The Norwegian Consumer Council has recently submitted its views on the Green Paper from the European Commission on cross-border retail financial services.
The entire financial services landscape is changing, and the landscape is changing fast. New digital solutions and new service providers, including peer-to-peer based sharing initiatives, continue to make inroads in the financial markets.
The Norwegian Consumer Council welcomes changes conditionally. Innovations must respect consumer rights and privacy.
Faced with the possibilities provided by new technological solutions, traditional financial institutions risk becoming more and more irrelevant unless they adapt and become innovative and connect better with their customers.
A fading position for traditional financial institutions is not necessary a problem for consumers. Many of these institutions failed consumers on important areas. Misselling investments products, opaque product packaging and pricing and aggressive sales of credit has made consumers sceptical to the financial industry.
Trust is key
Among consumers, the confidence in the banking and financial sector are extremely low and have remained so for years. In fact, according to the European Consumer Markets Scoreboard, the overall ranking indicate that the financial sector is the least trusted of all. Consumer trust and satisfaction in investment products, private pensions and securities end absolutely last bottom on the list. This lack of trust should be a major concern for the traditional retail financial services industry.
It is no understatement to say that if the old-fashioned financial institutions fail to improve their products to meet the expectations of their customers, they will probably go down in history as failed companies. If people get the opportunity to use easier and better solutions and services outside the traditional financial services sector, many will likely seize this opportunity.
Innovation and digitalisation
The potential for innovation in the financial sector is huge as a result of digitalisation, and in the years to come we will probably see a steady flow of new functionality which might dramatically alter the way we use financial services.
The Norwegian Consumer Council looks forward to innovations for FinTech industries, especially within automated financial advice, payment services and loans.
The development and introduction of various new Blockchain technologies also opens up possibilities and potential for both new financial and non-financial services and new ways for consumers and businesses to trade and make payments.
There are reasons to welcome trends towards a more user-friendly approach to financial services. However, consumer rights and the rights to privacy must be sufficiently protected and safeguarded in an increasingly digitalised society.
Introduction of new user-friendly digital solutions and services that work seamlessly and universally regardless of country borders should be actively encouraged by the authorities. In fact, policy changes must take into account the impact of digitalisation, and ensure that new regulation initiatives do not limit positive innovation in the retail financial services industry.
European authorities should facilitate and encourage solutions and developments that better connect with the needs of the consumers.
New digital solutions could also help consumers make their choices based on experienced engagement from previous users and customers. By continuously collecting feedback on the quality of goods and services and then publishing them, new customers will be able to make more informed and better choices.
Currently, such evaluation methods are widespread and well-known in the lodging and travel industry (hotels, resorts, etc.) Consumers generally welcome rating and feedback-systems where new users can see how previous users evaluate goods and services. There is a large potential for introducing customer-rating in the retail financial services sector.
There is no reason why poor customer service, including in the financial sector, should remain a well-kept secret.
New trends and initiatives
In recent years we have seen a steady rise in new initiatives and trends that to a greater or lesser extent challenges the traditional financial vendors.
Introduction of a variety of new payment systems, including mobile phone-based money payment and transfer services like M-Pesa, means that customers will have access to alternative ways to pay for goods and services and to deposit, withdraw and transfer Money. It also provides alternatives to consumers without a bank account (“underbanked” or “unbanked”). Introduction of new payment solutions that outperform old banking services is a good thing – but they need to respect privacy.
We have also seen an increase in the practice of funding a venture or a project through alternative financial concepts outside of the traditional financial system. One example is crowdfunding, where large numbers of people each contribute with small amounts of money, often via internet-mediated registries, and thereby ensures the necessary funding for the project or venture.
The rise of the sharing (or collaborative) economy in recent years have been fuelled by new user-friendly digital solutions. The basic core of the sharing economy is to make use of unused or underused assets. New websites match up owners and renters on a larger scale than ever before, the availability of goods and services are up, and transaction costs are down.
In an increasingly digitized age, it is necessary to develop and establish cross-border standards in Europe that allow for the use of secure electronic signatures. Instead of using a physical pen to sign documents, contractual partners all over Europe should be able to use an electronic ID to authorize bids and payments or to sign any legally binding contract.
National solutions are already in place and works as digital keys to online banking services, shopping and to a wide range of online governmental services. It can be used when applying for a loan, when placing a bid on real estate, when applying for public services both on the municipal and national level, when paying bills online etc. European authorities must work for well-functioning digital ID for all European consumers.
In the Nordic region, non-proprietary payment solutions are widespread, effectively reducing barriers between various financial institutions and between financial institutions and consumers.
The European Commission should be in favour of supervision measures in order to prohibit most tying and bundling practices in the retail financial sector. Bundling and tying practises cause less effective markets and serve as an obstacle for transparency. Less transparency makes it more difficult for consumers to compare products and services from different providers, effectively limiting competition and or obstructs rational choice.
Such practice also has a significant downside related to business start-ups. The major challenge for newly established companies is obtaining a levelled playing field in competition with well-established competitors. Bundled practices harm sound business development and the growth of new businesses and niche industry.
As a minimum, any form of bundled practices must be conditional, time-limited and must provide overall and significant fiscal benefits to the end-user which would not otherwise be available. Consumers must also be able to resign from one part of the package, while still being allowed to hold on to other parts of it. Tying practices should be prohibited.
It must be an absolute and mandatory requirement that increase of cross-border sale of retail financial services or products does not happen at the expense of consumers’ rights. Existing laws and regulations concerning consumer issues must be enforced, including legislation that is intended to protect privacy and personal data.
It is necessary to continue the drive towards implementing necessary legislation that will secure improved disclosure and standards concerning minimum information requirements; all consumers should understand what they purchase, by whom and the full cost.
Comparability between equal financial products from different providers, allowing consumers to make rational decisions, is important, as well as clear and plain language in order to ensure that everyone understands the content quickly, easily and completely.