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NMa: active monitoring of emerging European payment market

As from 2008 the Single European Payment Area (SEPA) will be operational. It enables identical payment procedures, without any surcharges, for bank customers in all member states. It is now up to commercial banks to devise and introduce an efficient payment system. SEPA provides an excellent opportunity for creating a more efficient, cheaper, more user friendly and more competitive payment transaction system in the single European market. The Netherlands Competition Authority (NMa), however, is concerned that an increased risk of price agreements, market sharing and various other kinds of concerted practices will jeopardise such promising potential. The NMa expresses its concerns in the Financial Sector Monitor (FSM) 2006.

'Market entry may also be hampered, by adjacent markets that show deeply rooted market structures, for instance', explains Pieter Kalbfleisch, Chairman of the Board at the NMa. 'Promises of efficiency, price cuts and innovation – especially in the long term – come under threat if this market lacks effective competition. The NMa, and fellow authorities in the Netherlands and Europe, are of significance here, precisely by making sure that the European payment market flourishes, bearing fruit for consumers'.

Research carried out for the FSM shows that the Dutch market for PIN payments is becoming increasingly competitive. Cuts in the average tariffs for PIN payments, which banks charge to retailers, go beyond the 1 eurocent discount agreed upon by banks and retailers in 2005. This year, smaller retailers in particular will benefit from tariff cuts. The percentage of retailers switching to an alternative provider of PIN services has increased. Still, banks seem unaccustomed to their new role, which demands a more competitive approach towards securing the customer's favour. Such an attitude stimulates further competition in this market.

The financial monitor also establishes that approximately 20 per cent of Dutch consumers switched to another health insurer in early 2006 on the basis of price differences among health insurers with regard to insurance fees. 'This shows once again that it is of essential importance to competition in the healthcare market that consumers take a critical stance', states Kalbfleisch. 'It should also be taken as an important signal to health insurers: be competitive, not just by reducing costs, but also by providing innovative healthcare products and improved quality of service also.' The NMa's leading man takes a critical view of publicly giving out 'signals' on fee levels expected for the near future, which occurred several times over the past year. 'This may impede price competition, as health insurers take such signals into account in determining their price policy. This may result in an unnecessary increase in healthcare fees.' The increasing popularity of collective healthcare contracts has not yet prompted health insurers to broaden their scope and acquire market shares outside their own region in any substantial way. Nevertheless, the NMa points out that a trend emerges towards a national healthcare market.

This year the NMa has also surveyed developments in the market for income protection insurance. This market is being privatised step by step, and is therefore in flux. As a result of the termination of the Income Protection Insurance Act for the Self-Employed [Wet Arbeidsongeschiktheidsverzekering Zelfstandigen/ WAZ], self-employed workers need to take out a private insurance to cover a minimum amount of benefit in case of an accident or sickness. The FSM finds that the insurance replacing WAZ does not meet the requirements of self-employed workers. Insurers employ a waiting period of two years. As a result, the insurance is not of any direct benefit to policy holders. Also, switching costs are substantial. A redrafting of insurance conditions would be most welcome. The insurance would also be more effective if self-employed workers set up a collective insurance scheme to cover for income protection in case of an accident or sickness.

The NMa also focuses on the emergence of a new European market for implementing collective pension schemes, in which competition is introduced. As pension funds and executive bodies are considered to be undertakings, they are subject to the NMa competition enforcement regime. In 2007 the FSM will closely monitor developments, particularly those involving executive bodies.

The FSM was set up in 2003 with support of the Ministry of Finance. The team performs economic research into the functioning of financial markets and signals the risks to competition. The FSM does not reflect formal opinions of the NMa, as relevant within the framework of the Competition Act. It does, however, aim to share knowledge and information that is of interest to parties within and outside of the financial sector. The NMa welcomes readers' response to this year's edition of the monitor.




Financial Sector Monitor (FSM) 2006 (PDF - 1.08 MB)