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Financing of the EU economy - Priorities for building a single retail financial market

Single market for retail customers: what is needed for it to become a reality?

By Kindelán Oteyza Alejandra - Head of Research and Public Policy, Banco Santander


European retail customers are different in culture, knowledge and behaviour and, hence, they have diverse demands and needs. Based on Santander’s experience across Europe, retail banking needs a strong local perspective to understand customers’ needs and provide the best solutions to them.

There are still many barriers to overcome for a single European retail market to be effective. In addition to cultural barriers, there are economic barriers, driven by efficiency and the economies of scale needed to target a specific segment of customers, and also regulatory obstacles that prevent banks from providing services on a cross-border basis.

Focusing on the latter, first, although Banking Union has contributed to improve integration, free movement of deposits is not yet complete. Deposit guarantee schemes remain national, and deposit ring fencing still takes place, particularly in times of turbulence. This is important, as deposits are normally the starting point of a banking relationship.

In addition, differences in national approaches for customer identification, anti-money laundering requirements, marketing, distribution, consumer protection or redress procedures create significant barriers that explain why the European framework remains fragmented and greatly limits cross border supply and demand of retail financial products and services.

We believe that ensuring free movement of deposits -for which a single European deposit guarantee scheme is needed-, and unravelling these regulatory barriers should be the next steps in pursuing a single market for retail financial services.

Regulation of retail financial services should be developed in a more harmonised manner in Europe.

Digital developments could also provide a clear opportunity in this process. Digital tools will help to provide better customer experience and enhance banking relationships. However, digitalisation will not be the answer to all the barriers mentioned. On the contrary, digital services are most affected by these barriers too, and they even require additional legal adjustments in order to be able to provide so-called distant services through electronic identification or signature.

Regulation of retail financial services should be developed in a more harmonised manner in Europe, and solutions should be put in place to allow distant banking services.