Examination of witnesses (Questions 40
- 59)
TUESDAY 18 APRIL
2000
MR MATTHEW
BARRETT, MR
BILL DALTON
and MR PETER
ELLWOOD
40. Which is over three times what it costs.
(Mr Dalton) I think Mr Cruickshank said that he calculated
the cost of transactions was 30p.
41. Yes.
(Mr Dalton) I am not sure whether the methodology
was absolutely correct there because if we have 85 per cent of
our transactions which are no charge, which we do, then the one
pound charge for the 15 per cent would not be likely to cover
the total cost of all the transactions.
42. It is rather surprising that having had
this report now for some weeks neither of you seem to have done
an analysis when this is a significant conclusion of the report.
(Mr Dalton) I should like to say that we have done
an analysis and the fact is that the cost of 30p applied to only
15 per cent of the transactions does not cover the costs of the
ATM network.
43. It does not.
(Mr Dalton) No.
44. Mr Ellwood, you have just surprised us with
your announcement of a 50p charge from the beginning of next year.
That is still substantially above what Mr Cruickshank is saying.
(Mr Ellwood) We do not necessarily accept Mr Cruickshank's
figures entirely. There are many, many ways you can calculate
the cost of a transaction when there are so many transactions
going through. We put the cost closer to 38p but one accepts that
there are different ways of allocating the costs of things like
ATMs.
45. Mr Cruickshank is actually saying that the
marginal cost is 15p. Thirty pence is when you put everything
in.
(Mr Ellwood) It is quite legitimate to put "everything
in" to use your words; things like depreciation on equipment
and the maintenance of the kit. That is quite legitimate. The
marginal figure is not the relevant one. The relevant one on Mr
Cruickshank's figures is 30p. I am just saying that on the way
we have done the arithmetic it is a little higher than that.
Chairman
46. Why did you announce 50p if you say 38p
is a fair figure?
(Mr Ellwood) Because we need to make a profit. Thirty-eight
pence is the cost, so 50p is the charge. Not only will that create
a small profit for us, but hopefully it will encourage new competitors
to come into the market and that is where the market is going,
certainly that is where the market has gone in the States with
very competitive levels, people vying for higher volumes. It is
really a judgemental thing. We are saying not 30p but 38p. There
is not a huge difference but we think the cost is higher than
quoted by Mr Cruickshank.
Mr Beard
47. Would it be fair to say that the outcry
over these charges has really surprised you and now you are having
to react in an emergency situation? Is that not fair?
(Mr Barrett) It is fair comment. I was surprised that
something which was in the aggregate as customer friendly as this
set of changes would raise angst. In fact the net of these
changes from a policy point of view cost us money. Whichever marketing
genius dreamt up the term "disloyalty fees" should be
working somewhere else. We decided to do something which cost
us money because it was customer friendly on several fronts. It
was a complicated story to get across but the facts of the matter
are that this series of changes will mean less money in our pockets
and more money in the pockets of consumers than the system yesterday.
Therefore, inasmuch as it was positive for the UK consumer in
the aggregate and will create behaviours and incentives in the
system to improve it even further, I should have thought we should
have got applause frankly.
Chairman
48. You think you should have had applause,
do you?
(Mr Barrett) I should have liked it, but I am a realist.
Mr Ruffley
49. You said it has cost you money. What has
it cost you in terms of your bank's reputation?
(Mr Barrett) First of all let me acknowledge whether
I like the institution being raked over the coals and the answer
is no. We worry a great deal about our image and reputation so
of course it hurts. You do have to keep it in perspective; at
least I do, perhaps you do not. I remind myself that in the latest
spate of things the changes we made affected three per cent of
our customer base; 97 per cent was untouched. I remind myself
that is one per cent of our sales, etcetera. It is a fact of life
that it is easier to write the emotionally laden story than it
is to respond to it. We are learning from that. I do not like
it, no, and I am going to work hard to turn that around. I am
going to work hard to have people understand that what we are
trying to do is in the best interests of customers, employees,
shareholders and the community. In doing that, from time to time
I have to make choices and I should like to be seen to be reasonable
when I am doing that. Can we do better? Yes. Are we very good
at public relations? No, clearly, because if it is like the ATM
issue, if you are doing something which is very customer friendly
and it ends up backfiring on you, then you are clearly not very
good at the way you are communicating it and we have resolved
as a management team, that we are going to do a better job on
this because we are doing a lot of good things and we are not
getting the recognition for it. Obviously I shall work harder
on that.
50. A lot of your rural customers were pretty
appalled by the announcements your bank has made recently. Can
I take the statement you have just made as you saying sorry to
those customers? Is that an apology? It sounded like one.
(Mr Barrett) It is not an apology. Do I regret the
fact that I cannot keep 100 per cent of my customer base happy
at all times? Of course I do. I am forced, as indeed are other
suppliers of services into those communities, be they health,
medicine, transportation, post offices, stores, butchers ... These
phenomena of migratory patterns which are causing difficulties
for low populated remote communities are very real and it is poor
consolation to the people who are inconvenienced in those communities,
but my obligations are to run a business which improves its productivity
so that I can do the best for the overwhelming majority of my
customers. Running unviable operations, being cross-subsidised
by our operations in more populous regions, is not sustainable
and it is an unlevel playing field. We all applaud competition.
The Cruickshank report is all about competition; we applaud that
but there are consequences associated with it.
51. We are going to move onto rural closures
a bit later. Can I take it that you are expressing regret but
not sorrow?
(Mr Barrett) I regret inconveniencing one customer
but the practical reality is that I cannot sustain unviable operations
and improve the productivity of the company.
52. May I move on to cash machine charges in
the context of everything which is going on in your bank? What
will the level of surcharge be? Can you tell us today?
(Mr Barrett) What will the price be?
53. Surcharge for non-bank customers.
(Mr Barrett) Our ingoing position was one pound.
54. Any lower? Any bids for anything lower?
(Mr Barrett) I shall see. Competition is alive and
well. I have to decide on what the competitive dynamics of alternative
offers are.
Chairman
55. Bidding has started there.
(Mr Barrett) You have to give me time to reflect on
it.
Mr Ruffley
56. On that point, you have known you would
be coming here for a while, yet you are telling your customers
and this Committee and the whole world that you are not going
to decide the level of surcharge until next January. Why?
(Mr Barrett) I did not say that. I said at the moment
it is one pound. I am saying that prices are subject to revision
continuously. Therefore if competitive forces mean that one pound
is not sustainable as a value proposition for my customers, I
shall either lower it or I shall exit providing that product.
That is what businesses do.
57. Why did your spokesman say that one pound
was merely a stake in the ground?
(Mr Barrett) He meant by that, that that is the opening
bid and that competitive forces were likely—and it is proven
today; he was actually quite prescient. What he said was that
it was an opening stake in the ground but that the interplay of
competition would likely drive the price down and it has. Just
as our movement to eliminate disloyalty fees has now had contagion
in the market, so now millions and millions of UK customers are
no longer paying something as a result of a competitive action
by Barclays. Different rivals will take different moves and then
they will either be emulated or not or they will suffer the consequences
or not.
58. Let me tell you why it is very important
for customers of yours in rural areas. You must have some working
definition of a rural customer. How many rural customers are going
to have to go to post offices now and post office cash machines
now as a result of your bank closures?
(Mr Barrett) A couple of hundred thousand.
59. How many cash machines are you now planning
to instal in rural post offices and on what timescale?
(Mr Barrett) Of the 171 branch closures we announced,
110 of those already have another financial institution in the
market so no problem there. The major issue for the rural customer—given
contemporary banking; you do not have to surf the net to do banking,
you can do it on the telephone—is their calls on cash. We
have now signed a national agreement with the Post Office, which
will improve the viability of post offices remaining open and
within two weeks those customers will now not be disadvantaged
on encashment of cheques. We are trying to respond through initiatives
like the Post Office. We test marketed this in Cornwall. Do I
wish we had had it in place before we did the closures? Yes. There
were many factors, which I shall not go into because they would
bore you, but the relationship is not a non-trivial issue and
the Post Office has been very good with us. Then we asked whether
it could be accelerated.
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