Study on switching of financial services and products Final report November 2019 Authors: Written by Oskar Andruszkiewicz, Facundo Herrera, Juliette Mathis, Ana Cordon, Maria Zhitkov and Rebecca Aylott (all ICF), Charu Wilkinson (ICF Associate), Simona Frazzani, Martina Piantoni and Mattia Pallinini (all Grimaldi), Sergio Nasarre-Aznar, Rym Ayadi and Marcin Kawinski (Individual Study Experts). EUROPEAN COMMISSION Directorate-General for Financial Stability, Financial Services and Capital Markets Directorate B - Horizontal policies Unit B3 – Retail financial services Contact: [email protected] European Commission B-1049 Brussels EUROPEAN COMMISSION Study on switching of financial services and products Final report Directorate-General for Financial Stability, Financial Services and Capital Markets Union (FISMA) November 2019 EV-03-19-683-EN-N EUROPE DIRECT is a service to help you find answers to your questions about the European Union Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you) LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). Luxembourg: Publications Office of the European Union, 2019 ISBN 978-92-76-10991-4 doi:10.2874/090150 © European Union, 2019 Reproduction is authorised provided the source is acknowledged. Final Report: Study on switching of financial services and products Table of Contents List of abbreviations ............................................................................................ i Abstract ........................................................................................................... iii Résumé ............................................................................................................ iii Executive Summary ........................................................................................... v Note de synthèse .............................................................................................. xii 1 Introduction ................................................................................................ 1 1.1 This Report ........................................................................................... 1 1.2 Purpose and scope of the study ............................................................... 1 1.3 Methodology ......................................................................................... 2 1.4 Structure of this report ........................................................................... 2 2 Background of the study ............................................................................... 2 3 Methodological approach ..............................................................................10 3.1 Study design ........................................................................................10 3.2 Methods and data sources .....................................................................12 3.3 Limitations of the study .........................................................................19 4 Task 1: Assessment of the savings forgone by consumers as a result of not switching to more advantageous products ...........................................................23 4.1 Task Overview ......................................................................................23 4.2 Residential mortgages – findings ............................................................29 4.3 Payment accounts – findings ..................................................................34 5 Task 2: Mapping of legal and commercial barriers to switching .........................42 5.1 Task overview ......................................................................................43 5.2 Legal barriers to switching .....................................................................43 5.3 Commercial barriers to switching ............................................................99 6 Task 3: Existing and prospective measures facilitating switching ..................... 116 6.1 Task overview .................................................................................... 116 6.2 Analysis of specific measures ............................................................... 119 7 Conclusions .............................................................................................. 154 7.1 Task 1 ............................................................................................... 154 7.2 Task 2 ............................................................................................... 155 7.3 Task 3 ............................................................................................... 158 8 Recommendations ..................................................................................... 159 Final Report: Study on switching of financial services and products List of abbreviations ACM The Netherlands Authority for Consumers and Markets AER Annual Equivalent Rate AFM Dutch Financial Markets Conduct Authority AISP Account Information Service Providers ANP Account Number Portability APRC Annual Percentage Rate of Charge ARM Adjustable Rate Mortgages ATM Automated Teller Machine BaFin German Federal Financial Supervisory Authority BBVA Banco Bilbao Vizcaya Argentaria BIC Business Identifier Codes CASS Current Account Switching Services CEE Central and Eastern Europe CEL Compte Epargne Logement CPI Credit Protection Insurances CZK Czech Koruna DDK Danish Krona DG FISMA Directorate General Financial Stability, Financial Services and Capital Markets Union DG JUST Directorate General Justice and Consumer Affairs EACB European Association of Co-operative Banks EBA European Banking Authorities EBA COREP European Banking Authorities Common Reporting EBF European Banking Federation ECB European Central Bank EEA European Economic Area EJS Electronic Journals Service EMF European Mortgage Federation ESIS European Standardised Information Sheet EU European Union EUR Euro EU-SILC European Union Statistics on Income and Living Conditions FCA Financial Conduct Authorities FIN-FSA Finnish Financial Supervisory Authority FRM Fixed Rate Mortgages FSUG Financial Services User Group 29th November, 2019 i Final Report: Study on switching of financial services and products HMRC Her Majesty’s Revenue and Customs HSBC Hongkong and Shanghai Banking Corporation GBP Great Britain Pound GDP Gross Domestic Product GS Goldman Sachs HRK Hrvatska Kuna IBAN International Bank Account Number IDD Insurance Distribution Directive IMLA International Municipal Lawyers Association JRC Join Research Centre KNF Polish Financial Supervision Authority LtV Loan to Value LIBOR London Inter-bank Offered Rate MCD Mortgage Credit Directive MS Member State VAT Value Added Tax PAD Payment Account Directive PEA Plan d’epargne en action PEL Plan épargne logement PISP Payment Initiation Service Provider PPI Payment Protection Insurance PSD2 Payment Service Directive 2 SEPA Single Euro Payments Area SVR Standard Variable Rate TFEU Treaty on the Functioning of the European Union TEU Treaty of European Union TPPP Third Party Payment Processor UK United Kingdom UOKIK Polish Office of Competition and Consumer Protection USD United States Dollar 29th November, 2019 ii Final Report: Study on switching of financial services and products Abstract The ability and willingness of consumers to switch products and services is central to well-functioning markets. Relatively ‘low’ rates of switching in the retail financial services and products sector has long been of concern to policy makers and consumer organisations. Although there is no optimal rate of switching, switching is believed to be inhibited in these markets due to the existence of related costs or barriers. This is an independent study on switching of financial services and products. More specifically, it assesses the savings forgone by consumers by not switching to more advantageous residential mortgages and payment accounts, provides a comprehensive overview of the legal and commercial barriers to switching in the case of five selected retail financial products, and provides a comprehensive overview of existing (and prospective) measures to increase switching rates across those five financial products. Study evidence was gathered through a mixed-methods approach, comprising both quantitative and qualitative research techniques. The study concludes that there is a considerable number of mortgage and payment account consumers who would benefit from switching, albeit to various degrees, depending on the country and product. At the same time, in some Member States, there is a not insignificant number of consumers who still do not manage to obtain a better deal, despite switching. While the study finds that there are no major legal and commercial barriers to switching of payment accounts, saving accounts, mortgage and home insurance products, switching of residential mortgages is typically more challenging given the conditions required for early repayment or refinancing of mortgages, the plethora of fees that may apply to switch a mortgage, or difficulties related to comparing the various mortgage offers by consumers, among others. The study finds that there is no single measure - whether a well-tailored