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


Prof. Dr. W odzimierz Szpringer Warsaw School of Economics and University of Warsaw Customer Loyalty v.Mobility in Relation to Bank Accounts. Is It a Real Issue on ... – PowerPoint PPT presentation

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Title: Prof. Dr. Wlodzimierz Szpringer Warsaw School of Economics and University of Warsaw

Prof. Dr. Wlodzimierz 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?

Session I
  • Overindebtedness and Social Inclusion

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
  • Not proper addressed, wide-dispersed, weak and
    not systemic measures, so without essential
    effects (unemployment benefits, social or church
  • 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
  • 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

Social exclusion
  • No adequate definition of social exclusion or
  • 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)

  • 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

Social consequences - . Financialisation of
  • . Bank account, means of payment and credit are
    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

A new definition
  • Financial exclusion is the process whereby people
    encounter such access and use difficulties 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
  • 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)

Open Coordination Method
  • Ministry of Labour and Social Policy
  • Document approved by Polish Government on the 9th
    of October 2006

challenges and leading objectives
  • Support for families with children
  • 1. Development of the integrated family support
  • 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
  • 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

  • Social employment
  • System of family benefits
  • Governmental Programme Civic Initiative Fund

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
  • activating formula of social welfare benefits -
    new application of social tools
  • activation and inclusion of the disabled
  • defining the terms of public utility social
  • unifying the procedure for contracting public
    utility social service tasks
  • improving the effectiveness of co-operation
  • public entities and non-governmental
  • in the performance of tasks

Creation and retention of new jobs and reducing
unemployment. Activities within this priority
  • 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
  • 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.

Session II
  • Customer Mobility

Special importance of bank accounts
  • Bank account is framework contract which
    becomes a customers 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

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?

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.

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
  • (Austria, France, Germany, Hungary, Luxemburg)
  • Exclusions by lack of identity
  • (Finland, Greece, Irland, Lithuania, Slovakia,

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

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

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)

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.

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.

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.

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

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

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

Bank strategies
  • Focus on domestic provision of bank services,
  • Expansion cross-border by joint-ventures,
  • Expansion cross-border by take-overs of local
  • 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

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
  • Legislative measures obliging banks to provide
    consumers with a list of charges for retail
    banking products in branches and on the banks'
  • 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)

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
  • Several informations on request rather than
  • Information charged adequately if frequently

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

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
  • Provided they are linked to an independent index
    and customers are informed immediately of the
  • Delete in the light of Article 33 of the PSD (2

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
  • However, many experts are not clear on what
    'symbology' means and how to harmonize it

Financial education programmes
  • National authorities are strongly encouraged to
    develop and provide financial education
  • Three dimensions of consumer financial
    capability knowledge skills - trust
  • Suited to a 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

A review needed?
  • A review identifying existing regulatory
    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 how to address best the issue of
    information overload versus transparency
  • Who should bear the cost of adequate and
    reasonable transparency?

Solutions at national level should necessarily
  • 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
  • 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,
  • 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

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)

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
  • 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)

How to facilitate switching?
  • facilitation of customer switching should be left
    for competition between banks in gaining new
  • 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.

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 consumers
    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 consumers consent
  • In case of SEPA instruments, the old bank sends
    the consumer exact instructions on how to report
    the account switching to the creditors

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.

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.

Account number portability - Swedish Bankgiro
as the model?
  • Swedish "Bankgiro" system is not 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
  • Complete conversion of customer databases at
    both banks and other commercial undertakings,
    replacement of all payment cards, alteration of
    customer letterheads containing account numbers,
  • The costs would probably outweigh the benefits
  • Account number portability Obligatory or not?
    Who will bear the cost?