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The Price-Tag Mystery

Even in a global economy, banking remains local.

A recent study from Capgemini Ernst & Young, the European Financial Management & Marketing Association (EFMA), and ING Group demonstrates a wide disparity in the cost of banking services across North America and Europe. The inaugural survey calculated the prices for a basket of core transaction services at several major banks in each of 11 countries. The basket reflects typical customer-usage patterns for deposits, withdrawals, statements, ATMs, wire transfers and EBPP, while excluding rate-sensitive items such as loan and deposit pricing.

Across the markets surveyed, the average price for a year's worth of core banking in 2003 was $205, ranging from $38 in the Netherlands to $615 in Italy. The U.S. came in near the average, at $215. Spain, France and Germany priced their services similarly, at slightly over $122. [Editor's note: 1 euro = U.S. $1.2]

The results showed that the cost of providing banking service has little bearing on the ultimate price. "There were no strong correlations between what prices are charged to consumers relative to the cost structure of the banking systems," says Keith Stock, vice president and banking leader for the Americas, Capgemini (New York). "You would expect to find higher-cost banking systems to have passed that along in the form of higher prices to the customers, and that's not the case."

Furthermore, high-cost banking systems didn't necessarily offer the best rates. For instance, the rate spread between savings and loans was 4.5 percent in Italy, but only 2.2 percent in Spain. Compared with other markets, Italian customers pay not only higher fees, but also higher interest rates.

Local income levels, labor costs, market size and the competitive environment all failed to explain the price differential. The level of regulation, however, did have an impact, especially in highly concentrated banking markets such as the Netherlands. The survey concluded that even for global banks, pricing has been "a purely domestic decision that seldom factors in how banks in other countries are setting their prices."

But one striking factor was the relative sophistication of U.S. service levels. "The breadth of products and services, the functionality and the convenience that is provided to the consumer [in the U.S.] is quite extensive," Stock says, citing high numbers of bank branches and ATMs, as well as high-quality online services. "The value added for consumers has increased dramatically, yet the prices have not increased proportionately."

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