Digital innovations are rapidly transforming how consumers use financial services, bringing with it a growing appetite for a more integrated retail financial service in the EU. To explore the options here, the European Commission launched an initial consultation and presented an explorative Green Paper in December 2015 to identify solutions that would offer consumers and businesses alike better products, more choice and greater opportunities. The Green Paper had a broad remit, but in relation to transparency of fees and processes in cross- boarder currency transactions, it stated that 'opaque and potentially excessive fees are a deterrent to cross-border transactions.' They noticed there was real room for improvement. The Commission responded to the issues and concerns raised with the Green Paper with the publication of a Consumer Financial Services Action Plan in March 2017.
In unpacking the Green Paper's key conclusions, the report asserted that currency conversion is, for the most part, not a transparent process for consumers. Whether they are making in store payments by card or mobile or withdrawing funds from cash machines, consumers are often confused and unable to make informed financial decisions when it came to currency conversion at the point-of-sale. The Green Paper went onto outline that currency conversion is usually offered by the bank that issued the consumers card, but more recently merchants have increasingly offered the option of using the currency exchange rate of their own bank. This at least provides some transparency to consumers and could provide better value for money. However, the merchant rates are not systematically better for consumers and they are often difficult to compare on a case by case basis with the rates offered by the consumer's bank as the precise rates offered by the banks are not available to consumers at the time of the transaction.
Added to this, rates and charges fluctuate in line with foreign exchange rates and the margin applied to currency conversion rates differ from one bank to the next. As part of this report, Dynamic Currency Conversion (DCC), which affords consumers transparency when making a card payment abroad in offering the choice of paying in their native currency or in the currency of the country they are in, is also being examined.
The Commission is looking at DCC practices to understand how transparent information given to consumers is in order for them to make well-informed decisions when choosing their payment method.
Steps have already been made to bring about further clarity. The revised Payment Services Directive (PSD2), introduced in January 13th of this year to all EU member states, aimed to help improve transparency with its disclosure requirements for transactions in a foreign currency. Nevertheless, the Commission believes that further guidelines for national authorities on the proper enforcement of transparency requirements are still needed. Ahead of any guidelines being devised and implemented as a result of the Action Plan, the Commission has committed to investigating further and has promised to develop a broader evidence-based perspective on dynamic currency conversion. To this end, 'Action 2' of the plan has been set to completing a review of all practices in dynamic currency conversion. The aim of this will be to find the best solutions that will enable consumers to choose the best value transaction rate.
This exploration and the launch of the Commission's public consultation to gain a rounded perspective on Dynamic Currency Conversion has been welcomed by the DCC Forum. It is an opportunity to discuss and unequivocally demonstrate the value and transactional transparency available to consumers in accessing the best possible deal when making purchases abroad . As a body of members, we have met and deliberated with the Commission on the provision of informed and transparent transactional procedures and provided a detailed response to the questions raised by the Commission in their consultation document.
Consumer choice is at the heart of our organisation and we are set on working with the Commission to ensure all financial services involved work towards this same sentiment. We look forward to the publication of the Commission's findings and the opportunities around DCC for consumers and the financial services sector alike.