the aggregate study findings, which are further detailed in Section 3 in the each of the individual country analyses. Credit transfers and payment card transactions are examined in turn with a focus on identifying which countries have experienced a change in customer charges since Regulation 2560/2001 was implemented, and evaluating whether any changes can be attributed to the Regulation. 2.1 Credit Transfers Current charges and commercial practices regarding national euro-denominated credit transfers vary significantly between the 12 eurozone countries (EU12), although they tend to follow similar patterns within each Member State. Belgium, Finland, the Netherlands and Germany are the only countries where private customers will not be charged for making an STP (straight-through-processed) eurodenominated credit transfer, subject to certain conditions, such as using a direct channel (e.g. internet or telephone banking), or conducting a limited number of transactions. Commercial customers will, however, typically incur a fee. In Austria, Luxembourg and Germany the basic fixed account package fee includes a limited number of free transactions after which a charge is levied. Receiver charges are uncommon in most countries, with the exception of Greece and Ireland, where they in certain cases reach between 0.05 and 12.00, depending on the type of transaction. Figure 2.1: Evolution of Typical Credit Transfer Charges, Country Evolution Typical Sender Charges of Charges Observations Austria A free transfers are typically allowed per month Belgium A No charge for internet-based transfers Finland A No charge for internet-based transfers France D Increase in charges for non-electronic transfers Germany A Service included in basic account package fee Greece D Min 5.58 Min Increase in min fee unrelated to Regulation Ireland A s require approval by regulator Italy D Average cost for internet-based transfer is 0.90 Luxembourg B free transfers are typically allowed per month Netherlands A Business customers are charged Portugal D Increase in charge for paper-based transfers Spain D Charges proportional to value of transfers Denmark D Euro transfers incur a higher fee ( 5-6) Sweden A Euro transfers incur a slightly higher fee (ca. 0.33) UK A Euro transfers incur a much higher fee ( 26-36) Source: RBR analysis Key: A. No charge before Regulation, no charge after Regulation C. Charge before Regulation, no charge after Regulation B. No charge before Regulation, charge after Regulation D. Charge before Regulation, charge after Regulation Notes: 1 Based on charges most commonly levied; data; 3 June 2002 data (2001) / July 2004 data (2005); 4 Average charge for 500 and 10,000 transaction in December Charges for standard, small-value transactions have remained largely unchanged in six of the 12 eurozone countries since the application of Regulation 2560/2001 in July 2003: Austria, Belgium, Finland, Germany, Ireland, and the Netherlands. In three of the six countries where charges have Page 6 Report prepared by Retail Banking Research Ltd AGGREGATE FINDINGS

15 increased, there is some evidence suggesting that the Regulation may have had an impact: Italy, Luxembourg and Spain. The Regulation does not, however, appear to be the only factor influencing prices and it is not feasible to isolate its impact. While charges for standard transactions have not changed significantly in half of the EU12 countries, there appears to be a general trend of banks increasing their fees for non-stp transactions i.e. those requiring manual intervention or paper-based processing. While it cannot be excluded that the Regulation may have contributed to this trend, there is no evidence in support of this and it is our understanding that increases in changes for non-standard services are primarily driven by banks wishing to migrate manual transactions away from the teller to more cost-efficient direct service channels. The study has identified examples of banks in a few countries having introduced restrictions on the number of free transactions offered to customers and/or increased bundled account fees, indirectly increasing the cost of making credit transfers. In Sweden the only non-eurozone country to have extended the Regulation s application to its national currency private customers are typically not charged for national credit transfers in Swedish Kronor (SEK), whereas national euro-denominated transfers typically incur a fee of around Neither of these charges has changed since the implementation of the Regulation. There is no evidence suggesting that the Regulation has impacted customer charges in the other noneurozone countries, Denmark and the UK. Credit transfers in Danish Kroner (DKK) are typically DKK 2-15 ( ) and there is no receiver fee. Euro transfers incur a fee of DKK ( ) and there is a receiver fee of DKK ( ). In the UK, private customers can make non-urgent credit transfers in British Pounds (GBP) free of charge, while euro transfers typically incur a charge of GBP ( 26-36). There are no indications of the Regulation having had any impact on customer charges. AGGREGATE FINDINGS Report prepared by Retail Banking Research Ltd Page 7

16 2.2 Payment Card Purchases This section examines the evolution of cardholder charges and merchant service charges with a view to assessing whether the implementation of Regulation 2560/2001 in July 2002 has exerted any influence on these. Payments using debit and charge/credit cards at point of sale (POS) have been examined in terms of transaction fees incurred by the cardholder and merchant service charges paid by the retailer Cardholder Charges Charges relating to card purchases at POS have not evolved since the introduction of Regulation 2560/2001 and are still free across all the Member States. The only exceptions we have identified during the study are card payments at petrol stations in Italy and Portugal, and merchant surcharges, which are sometimes passed on to customers in Denmark, the Netherlands, Sweden and the UK. Whereas transaction charges have in general remained stable, annual card fees have had a tendency to increase, in many cases above the rate of inflation. Many banks still issue basic debit cards free of charge as part of a general current account package. However, a number of banks in the eurozone (i.e. the Netherlands, Belgium, France, Italy, Luxembourg, Portugal and Spain) have recently either introduced or increased annual fees for such cards. Charges in the non-eurozone countries have not changed significantly over the study period. Figure 2.2: Evolution of Typical Cardholder Charges, Country Evolution Typical Transaction Charges 2 Typical Annual Charges 3 of Charges Austria A Belgium A Finland A France A Germany A Greece A Ireland A Italy A Luxembourg A Netherlands A Portugal A Spain A Denmark A Sweden A UK A Source: RBR analysis Key: A. No charge before Regulation, no charge after Regulation C. Charge before Regulation, no charge after Regulation B. No charge before Regulation, charge after Regulation D. Charge before Regulation, charge after Regulation Notes: 1 Based on charges most commonly levied for purchases made using debit, credit or charge cards; 2 Direct transaction charges incurred by cardholders when making purchases using debit, credit or charge cards; 3 Annual cardholder fees for debit, credit and charge cards credit/charge cards may include insurance coverage; 4 Banks may charge a usage fee for including transactions on account statement; 5 Typical fees for international immediate debit cards issued by major French card issuers. National only cards carry a lower annual fee; 6 Includes government stamp duty of for debit cards and 40 for credit and charge cards; 7 Purchases at petrol stations may incur a bank charge of 0.77 in Italy and 0.50 in Portugal; 8 Cardholders are sometimes charged by the merchant (e.g. low-value payments, online travel, Ikea); 9 Dankort transactions are free of charge, but merchant fees sometimes apply to other card transactions. Page 8 Report prepared by Retail Banking Research Ltd AGGREGATE FINDINGS

17 There are suggestions that the increase in annual cardholder charges could in part be attributed to the ongoing migration to EMV-compliant chip cards, which are more expensive than magnetic stripe cards and require a significant investment in new infrastructure. No evidence of a direct relationship between the introduction of Regulation 2560/2001 in July 2002 and the increase in cardholder fees has been found Merchant Service Charges Merchant service charges (MSCs) the fees paid by retailers to accept payment cards will vary by card type, transaction type (e.g. cardholder present, online, telephone/mail order), merchant and country, and are as a general rule not publicly available. Charges for purchases using credit or charge cards are typically ad valorem while those for debit card transactions are may be either a fixed amount or ad valorem. MSCs have been following a general downward trend in recent years; partly due to reduced interchange fees brought about by improved efficiency, rising transaction volumes and improved price transparency. Interchange fees are intended to represent a legitimate sharing of payment system costs, but concerns have been voiced that this is not always the case and that fees may be excessive. Reduced interchange fees have also been caused by pressure from regulatory and competition authorities (e.g. in Italy, the Netherlands and Spain) and EMV incentives from MasterCard and Visa. Increasing competitive pressure and market entry from foreign acquirers have in certain countries contributed to a further downward pressure on MSCs. Figure 2.3: Evolution of Typical Merchant Service Charges, Country Evolution Typical Average MSCs of Charges Observations Austria D N/A N/A General downward trend unrelated to Reg. Belgium D 1.6% 1.5% Slight fall related to reduced interchange fees Finland D % % Slight increase may be due to the Regulation France D 0.8% 0.8% No change since Regulation 2560/2001 Germany D % % No change since Regulation 2560/2001 Greece D % % Fall in MSCs is unrelated to the Regulation Ireland D 2.0% % Debit card MSC reduction from 0.22 to 0.18 Italy D 1.2% 2 0.7% 3 Sharp fall in MSCs is a long-term trend Luxembourg D N/A N/A Falling MSCs unrelated to Regulation 2560 Netherlands D N/A N/A Falling MSCs unrelated to Regulation 2560 Portugal D 2.3% 4 1.8% 4 General downward trend unrelated to Reg. Spain D 2.0% 1.4% Fall in MSCs due to reduced interchange fees Denmark A/D % % No MSCs for card present transactions 5 Sweden D Credit cards charge additional 2.3% of value UK D % % MSCs falling in line with interchange fees Source: RBR analysis Key: A. No charge before Regulation, no charge after Regulation C. Charge before Regulation, no charge after Regulation B. No charge before Regulation, charge after Regulation D. Charge before Regulation, charge after Regulation Notes: 1 Based on charges most commonly levied; data; data - indications of further reductions in the region of 5% per year; and 2004 data for Unicre; 5 There are no MSCs for card present transactions using a Dankort (national debit card), but merchants pay a flat fee of DKK 500-2,700 ( ) p.a. depending on the size of the merchant. The maximum MSC for transactions using a nationally-issued international debit card is 0.40% (0.75% for charge/credit card). While verifiable data on MSCs charged to merchants for card transactions is difficult to obtain due to confidentiality and competition concerns, we have found no evidence suggesting the implementation of Regulation 2560/2001 has had any impact on the evolution of MSCs. AGGREGATE FINDINGS Report prepared by Retail Banking Research Ltd Page 9

18 2.3 Cash Withdrawals at ATMs Customer charges for making cash withdrawals at ATMs vary significantly between the countries studied. ATM charges are typically a function of whether the ATM belongs to the cardholder s bank ( on-us transactions ), whether the transaction takes place during normal banking hours and whether a debit or a charge/credit card is used. In most countries, ATM cash withdrawals can be made free of charge when using a debit card, but will always incur a fee when a charge or credit card is used for a cash advance. While cash withdrawals have remained free for customers using a debit card at the card-issuing bank s ATMs, banks in some of the countries studied have introduced a monthly limit to the number of free withdrawals. Figure 2.4: Evolution of Typical ATM Charges, Country Evolution Typical ATM Charges 2 of Charges Observations Austria A Credit card cash advance fees of ca. 3% Belgium A not-on-us fee seen as a result of Reg. Finland A not-on-us fee may have been due to Reg. 3 France A Not-on-us charges generalised since 2002 Germany A Convergence of fees may be linked to Regulation Greece A 0-1% s in not-on-us fees unrelated to Reg. Ireland D Under certain account conditions there is no fee Italy A Increase in average not-on-us charges Luxembourg A Not-on-us fees introduced as a result of Reg. Netherlands A Credit card cash advance fees of 4-5 Portugal A Credit card cash advance fees of % Spain A % % Increase in not-on-us fees linked to Regulation Denmark A Not-on-us and outside banking hour fees Sweden A Euro dispensing ATMs are being introduced UK A % of ATMs apply surcharge of ca Source: RBR analysis Key: A. No charge before Regulation, no charge after Regulation C. Charge before Regulation, no charge after Regulation B. No charge before Regulation, charge after Regulation D. Charge before Regulation, charge after Regulation Notes: 1 Based on charges most commonly levied for on-us cash withdrawals; 2 Customer charges based on ATM cash withdrawals using a debit card payable to cardholder s bank; 3 Some banks introduced fees for not-on-us debit card withdrawals in 2002 these were abolished in 2004; 4 Only one French bank (BNP Paribas) charged a fee for not-on-us transactions; data; 6 Not-on-us transaction fee introduced July 2002; 7 A few banks now charge a not-on-us fee. The study has found some evidence suggesting that the implementation of Regulation 2560/2001 in July 2002 may have influenced the introduction or increase in not-on-us customer charges for ATM cash withdrawals in six of the 12 eurozone countries: Belgium, Finland, France, Italy, Luxembourg and Spain. Some banks indicate that the Regulation has forced them to either abandon fees for crossborder cash withdrawals (expensive due to size of interchange fees and increasing volume of transactions) or to introduce similar fees for national transactions. There is no indication of the Regulation having had an impact on ATM charges in any of the noneurozone countries. Page 10 Report prepared by Retail Banking Research Ltd AGGREGATE FINDINGS

19 2.4 Evolution of Price Indices The Harmonised Indices of Consumer Prices 2 (HICP) include charges for common banking services provided by banks, the Post Office and other financial institutions, such as transaction charges for payment services, and annual charges for credit card, internet banking, safe deposit boxes, service charges of brokers, investment counsellors, etc. 3 The HICP, as well as many national indices, exclude the expenditures indirectly measured known as FISIM (Financial Intermediation Services Indirectly Measured) 4, and does therefore not take into account banking charges paid through, for example, interest rate differential frequently the case with credit/charge cards. Figures 2.5 and 2.6 show that in recent years the consumer price index for Financial Services (CP12.6) has grown at a higher rate the overall consumer price index (CP00). 120 Figure 2.5: Evolution of Price Index for Financial Services 115 HICP - Financial Services EU HICP - Overall EU15 EU12 EU Sources: Eurostat, RBR analysis Between 2001 and 2004, the cost of banking services in the eurozone increased 7.6% faster than the overall consumer price index, compared to a growth differential of 3.4 points in the EU15 as a whole. Belgium and Luxembourg stand out as the two countries with the highest price inflation for financial services both have increased by 35%, a growth differential of 30.1% and 27.5% respectively relative to the overall consumer price index. However, differences in pricing structures across Member States make international comparisons subject to considerable uncertainty. It should be emphasised that the financial services index is not sufficiently granular to isolate price changes for national credit transfers, card purchases and ATM withdrawals. Direct comparisons between the evolution of the price index and charges for national credit transfers and payment card transactions is therefore not feasible. Furthermore, the dramatic increase in the index could possibly be explained by banks raising charges on manual teller services in order to encourage customers to 2 The HICP has been produced in each Member State since January 1997 using a common system of calculation developed by European price statisticians led by Eurostat, Statistical Office of the European Communities in Luxembourg. 3 See Appendix B for comprehensive definition. 4 For related information see Financial Services in Swedish Price Indices presented at the 7th Meeting of the Ottawa Group, in Paris, May AGGREGATE FINDINGS Report prepared by Retail Banking Research Ltd Page 11

20 migrate to more cost-efficient services such as internet banking. The empirical findings of this study have highlighted several cases where banks claim to have increased charges for non-stp or paperbased credit transfers, while reducing or maintaining electronic transactions. But because teller services and internet services are treated as different products, the index does not recognise consumers possible substitution gains from such swaps. Figure 2.6: Evolution of Financial Services Price Index 1, Country HICP Overall 2 (CP00) HICP Financial Services (CP12.6) Growth Differential Austria % Belgium % Finland % France % Germany % Greece % Ireland % Italy % Luxembourg % Netherlands % Portugal % Spain % Eurozone (EU12) % Denmark % Sweden % UK % EU % Sources: Eurostat, RBR analysis Notes: 1 Annual average index; 2 Harmonised Indices of Consumer Prices defined as the comparable index of consumer prices produced by each Member State in EC Regulation 2494/95. While direct comparisons between the evolution of the Financial Services price index and the empirical study findings are tenuous, it is conceivable that the increasingly differentiated pricing policies followed by banks have contributed to driving up the index in many countries. It is noticeable, however, that the index has fallen by 14 points in the UK between 2001 and 2004 corresponding to a growth differential of 18% relative to the overall consumer price index. Page 12 Report prepared by Retail Banking Research Ltd AGGREGATE FINDINGS

21 2.5 Conclusions Credit Transfers Charges for national euro-denominated credit transfers have remained largely unchanged in half of the eurozone countries since Many banks have introduced differentiated pricing in order to encourage customers to use more cost-efficient service delivery channels, such as the internet. Charges for STP (straight-through-processing) transactions are frequently free of charge for consumers whereas paper-based transactions tend to incur a fee. Commercial customers will typically always pay a transaction fee. Customer in France, Greece, Italy and Spain are likely to pay the highest charges for making national credit transfers with minimum charges ranging from 1.28 to 12. It should be noted, however, that international price comparisons are made difficult by the fact that national pricing structures differ significantly. The study has found some, albeit limited, evidence that the Regulation may have impacted the increases in credit transfer fees identified in Italy, Luxembourg and Spain. The introduction of the Regulation in July 2003 does, however, not appear to be the only contributing factor and it has not been feasible to isolate its direct impact on charges. An additional difficulty in isolating the influence of the Regulation is the tendency in certain countries (e.g. Austria, Germany, Luxembourg) to charge bundled account fees, which include a number of free transactions Payment Card Purchases Cardholder charges relating to card purchases at POS have not changed since the introduction of Regulation 2560/2001 in July 2002 and are still free across all the Member States. The only exceptions we have identified during the study are for card payments at petrol stations in Italy and Portugal, and merchant fees, which are sometimes passed on to customers in Denmark, the Netherlands, Sweden and the UK. Whereas transaction charges have remained stable, annual card fees have had a tendency to increase, in many cases above the rate of inflation. Many banks still issue basic debit cards free of charge as part of a general current account package, but a number of banks have recently either introduced or increased annual fees for such cards. There is, however, no evidence of a causal relationship between the introduction of the Regulation and the increases in cardholder charges. The ongoing migration to EMV standards is believed to be a more likely explanation. Merchant Service Charges (MSCs) have been following a general downward trend in recent years. This is partly due to reduced interchange fees brought about by improved efficiency, rising transaction volumes and greater price transparency, and partly due to market pressure (e.g. entry from foreign acquirers) and actions of regulatory and competition authorities (e.g. in Italy, the Netherlands and Spain). We have found no evidence suggesting the Regulation has had any impact on the evolution of MSCs ATM Cash Withdrawals There are in general no customer charges for making withdrawals at ATM, provided a debit card is used for the transaction and the ATM belongs to the cardholder s bank ( on-us ). Not-on-us fees levied on customers when using another bank s or network s ATMs have either been introduced for the first time or increased since the introduction of the Regulation in several countries. Banks in six out of the 12 eurozone countries suggest there is a causal relationship between the introduction or increase in not-on-us fees: Belgium, Finland, France, Italy, Luxembourg and Spain. Some banks argue that offering free cross-border cash withdrawals in order to ensure compliance with the Regulation is not economically feasible, due to high interchange fees and increasing volume of transactions. AGGREGATE FINDINGS Report prepared by Retail Banking Research Ltd Page 13

22 3. INDIVIDUAL COUNTRY FINDINGS EUROZONE COUNTRIES 3.1 Austria Summary Customer charges for Austrian payment services appear to have remained stable since the introduction of Regulation 2560/2001, and no evidence has been found of the Regulation impacting national customer charges Credit Transfers Customer charges have been in place in Austria since before the introduction of Regulation 2560/2001. Current charges are in the region of 0.15 for EPS (E-Payment Standard), for internet-based and for paper-based transactions. While there are no receiver charges, consumers typically pay an account fee of per transaction (excluding pension and salary payments). The equivalent account fee for commercial customers is around There is a general consensus in the Austrian banking community that charges have remained largely unchanged since the introduction of the Regulation. The stability of charges is mainly the consequence of the Konsumentenschutz Gesetz, which regulates the ability of banks to apply charges. Increases cannot outpace a general price index (typically the CPI). As this legislation was enacted before Regulation 2560/2001 was implemented, changes in charges for national credit transfers have been very limited and are not related to its introduction. Account packages are typically priced between 5 and 15. A basic account package usually includes a number of free transactions (10-20 transfers per month), after which a fee is levied, while high-end packages usually include an unlimited numbers of transactions. Consumer organisations argue that banks have increased customer charges, mainly by excluding some items from their pauschale (package) fees. As the fees themselves do not change, this is not a direct increase, but does result in additional costs for the consumer. These practises existed before the introduction of Regulation 2560/2001, and there is no indication of a causal relationship. The Austrian banking community believes it has made significant efforts to publicise the changes in charges for cross-border payments brought about by the regulation, and banks have engaged in optimising both the national payments system and the pan-european STEP1 and STEP2 systems. Page 14 Report prepared by Retail Banking Research Ltd AUSTRIA