Introduction

The Belgian Competition Authority (“BCA”) recently issued a report on the competitive functioning and health of the Belgian retail banking market. This report, which follows a separate preliminary investigation by the BCA into a possible informal agreement not to compete with a State-issued treasury bond, seems to form part of a wider concern about the competitiveness of the financial sector. Similar investigations have for example also been opened in the Netherlands. 

The report indicates a steady increase in the concentration of the Belgian retail banking sector over time. As of 2022, the four largest banks held approximately 70% of the market, a figure largely unaffected by the financial and COVID-19 crises. The BCA suggests that the characteristics of such a concentrated market, such as market transparency, service offerings similarity and frequent interactions, may enable coordination among these key players. The BCA also identifies several interrelated factors that may have led to the sector’s limited degree of competition and proposes several solutions.

Consumer loyalty

The BCA highlights a low level of consumer mobility in the market, with consumers generally unresponsive to price increases or decreased service quality. For instance, the external switching rate was only 9% in 2019. Several factors may explain this trend. 

First, the BCA identifies a lack of transparency and information asymmetry, combined with insufficient countervailing buyer power. The complex landscape of Belgian retail banking makes it challenging for consumers to find comprehensive and reliable information for objective comparisons. This hinders consumers in their ability to shop around. 

Second, the BCA states that administrative constraints impede consumer mobility. Existing mechanisms such as the Bankswitching system, intended to facilitate easy account transfers between banks, are considered inadequate and flawed. The BCA criticises the system for being voluntary for banks and for its significant administrative hurdles such as loss of bank account history or difficulties transferring direct debits. 

Fostering fidelity

In addition to administrative constraints, the BCA suggests that certain commercial banking practices could encourage consumer loyalty. These practices often involve the linking of different products (e.g., customers cannot open a savings account without also having a checking account or borrowers must take out insurance contracts with the same bank) or the provision of conditional rebates.

The BCA further criticises the Belgian system of interest rates, which combines a base rate with a fidelity premium. The BCA argues that this system not only discourages consumer mobility but also complicates consumers’ comparison of different offers. 

Parallel behaviour? 

The BCA’s report also discusses potential parallel behaviour among the four major banks. The BCA argued that the market characteristics ordinarily call for strong price competition – which currently appears largely absent. 

While consumers may struggle with lack of transparency, the BCA suggests there may be too much transparency among the largest players. Corporate communications, public announcements, and frequent interactions within the sector association allow the four major banks to “move as a pack”. 

The BCA believes that the banks’ commercial practices regarding interest rates on savings accounts reflect their mutual observation and imitation of each other’s behaviour. With a pass-through rate of the ECB deposit rate to savings rates of only 12%, the BCA observes that this is particularly slow and incomplete compared to the average eurozone pass-through rate of 20%. The average return on savings is also systematically lower for the major banks compared to smaller players.

The BCA also expresses scepticism about the public announcements of the four major banks in the context of the State treasury bond, which was subject to a separate investigation. 

Further implications

The BCA clarified that its inquiry did not investigate any potential violations and that it could not make use of its full investigative powers due to the lack of legal basis in that regard. Consequently, the report primarily outlines the factors perceived as either beneficial or detrimental to the market’s competitiveness. 

Nevertheless, the authority seized this opportunity to propose several approaches to enhance competition:

• Improving consumer information, by consolidating available information on financial offers through a neutral, independent body.
• Implementing an IBAN portability system, which would allow consumers to retain their bank account number when moving banks. This proposal seems to draw inspiration from the telecom sector, where customers can keep their number when switching providers.[1]
• Establishing clearer and stricter rules on product separation, alongside a principled ban on tied sales and bundled offers. 
• Eliminate or simplifying the distinction between base rates and loyalty rates. 

This report serves as a timely reminder to entities operating within concentrated sectors: adherence to competition rules is paramount. Authorities like the BCA will be closely monitoring for signs of parallel behaviour and implicit alignment, including within the context of trade associations. The BCA also cautions that it will be particularly vigilant regarding information exchanges and other potential forms of collusion between banks. 

For more information or further guidance in this area, please contact Baptist Vleeshouwers or Ruben Verdoodt. 

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[1] Article 106 of the European Electronic Communications Code (Directive 2018/1972).