The Blog Financial reform for EU citizen
Financial inclusion is key to a resilient, equitable society. Yet many struggle to access basic banking services, fair credit, and secure digital payments. By addressing issues like discriminatory lending, deceptive financial practices and limited competition in the payment systems market, policymakers can help the financial system serve everyone.
Financial Inclusion is the availability of and equality of access to certain essential financial services, which are vital for social participation, economic well-being and protection against unexpected life events.
Consider a few scenarios: What if you couldn’t open a bank account with basic features, such as the ability to make online payments? How would you pay your bills? Or imagine you signed up for a financial service after being lured in by deceptive website design – only to find hidden fees draining your account.
These situations aren’t fictional. Many vulnerable people across Europe cannot access the financial services they need. What’s more, a lack of adequate consumer protection in the retail financial services market often impacts society’s most vulnerable groups – the elderly, pensioners, the unemployed, refugees and asylum seekers, those without permanent residence permits and the poor.
Consumers of financial services must be treated fairly and protected from malpractices by firms that can cause them financial harm.
Read on to learn what financial inclusion is, why it matters, and how inclusivity in finance can create a more equitable society.
Unaffordable offers prevent people from building the wealth necessary to fully participate in society, while exploitative practices can cause people to fall into burdensome debt.
Take the issue of affordable housing. At its core, housing is fundamental for a secure, productive and fulfilling life. Homeownership is also key to building wealth over time – an important aspect of financial inclusion.
But housing has become so unaffordable that, according to recent data from the European Central Bank, 30% of lower-income households expected to make late payments on their mortgages in the first quarter of 2024.
While there are many reasons behind the surging cost of housing – ranging from demographic changes to higher building costs – rising mortgage rates play a major role.
Borrowers with variable-rate mortgages in particular have faced steep increases as central banks have raised interest rates. Variable-rate mortgages – prevailing in many European countries – pose notable risks for consumers, particularly the vulnerable, who may take on such mortgages amid low-interest periods only to face hefty rate hikes later.
Then there’s the issue of add-ons often bundled into mortgages. Ancillary products, such as payment protection insurance, further drive up mortgage costs. These add-ons are often obligatory; consumers cannot otherwise access a mortgage, or a more favourable interest rate, without also purchasing the required ancillary products.
Worse yet, some extras like payment protection insurance only cover highly specific cases of incapacity to pay, such as the death of the mortgage holder. Coupled with rising interest rates, these excessive costs have either effectively priced out of the mortgage market certain vulnerable groups, or increased their debt burden.
Addressing the issues of affordable housing and over-indebtedness is crucial for fostering financial inclusion. Implementing targeted measures to existing EU legislation, such as the Mortgage Credit DirectiveThe Mortgage Credit Directive is a piece of EU legislation designed to create a fair and transparent mortgage market while ensuring strong consumer protections. As a directive, it sets out certain rules that all EU Member States must follow, but each country has the flexibility to decide how to implement these rules in its national laws. Revising the Mortgage Credit Directive could help address the issues of affordable housing and overindebtedness, fostering a more inclusive financial system., would go a long way towards protecting consumers and improving the situation for vulnerable groups. These measures should include:
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Issues around affordable housing aren’t the only obstacles people face in becoming financially included members of society. The digitalisation of EU consumer markets is also reshaping access to financial services and retail investment products in ways that can put people at risk.
Today, consumers must confront a range of misleading and exploitative tactics when accessing digital financial services.
Influencer marketing – a type of collaboration between popular social media figures and brands to promote products and services – is a rising trend in Europe, including in the financial sector. While influencers are an important source of information for young people, they often lack the competence to promote such products and are driven by conflicts of interest. The trend has seen numerous cases of huge financial losses on the part of consumers who were encouraged to purchase risky investment products, such as cryptocurrency, without being informed of the inherent risks.
Through unsolicited personalised advertising, companies use AI to analyse consumer data and deliver tailored marketing, often without the consumer’s prior knowledge or consent. Algorithms can identify a consumer’s propensity for compulsive buying and generate individualised ads, nudging the consumer toward risky financial products and leading them to overspend.
Dark patterns, or deceptive interface designs, push consumers toward choices that may not be in their best interest. By pushing repeated requests with pop-ups, making it difficult to cancel or opt out of services, hiding important information and creating false urgency to pressure purchases, dark patterns can bring enormous financial harm.
To better protect consumers from exclusionary and predatory practices that can lead to financial harm, policymakers should address the risks consumers face in the digital sphere by amending existing EU regulations, such as the Unfair Commercial Practices Directive.The Unfair Commercial Practices Directive is a piece of EU legislation designed to target unfair business to consumer commercial tactics, such as misleading, aggressive or otherwise deceptive practices. As a directive, it sets out certain rules that all EU Member States must follow, but each country has the flexibility to decide how to implement these rules in its national laws. However, its implementation is far from uniform.
These are just some of the tactics undermining financial inclusion and trust in the financial system, but they’re not the only ones. Discover the unfair commercial practices putting consumers of financial services at risk.
The digitalisation of the consumer marketplace has transformed how people access and use financial services. Make no mistake, modern digital solutions do offer convenience, efficiency, and speed in everyday transactions.
However, these benefits can come at a cost. For example, most cashless payment options – cards, electronic transfers, and mobile payments – are controlled by private-sector companies that charge fees and collect vast amounts of user data.
In Europe, the market for card-based payments is highly concentrated and dominated by just a few international players, while mobile payments are largely controlled by tech giants like Apple and Alphabet (Google).
Such dominance not only reduces consumer choice, but can lead to anti-competitive practices, excessive fee collection and data privacy concerns – all of which contribute to financial exclusion.
A proposed solution to address these challenges is a Digital Euro – a central bank digital currency that would function as a public alternative to existing digital payment systems. Unlike private-sector solutions, the Digital Euro could aid Europe’s financial sovereignty, providing a free and privacy-protected payment option for all Eurozone residents, reducing reliance on dominant payment firms and fostering financial inclusion.
However, while the Digital Euro has the potential to enhance trust, accessibility and choice, if implemented, it shouldn’t inadvertently exclude certain groups, such as the elderly.
Furthermore, maintaining cash as a viable option alongside digital solutions is essential to ensure that financial inclusion doesn’t come at the expense of those who prefer or depend on physical currency.
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By striking a balance between innovation and inclusivity, a Digital Euro could empower consumers, promote competition, and safeguard financial sovereignty.
To fully participate in society, people need access to a payment account. Basic payment accounts empower individuals to:
In short, access to a payment account is crucial not just for social and financial inclusion, but overall well-being.
Unfortunately, in many EU Member States, large numbers of the population lack access to formal banking services. As recently as 2021, nearly 31% of the population in Romania did not own a bank account, while 12-16% of the population in Hungary and Bulgaria were unbanked.
The situation is improving, but the numbers are alarming given the importance of basic payment accounts to financial and social inclusion.
According to a recent Finance Watch study, various factors contribute to consumers’ lack of access to basic payment accounts. These factors include the affordability of the accounts, consumers’ awareness of them, issues of documentation, and unwillingness by financial institutions to proactively inform consumers about these accounts, as well as offer them.
Thus, the financial sector plays a vital role in ensuring people are financially and socially included in society. Importantly, this role is rooted in EU legislation. The Payment Accounts Directive came into force in 2014 to provide people in the EU, including vulnerable consumers such as low-income individuals, refugees, and the homeless, with the right to access a payment account with basic features.
To achieve a more inclusive system, financial institutions and policymakers have a responsibility to put concrete measures in place to ensure that basic payment accounts are accessible to all, especially vulnerable consumers. Such measures should include:
A truly inclusive financial system ensures that everyone – regardless of income, background, or circumstances – has access to essential financial services.
Fair mortgage terms and protections against exploitative lending can help more people achieve homeownership, build wealth, and gain economic security.
Likewise, stronger safeguards against unscrupulous marketing and deceptive digital practices can enable consumers to make informed choices and avoid the risks that can lead to financial detriment and over-indebtedness.
Image credit: Adobe Stock
For consumers to have financial freedom, access to both cash and digital currency is essential. A well-balanced system that maintains cash while offering safe and inclusive digital alternatives, like a potential Digital Euro, further strengthens consumer choice and accessibility.
Fundamentally, universal access to basic banking services allows people to fully participate in society—enabling them to receive wages, pay bills, and manage finances without roadblocks. Ultimately, breaking down these barriers promotes a more equitable society that empowers individuals, fosters economic resilience, and creates opportunities for all its members.
Finance Watch is a non-profit association dedicated to reforming financial regulation in the interest of people and the planet.
Our work covers various key topics, including sustainable finance, public finance, stability and supervision, digital finance, and retail finance and inclusion. Through the latter, we’re committed to addressing exclusionary practices and helping shape a safe and fair system that empowers people.
As an example, take the Consumer Credit Directive – the EU legislation tasked with safeguarding the consumer credit market. It requires responsible lending practices by firms and helps individuals make informed choices when signing up for a credit agreement.
In 2023, the EU revised the Consumer Credit Directive. Throughout the review process, Finance Watch – alongside members and allies – met with lawmakers to explain why the rules urgently needed to be amended and better adapted to the digital age.
Finance Watch presented Members of the European Parliament, financial attachés from EU Member States, and officials from the European Commission, with real-world examples of where the rules fall short, urging them to use their political capital to protect consumers. And they did.
The revised Consumer Credit Directive better reflects the digital world. It clarifies the data that creditors aren’t allowed to use when assessing creditworthiness, like information on one’s ethnic origin, political beliefs, health data or social media data. The new rules better help existing borrowers struggling to repay their loans. It’s a big step forward!
Finance Watch’s impact is made possible in large part by its members. Consumer groups, housing associations, trade unions, NGOs, and individuals, such as financial experts and academics, all help the organisation represent the public interest to policymakers.
But you don’t have to be a Finance Watch member to help make finance serve society. You can raise awareness of financial inclusion by sharing our reports, publications and articles on social media and within your network, or by signing up to our monthly newsletter.
A financial system that serves everyone is possible. Learn how you can be part of the change.
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