The European Commission is moving across a broad front to establish solid footing for a single market in financial services from banks and credit cards to insurance.
A green paper, a preliminary legislative draft, is due later this month and several European Union directives are in the works. A crackdown on cross-border credit card fraud, announced last month, is a first step.
Commissioner Frits Bolkenstein, who is in charge of the internal market, said credit card fraud rose by 50 percent last year to $540 million, mostly involving cases of just $50 to $100.
He has launched a three-year program, warning that fraud damages the EU's internal market, makes consumers wary of cross-border payments and threatens e-commerce development, which is a major EU goal.
But there is more than fraud prevention behind the move. Alastair Tempest, director general of the Federation of European Direct Marketing and the industry's chief lobbyist in Brussels, thinks the EC wants to make “charge backs” the rule across the EU.
Although not law, charge backs are widely used in the United Kingdom. The practice makes the credit card company responsible for refunding purchase prices to consumers in sales disputes or returns. It means more work for card issuers, who oppose the practice and are unlikely to follow the British lead in voluntary compliance.
“That's why the EC is considering legislation, since issuers can't be pushed any other way,” Tempest said.
The crackdown on fraud enlists credit card companies, he added, and the EC hopes to pressure card issuers to accept the charge back principle.
In fact, some card companies, notably Diners Club, have sometimes held back payments for months, eroding both consumer and merchant confidence in the card concept, which the EC sees as essential to e-commerce growth.
And that ties in with the financial services issue, Tempest said. The EC has done more for banks than for other financial institutions, but very few insurance companies operate on a Pan-European basis.
What's more, banks also have problems, since member countries want them to register in each country rather than having one registration take care of the internal market.
“What member states are saying,” Tempest said, “is, 'Fair enough, we need an internal market in financial services but we don't trust our fellow members to register them, so we still want control over which insurance company can sell in our country.' “
That attitude, he said, was a major stumbling block to completing the single market. Registering in each country is tedious, costly and time consuming.
And even that does not always work. The Bank of England, for example, has had to bail out several Indian and Pakistani banks that operated in the UK and went bust. The Bank of England agreed to the bailout because it had licensed the foreign banks and failed to note that they were wobbly. Now it fears that banks licensed abroad could do the same thing.
Several directives are in the works to solve this problem, perhaps by registering banks at the European Central Bank, although that too could cause an overload on that already heavily burdened institution.
What most banks have done in the past is buy their way into different markets by snapping up a small bank in a country rather than starting from scratch.
Citibank is the one exception. “It came in from nowhere and set up in each country with aggressive direct marketing so that it is now established in 90 percent of the EU,” Tempest said. “It was a phenomenal effort that took enormous capital, time and resources.”
In the insurance market, only three firms — Allianz, Generali and Axa — are truly Pan-European operations. The EC would like to see large and small insurers operate across national borders.