New Finance Watch report reveals vulnerable consumers face barriers to basic payment accounts

• Basic payment accounts are unaffordable in 2 out of the 3 EU countries analysed in this report. The EU should make basic payment accounts free for vulnerable consumers. 
• Financial institutions in Germany, Spain and Romania are reluctant to offer basic payment accounts to vulnerable consumers, even after a consumer explains their financial situation. The EU should make it mandatory to offer basic payment accounts as the default option. 
• Rigid documentation requirements make it difficult for vulnerable consumers to access basic payment accounts. More flexibility is required here, including allowing consumers lacking proper documentation to open such accounts, albeit with close monitoring.
• In all 3 EU countries, both credit institutions and Member States fail to raise awareness about basic payment accounts. The EU must introduce robust and more prescriptive awareness raising measures for firms and national governments.

Finance Watch today published a new study with data from Germany, Spain, and Romania showing the barriers vulnerable consumers face in accessing basic payment accounts. Given that access to a basic payment account is necessary to fully participate in society, Finance Watch recommends urgent changes to the Payment Accounts Directive (PAD) to remove these barriers in the next EU mandate. 

With 53 real case studies from 3 different EU countries, the barriers to basic payment accounts for vulnerable people living in the EU can be divided into 4 main categories; Affordability, accessibility, availability, and awareness.

Basic payment accounts must be affordable, including for the most vulnerable groups in society whose numbers have increased due to the cost-of-living crisis. In 2022, 21.6% of the EU population were at risk of poverty or social exclusion. 

In this report, Finance Watch assessed whether consumers in Germany, Romania, and Spain can pay the basic payment account fees without this being a financial strain. 

Taking into account national household income levels, the report finds that in Spain, basic payment accounts are affordable, with the fee for this account regulated at the national level. However, this is not the case in Germany and Romania.

In Germany, fees for basic payment accounts across financial institutions range from 58,80€/year to 143,40€/year, and there are no special pricing schemes depending on the level of vulnerability of the consumer. 

In Romania, basic payment accounts should be free for vulnerable consumers under the law, but in reality, the packaging of these accounts with other products, such as overdrafts, and flawed rules when determining if a person can be considered vulnerable can result in higher costs. 

According to Dr. Duygu Damar-Blanken, Research Associate at the Institute for Responsible Finance (iff):

Basic payment accounts should not be a financial burden for the most vulnerable, they should be an enabler of financial and social inclusion. This will only happen when, inter alia, calculation of costs for basic accounts are regulated at EU level.

Finance Watch argues that to ensure cost is not an access barrier for consumers across the EU on no or low incomes, the PAD should mandate that the basic payment account is free for vulnerable citizens. For consumers who are not vulnerable, a fee can be charged, however, this fee needs to be capped in law to ensure it is reasonable.

As well as being affordable, basic payment accounts should be available. On paper, all major credit institutions in Germany, Spain, and Romania offer basic payment accounts. In reality, financial institutions are reluctant to offer them to consumers. 

Finance Watch data reveals that financial institutions normally only offer a basic payment account if the consumer explains that they are vulnerable or once the consumer explicitly asks for it. In Germany, the basic payment account is proactively offered only 53% of the time; in Spain, 48%; and in Romania 31% of the time. Even after stating that the consumer is a vulnerable consumer, a basic payment account is rarely offered in Germany and Romania. 

The report proposes that provisions in the PAD be updated to ensure that financial institutions are obliged to offer a basic payment account as the default option. 

Even if a basic payment account is offered to vulnerable consumers, it can prove challenging to access if the opening process is overly burdensome. Data in this study shows that sometimes opening a basic payment account is made too difficult or even impossible given the documents financial institutions ask prospective clients to provide. 

Most of the documents requested by financial institutions – such as a valid form of identification – to open a basic payment account are justifiable and reasonable. However, some do create unjustified barriers for certain vulnerable groups. For example, a homeless consumer cannot provide proof of permanent address, which according to our data, is requested in all cases in both Germany and Romania and just over half of cases in Spain.  

To ensure vulnerable consumers are not financially excluded, the PAD should be updated to allow those lacking the proper identification documents to still open a basic payment account. This new flexibility could be combined with stricter ongoing monitoring of those payment accounts for potential suspicious activities and restrictions on cash deposits and transfers of funds for consumers without proper identification documents to balance anti-money laundering concerns. When it comes to proof of address, a temporary address or the address of a family or friend should also be made acceptable under PAD. 

Peter Norwood, Senior Research & Advocacy Officer at Finance Watch said: 

To fully participate in society, citizens must be able to access a basic payment account. It’s a necessity for receiving a salary, financial aid, and other essential financial services, like insurance. The account opening process is currently too burdensome for many vulnerable people, and the EU needs to update the rules to address this.

Finally, while financial institutions and governments should be raising awareness about basic payment accounts under the current rules outlined in the PAD, the reality is that adequate awareness-raising measures do not exist, resulting in many consumers who need these accounts not being aware of their existence. 

This study found that in all 3 countries, the staff working in the credit institutions did not know much about the characteristics, fees, and access conditions for basic payment accounts. 

In some cases, this lack of knowledge was compounded by a lack of empathy, as illustrated by the testimony of a mystery shopper presenting as an Iranian citizen with temporary residence in Germany:

When I went to the branch to open a basic payment account the staff was dismissive, the conversation was held without privacy and they even laughed at me between them thinking I didn’t understand German.

Finance Watch recommends introducing a new provision in the rules stipulating that appropriate knowledge and understanding of basic payment accounts, their main target audience, and their conditions are included in the minimum knowledge and competence requirements of staff in financial institutions. Moreover, it urges EU policymakers to introduce more binding specific, and prescriptive awareness-raising measures in the PAD for both national governments and financial institutions. 

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Notes to Editors

Finance Watch will host a webinar today at 12.00 CEST exploring the findings of the report in detail. This is a public event and you can register here.