The European Commission is worried about the slow pace of the integration process. It may be, however, that the problem is bigger on the level of the single market than from the viewpoint of consumers' own experience.
Retail financial services are services that have to do with paying, saving, investing and financing, and they play an essential role in people's everyday life. From the viewpoint of the single market they should be just as easy to procure and use from any member state. This is to be achieved by harmonizing legislation and practices.
Harmonization seems at first glance to be a justified and worthy objective, particularly if it can be achieved according to the level in the "best country". Ongoing negotiations concerning the reform of the Consumer Credit Directive show how difficult this is in practice. Finding a common denominator can result in a weakening of consumer protection in many member states.
For example, harmonizing practices regarding bank giros may speed up cross-border transactions, but its significance for Finnish consumers is not very large, since a credit card is a more common and safer way to transfer payments to another country. If the outcome weakens domestic payment practices, the benefit of harmonizing bank giros is hard to see.
The single market should not be achieved forcefully and all-inclusively if there is no genuine demand and approval on the part of consumers. Most consumers will continue to choose products supplied locally by sales offices, subsidiaries and agents even though direct supply over the Internet, for example, has increased. Direct cross-border service purchasing does not appear to be gaining consumers' interest and confidence in the same way, due partly to the complexity of financial services.
Consumers are presently offered products on the capital market, such as derivatives, that were previously only offered to experienced investors. Consumers have entered these markets without training or previous experience. Consumers bear the risk of failure even though their possibilities to make use of information concerning a service may be non-existent.
Financial products are abstract and trading is based entirely on the information that is supplied on products. The Commission's objectives concerning the comprehensiveness, clarity and understandability of information are good, but the means by which the obligation to provide information has been regulated in existing directives are not effective. Long detailed lists may serve formal harmonized regulation, but not real consumer protection. A better alternative than lists that can rapidly become outdated would be a general clause model, which for example in the Finnish Insurance Contracts Act has proved an effective way to regulate the provision of information.
A much more effective and credible way than full harmonization to increase consumers' confidence in foreign service providers would be for contracts to be subject to legislation in the consumer's country of residence if the service provider engages in commercial activities in this country.
Harmonization can also lead to more rigid competition, although this is exactly the opposite of what it is intended to accomplish. For example the harmonization of cards in the Single European Payment Area (SEPA) project means that, instead of national bank cards, at least in Finland banks will only offer cards linked to international credit card companies' systems regardless of which bank a consumer gets a card from. This could have unfavourable effects on the pricing of debit cards.
Competition should be monitored in other respects as well. Obstacles to the comparability of products and consumer mobility should be eliminated and factors that support these should be promoted. Obstacles include charges for cancelling or switching services, which have already been forbidden in some member states, as well as the packaging of services, product tying and all sorts of additional benefits.
Comparability and mobility could be improved to some extent if consumers received a written summary of the costs of basic banking services each year. This would help consumers to get a better idea of the charges for which they should ask for offers.
In its statement to the Commission on the Green Paper on Retail Financial Services in the Single Market, the Finnish Consumer Agency drew attention to consumers' different wishes in discussing virtual or cash payment priorities, the challenges of improving consumers' financial literacy, and the importance of creating an independent broker institution that would clearly promote consumers' interests.
Green Paper on Retail Financial Services in the Single Market