EU Basic Banking Legislation: A Step Too Far?

Mike Fromant, Managing Director of Contis Group

Since the European Parliament opened up the market in 2011, authorised e-money institutions have become a new force in European financial services, one capable of offering consumers a bona fide alternative to traditional banking. Just in the nick of time, too. The ‘unbanked’ are on the rise and all but one of the high street banks have withdrawn their services for the newly bankrupt. In 2013, it will fall to Credit Unions and e-money institutions to extend their reach and work together to provide effective support to those in financial difficulty.

Efforts are already underway and Contis has witnessed a surge in its engagement with Credit Unions in 2012, together with widespread adoption of its bespoke prepaid credEcardplus financial solution.

But all this may be about to change. In 2012, MEPs have been calling for European legislation to be tabled in January which will make having a bank account a legal right for the 10% of EU citizens that sit outside the traditional banking system. These include, amongst others, homeless people, those on very low incomes, students, people with no credit record and expatriate workers. If passed, the legislation would drag the banks kicking and screaming back to a market where they clearly don’t want to be.

While any move to widen the options for consumers in financial difficulty should be applauded, forcing the hands of traditional banks is not a smart move, and unless the banks outsource their services, the whole operation will be counterproductive for consumers.

By adopting forward thinking e-money solutions like credEcardplus, Credit Unions are now able to provide many of the traditional money management facilities that banks are refusing to offer, like an e-account together with an account number and sort code, for example, which is capable of supporting standing orders, money transfers and benefit payments. By taking this route, members can also benefit from ATM access and worldwide payment acceptance, again, all without a traditional bank account, via Credit Union-issued prepaid and debit cards powered by the major payment schemes. What’s more, many of the unbanked are now reaping benefits that they simply couldn’t get from traditional banking, like cash back from incentive reward and loyalty schemes linked to their e-account.

But Credit Unions and e-money institutions don’t command the same level of consumer awareness as major banks, so it’s safe to say that the proposed legislation will cause many to automatically opt for a banking service, when in reality, a Credit Union membership would be far better suited to their needs.

With this in mind, e-money institutions and Credit Unions should be joining forces to show leadership in 2013. They must work together to maximise consumer awareness of their services, banging the drum loud and clear about their value and the benefits they offer members over traditional banking.

But if this legislation does go through, these actions alone will not be nearly enough. E-money providers will also need to demonstrate to the banks how servicing this market can be sustained in the long term. Taking on a fully managed, outsourced prepaid and debit service from an e-money provider like Contis is just about the only way a high street bank will be able to build an offering that fulfils its legal obligations without revenue loss and disruption to its priority operations.

Despite its infancy, the e-money industry will have a big role to play this year if it is to adequately represent the interests of the individuals it serves.