NMa: Long-Lasting Relationships Influence Competition in the Financial Sector

The preference of buyers for long-lasting relationships with providers of financial products may have a negative effect on the degree of competition within the financial sector. This preference may even result in higher prices. The cost of switching to different financial products may further reinforce this situation. This is the conclusion which the Netherlands Competition Authority (NMa ) reaches in the Financial Sector Monitor (FSM) for 2004.

Pieter Kalbfleisch, Director-General of NMa, on this result from the Monitor: "The preference for a long-lasting relationship is not strange in itself, due to the advantages of this, such as the greater likelihood of being granted credit, convenience and security." According to Kalbfleisch, who regards critical customers as the driving force behind competition, it is advisable for buyers to consider not only their relationship with their provider, but also to consider the price of the product. "Ultimately it is they who bring about competition by deciding what they purchase from whom at the most competitive price."

Specific attention is given in the Monitor to the trade in shares. These markets for clearing, settlement and registration are characterised by relatively high risk of reduced competition due to their combination of dominant market positions and high barriers to entry, such as switching costs, vertical integration, and legislation and regulations. Since the degree of competition may be adversely affected, this may result in buyers' incurring relatively high costs for share transactions. In 2005, FSM will pay attention, for instance, to investment funds and the advice given by insurance brokers with regard to life insurance.

FSM was set up at the beginning of 2003 with the support of the Ministry of Finance. It conducts economic research into the operation of the financial markets and analyses risks to competition. As was announced in the first edition, FSM conducted research in the past year into competition on various financial product markets. In the Monitor, NMa does not make a formal assessment in relation to the enforcement of the Competition Act. Its aim is to share knowledge and insights with all interested parties within and outside the financial sector. NMa invites interested parties to respond to the contents of the second edition of the FSM.