Barrier to banking: challenges faced by Europe’s vulnerable in accessing basic bank accounts

With a rising cost-of-living crisis amplifying the urgency, the organization calls for a thorough review of existing rules to ensure inclusivity. In countries like Romania, Bulgaria, and Hungary, a considerable portion of the population remains unbanked, with percentages ranging from 12% to 30%. The Payment Accounts Directive (PAD) introduced by the EU in 2014 was intended to address this issue, guaranteeing every citizen the right to a basic bank account facilitating essential financial transactions. However, a decade later, many vulnerable individuals still encounter barriers to accessing these vital services.

Factors contributing to this challenge include insufficient awareness campaigns, affordability concerns, documentation requirements, and reluctance from financial institutions to offer and inform consumers about basic accounts. In Romania, for instance, while basic accounts are mandated to be free for vulnerable consumers, they are often bundled with additional services and sold as packages.

The issue of financial inclusion intersects with broader economic realities, as highlighted by the Romanian Banking Association, linking low levels of financial inclusion to a significant grey economy representation in GDP. Contrarily, the European Consumers’ Organisation points to diminishing bank branches and high fees associated with basic accounts as exacerbating the problem.

Disparities in basic account costs across EU countries further compound the issue. While some countries offer these accounts for free or at reasonable fees, others impose substantial monthly charges. Despite provisions in the directive requiring reasonable fees, ambiguity persists regarding what constitutes a reasonable fee.

Homeless individuals and refugees, ostensibly covered by the directive, face additional challenges due to bureaucratic barriers and lack of proper identification documents. Banks’ stringent requirements, ostensibly to prevent money laundering, often hinder these groups from accessing basic banking services.

Clear discrepancies exist among member states in interpreting and implementing the directive, particularly regarding proof of address requirements. Addressing these challenges necessitates a pan-European solution, as underscored by Finance Watch. However, with no imminent action outlined in the EU executive’s agenda, resolution of these issues may have to wait until the next mandate.

The persistent obstacles faced by Europe’s vulnerable populations in accessing basic banking services underscore the pressing need for comprehensive reform to ensure financial inclusivity for all.