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PR(08)02: Concluding report of EFTA Surveillance Authority's sector inquiry confirms fragmented nature of EEA retail banking markets


The EFTA Surveillance Authority has adopted the final report of the competition inquiry into the markets for retail banking services in the EFTA States. Building on two interim reports published during the course of 2007 and comments received from a public consultation, the final report gives an overview of the state of play in the markets for payment card services and core retail banking products.

The sector inquiry has identified competition concerns related to fragmented markets along national lines, low customer mobility, and practices of banks to sell several banking services in one package. This may hinder market entry and limit sales opportunities to new entrants. If particular practices or arrangements violate EEA or national competition law in an individual case, these practices or arrangements can be addressed by individual antitrust actions.

Payment card services
Cashless money transactions using payment cards constitute an increasingly important part of the modern European economy. However, the Authority's inquiry confirms that card payment markets essentially operate on a national level and are often highly concentrated. Consumers in the EEA thus do not benefit from a single, integrated market with regard to card payment services.

There are significant differences in fee levels between countries within the EEA, both as regards cardholder fees and costs that are borne, directly or indirectly, by merchants accepting payment cards.

The inquiry found indications that overall, the payment card business enjoys considerable profitability. Card issuing (the issuing of payment cards by a bank to its customers) appears to be more profitable than acquiring (recruiting merchants for payment card acceptance and transmitting the cardholder's payment back to them).

Payment system infrastructures also remain country-specific. The need to gain access to a separate payment infrastructure with different specifications in order to offer retail banking in each EEA State may discourage banks from entering new markets and thus lessen competition.

Core retail banking products
The inquiry found that markets for retail banking services (i.e. banking services for individuals and households, as well as for small and medium-sized enterprises) remain fragmented along national lines. Factors such as competition barriers and regulatory, legal and cultural differences all contribute to this fragmentation.

The Authority's analysis of markets for core retail banking products concentrated on the Icelandic and Norwegian markets, both of which are dominated by a relatively low number of large banks. Liechtenstein was not included in this part of the analysis due to limited availability of separate statistical data.

Banking relationships between customers and banks in Iceland and Norway are long, and customer mobility is low even compared to the rest of the EEA. In both countries, practices such as cross-selling (the selling of additional products and services to existing customers) and tying (requiring the customer to buy one product in order to obtain another) are common in relation to various banking products. Tying can make it more difficult for customers to switch banks, and may thus impede competition by making it more difficult for new market players to attract new clients. The Authority also examined other factors that may reduce customer mobility, such as administrative burden, information asymmetries and lack of price transparency.

Furthermore, the Authority's findings, together with similar findings by the European Commission, demonstrate that the manner in which customers use their bank accounts varies significantly across the EEA. This is in no little part influenced by high variations in prices for different payment services from country to country. The reason why this high degree of fragmentation remains in place within the EEA is not least due to entry barriers into the different markets.

The Authority launched the sector inquiry into competition in the retail banking markets of the EFTA States on 22 June 2005 (see PR(05)20). The sector inquiry corresponds to a similar exercise by the European Commission, which published a final reportof its findings in January 2007. Together, the conclusions of the Authority and the Commission provide an overview of the competitiveness of the retail financial services markets in the whole of the EEA.


For further information, please contact:

Mr. Kjell-Arild Rein
Temporary Officer, Competition and State Aid Directorate
Tel. (+32)(0)2 286 18 86

18 January 2008

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