Distance Marketing Directive failed to grow consumer market in cross-border financial services

A review of the impact of 2002's Distance Marketing of Consumer Financial Services Directive concluded that the market for the services was "very small" and had not been increased due to the Directive.

"The Directive has created in all Member States a legal framework offered to suppliers and consumers for purchasing financial services via distance marketing tools," it said. "While domestic distance marketing of financial services has increased, albeit still at a low level overall, it cannot be concluded at this stage that the existence of this framework has had an impact on furthering the development of cross-border activities

The Directive included within it a provision that a review into its effects and progress be conducted. That was postponed because EU countries took longer than anticipated to implement the Directive in their own laws, with most only passing laws in 2005 and 2006.

"The current market for distance selling of consumer financial services across borders is very small," that review said. "While in 2007, over half (52%) of all Europeans made a purchase of goods or services by distance marketing in the European Union, the figure for financial services by distance marketing was much lower, at 12%."

"Looking at cross-border, as opposed to domestic trade in financial services, there is an even greater contrast. Of the 12% of European citizens who purchased a financial service of some kind by distance marketing, 10% did so from providers in their country, while only 1% purchased distance financial services from EU providers outside their country, and 1% from providers outside the EU," it said. "The most recent statistics show cross border trade in general to be stalling."

The study found that language was the main barrier cited by people for not buying financial services products from companies in other EU countries.

"Citizens rated language problems as the greatest barrier to purchasing financial services cross-border. The figure for language problems was 37%, followed by fraud risk (30%), incomprehensible (29%) or insufficient (26%) information and the extra costs involved (24%)," it said.

The review conceded that such cultural barriers were outside the remit of the Directive and could not be the basis of action by the Commission.

"Language and cultural preferences represent the most significant barrier to consumers engaging in this market," said the report. "However, the Commission cannot take any measure in this area."

"At this stage, there is no evidence that consumers face problems arising from incorrect implementation of the Directive. Nor is there any evidence which would indicate that the legal diversity resulting from Member States using to a varying extent the options contained in the Directive has a direct impact on the low level of cross-border distance marketing of financial services," it said. "In light of the above, the Commission takes the view that at present it is not appropriate to propose any amendments to the Directive. It will continue to monitor developments in the market and the application of the Directive."

The review said that the financial products most likely to be bought at a distance are the simplest ones.

"The offerings which lend themselves to successful adaptation to distance marketing methods primarily include simple products within savings and investments, loans and non-life insurance categories," it said. "The Economic Study reported non-mortgage loans and savings accounts as the two most popular distance marketing products for banks, followed by stocks/shares/bonds and credit cards. When it comes to cross-border offerings of products by distance marketing, the range of products narrows, with savings and credit cards being the simplest and hence the most popular for this market.