Examination of Witnesses (Questions 179
TUESDAY 16 JANUARY 2001
178. Welcome. Would you like to introduce yourselves,
(Mr Paul Dixon) I am Paul Dixon from the National
Consumer Council; I am a Senior Policy Officer.
(Ms Johnstone) I am Jill Johnstone; I
am Head of Policy, Research & Strategy at the National Consumer
(Ms Childs) I am Michelle Childs; I am Head of Policy
Research at the Consumers' Association.
(Mr Evans) I am Phil Evans, Principal Policy Adviser
at the Consumers' Association.
179. Thank you very much for coming. Following
the Government's decisions on the Cruickshank Report, do you think
there will be a better deal for consumers? Do you think there
are other things which need to be done? That is a general opening
question which perhaps you would all like to answer, or at least
some of you.
(Ms Childs) The Cruickshank Report goes some way to
dealing with aspects of problems in the banking sector. The Consumers'
Association's position is that there is not effective competition
in the retail banking sector. That is indicated by the fact that
the four big banking institutions still hold about 70 per cent
of the current account market. We do not think there is effective
competition and that is indicated by consumer behaviour. Repeated
Which? research has shown that consumers who bank with
the four big banks do not receive the same level of service. There
is a high level of dissatisfaction with big banks. Less than one
third of the customers of the big four banks whom we surveyed
said they would definitely choose their bank again. We think that
there are several issues which need to be dealt with. The Cruickshank
Report and its primary recommendation in relation to PayCom exists
at the wholesale level and Mr Evans will talk about how we think
that needs to interact at the retail level. We believe that there
are certain aspects in relation to the retail market which also
need to be dealt with which were not covered in the Cruickshank
Report. Primarily we think that there is a need for a strong banking
code. We are pleased with the revision of the Banking Code, but
we think there are still aspects of the code which need to be
improved. I can develop those if you would like me to, but I will
give others a chance to come in. We believe that there are aspects
of mortgage regulation which need to be looked at and we believe
that there is also a necessity to have a strong mutual force in
the market to ensure that there is strong competition in the retail
(Mr Evans) On PayCom, we were very interested in the
focus on the wholesale system. We fully accept and fully agree
with the recommendations that there be non-discrimination and
fair access to the wholesale network. For us the concern is the
relationship between the transmission system at the wholesale
level and the way in which charges are levied on consumers. Whilst
we think there is currently basically insufficient data to prove
a case one way or another in the way in which a relationship exists
between the retail and wholesale networks, what we should like
to see the OFT take on is an information provision role in publishing
information on the relationship between the retail charges and
wholesale charges within that system. It is really transparency
at this stage which is the first order of play as far as we are
(Ms Johnstone) To give a short answer to your question
on whether it would lead to a better deal, the jury is out. We
do not yet know. Like the Consumers' Association we welcome more
regulation of the money transmission system. Obviously very little
information is available about how the OFT is going to carry out
that role yet, so in a sense we have to reserve judgement. In
principle we welcome that tremendously. I should like to concentrate
my comments on consumer disadvantage and the socially and financially
excluded, which is where the National Consumer Council has a particular
remit. There was a useful discussion of universal banking and
the need for universal banking in the Cruickshank Report. He made
two recommendations. One was the idea of having a benchmark for
a minimum banking service to improve information and transparency.
As Mr Evans has already said, there is a problem with information
about banking services for consumers. The other was that the Government
should tender for the provision of universal banking services
having defined them. In other words that they should be taxpayer
financed rather than consumer cross-subsidy financed. Since then
the Government has been in discussions with the banks and with
the Post Office, and in December there was an announcement of
a much more combined banking service both with the basic banking
accounts the banks are already providing or beginning to provide
and the Post Office. We welcome that Government initiative. Obviously
we need to understand more about the detail of it, but we think
this is a welcome way of trying to bring banking services to the
proportion of the population which is currently excluded from
them, which is about seven per cent of households. In a sense
that is a departure from the proposals Cruickshank put forward:
it is based on a joint financing initiative.
180. May I put the same question to Ms Childs
and Ms Johnstone? Cruickshank said that the supply of current
accounts is highly concentrated and holds the key to competition
between suppliers in other product areas. So the share of the
current account market is pretty key. Could you tell me what share
of the current account market the big four banks had at the time
of the publication of Cruickshank? Secondly, what is their current
market share today?
(Ms Childs) I cannot give you exact figures. Roughly
it was about 70 per cent at the time of the Cruickshank Report.
The DTI came out with some figures in relation to the switching
survey which they did where they said it was about 64 per cent
of market share, but I believe you will be taking evidence from
others who can give you the exact detail on that. Roughly we are
talking about between 60 and 70 per cent. What I would say is
that I thoroughly agree with the Cruickshank Report in relation
to the importance of the control of current accounts. If you look
at the market, current accounts are a key gateway to the sale
of the high margin products like pensions. The banks know that.
You also have to take into account the levels of consumer inertia
which mean that if you control the current account market, four
out of five consumers have not considered switching. Once you
have them you can sell a whole variety of products. We agree that
it is a very important issue to look at concentration.
181. That is indeed my point. We are in agreement
there. I am really trying to get a feel for what the statistics
are because 12 months on some of the survey evidence I see suggests
there has been no change in market share at all.
(Ms Childs) There has been no significant change in
(Ms Johnstone) I would agree. I do not know the detailed
figures, but there has been very little change if any. If you
look at the DTI switching report, which is very interesting on
this, where they looked at consumer behaviour in a variety of
markets, when they looked at utility markets as well as financial
service markets, changing your bank account was the thing you
were least likely to do. There is very little switching. There
are lots of barriers to switching; dealing with all your direct
debits for example. Hopefully proposals to make that easier might
help. It is clear that consumers do not switch their current account
very much at all at the moment.
182. It is said statistically you are more likely
to get divorced than you are to change current account. On that
point, may I just remind you what Cruickshank said where he talked
about how customers perceive significant barriers to switching
current accounts, which we know about. He then went on to say
that for markets to work effectively in the interests of consumers
it is vital that the cost of and difficulties of switching are
kept to a minimum. That is in paragraph 4.84. He then went on
to say that his proposed licensing framework for payment services
should help to make switching accounts easier. He then went on
to say that if this proved to be too slow a mechanism it should
be possible for a compulsory account portability scheme to be
imposed. It seems to me that given the market share has hardly
changed at all, 12 months on is a long time, I consider. Is it
not the case for more radical action to prevent the barriers to
switching, radical action to tackle those barriers, what would
your body's view be on that?
(Ms Childs) It is helpful to disaggregate the different
issues around switching. The PayCom proposals are dealing with
one element which is the transfer between banks and that should
have an effect. In relation to switching there are two important
aspects from the consumers' point of view. There is a very real
perception that it is a risky thing to do because your main financial
outgoings are dealt with primarily through your current account,
so there is a resistance by consumers in any event. We have all
seen horror stories about what happened in the past, so there
is an information requirement there. There have been several innovations
from people like Abbey National and Halifax where they have been
trying to take the hassle factor out of switching. One of the
key problems is the time that it takes because if you are trying
to switch, even if Abbey National, for example, just require two
signatures from you and then they will try to arrange to move
all your direct debits, it still takes six weeks to switch and
part of that is that the bank you are switching from can take
ten days to reply to any request. That is just unsustainable in
this day and age. We do believe that more could be done on switching.
What is unclear at the moment is to what extent, if PayCom gets
involved in looking at the money transmission system at the wholesale
level, that will improve at the retail level. What we would say
is that we would want PayCom's remit to look at this interaction
at the wholesale level. It is also worth bearing in mind that
there is a pilot project which has been going on, which is looking
at the electronic switching. We are not convinced that is actually
working at the moment or that it will be delivered on time. A
number of the banks have not been participating in it.
183. That is pretty outrageous, is it not?
(Ms Childs) Yes.
184. You would say it is outrageous.
(Ms Childs) Yes. Given the importance of current accounts
to opening up competition in the market, we think it is very important
that consumers have ease of switching. We also have to acknowledge
that there is an element of consumer inertia but even with that
said, there are both psychological and structural barriers to
them switching which need to be addressed.
185. The big four banks are dragging their feet,
are they not?
(Ms Childs) It is not in their interest to assist
186. I think you are being very diplomatic.
May I give you some figures in a survey which I have in front
of me? Under industry guidelines, voluntary of course, when a
customer asks to transfer an account the bank should give the
relevant details to the new bank within ten days, as you know.
The survey was carried out on 1,000 sample customers who were
switching their accounts from the big four high street banks.
The average time it took for NatWest to transfer an account was
12.8 days, that is over the ten-day limit; HSBC took an average
of 12.1 days; Barclays 10.5 days; Lloyds TSB just took 10 days.
Some of the horror stories with each of those banks were that
the longest it took in the case of NatWest in one case was 29
days, in the case of HSBC 38 days, in the case of Barclays 33
days and in the case of Lloyds TSB a staggering 41 days. What
on earth is going on with the four big banks and what can you
do to apply pressure to expose what is nothing less than a national
(Ms Childs) Which? has reported on the difficulties
of switching for years. We have also put information up on our
website to explain how people can switch, but the problem is that
the power is not in our hands. It is a question you should be
putting to the banks because clearly there are no incentives for
them to assist in this process given the gateway control that
current accounts give them. I also think that it is worse than
that for the reasons I mentioned. It is not only the delay of
the banks you are switching from in giving information but because
it is still a paper based system, even the bank you are switching
to is going to add some element of delay onto it. It is a longer
period even than the one you suggest.
187. Would it surprise you to hear specific
examples of delaying tactics by representatives of the big four?
First of all they feign ignorance of current account transfer
systems, they tell customers to write to another part of the bank,
they say they have problems getting the information from head
office if they are at a branch. These things seem to me quite
extraordinary and I think your organisation does fine work in
exposing this. Is there anything more, apart from exhortation
of the banks, which are not only greedy but are obviously quite,
I would say, deceitful in the way they handle requests for switching
in many cases, though not all? Is there anything more that can
be done more than exhortation?
(Ms Childs) Not by the Consumers' Association but
the point you started with, which was looking at the way in which
there can be rules and the enforcement of those rules to speed
up that process. You also have to look at the electronic transmission.
188. Could you say a bit more about that because
it would be helpful?
(Ms Childs) At the very least it gives them less opportunity
for excuses if there is an ability to transfer. Things do not
get lost in the post if you transfer them electronically.
189. I think they would give it a good go though,
would they not?
(Ms Childs) Indeed; I am sure their systems would
crash more frequently. Cruickshank did propose account portability,
an idea he took from telecoms to try to assist, which is looking
at bringing the details together and giving you a number so that
it makes transference easier. It is something which is worth looking
at. I do think we have to look at the remit of PayCom to see to
what extent they are actually going to be dealing with it. Initially
the switching is a bank to bank activity. Consumers are obviously
involved in that, but the way that PayCom is looking at bank to
bank transfers is an important aspect. Then we would push for
the PayCom remit also to be looking at the effect of any rules
in the wholesale transmission into the retail transmission and
switching is a key element of that.
190. What are the services which people who
are financially excluded are principally missing out on? Is it
the ability to borrow at reasonable rates or simply having a bank
account without any borrowing? Which are the issues which are
(Ms Johnstone) In a sense a basic current account
is a gateway service. It is your way into the system and it enables
you to receive payments, to make payments. It also enables you
to get discounts on bills if you can do direct debits for utility
bills. Not having access to that system does leave you out of
easier and in some cases cheaper access to a whole range of goods
191. So borrowing is secondary.
(Ms Johnstone) For the very disadvantaged people we
are looking at and borrowing probably one of the problems they
have had with the standard current account or ordinary current
account is going into accidental overdraft and then finding huge
charges whacked on which are probably in excess of the original
overdraft accidentally gone into. Borrowing is secondary. Another
thing about access to a basic bank account is that in a sense
it gets you into the system and as your financial circumstances
improve it is much easier for you to migrate up into a different
kind of product which would provide more credit facilities. It
is basically being able to make payments and receive payments
which is the most important.
(Ms Childs) I would agree. There are issues around
both. Even the details you need to open a bank account have been
a traditional problem. This is where it interfaces with the money
laundering regulations, where the traditional forms of identification
for opening an account are a passport, a driver's licence or a
letter from somebody who has had a bank account. Many of the people
who are financially excluded do not have that information, so
they cannot even get in to open a bank account, let alone the
terms of that bank account. The revised Banking Code has tried
to deal with that. It usefully has some details in there about
alternative forms of identification which can be used. What we
are finding is that there are still differences between banks
about what identification they will use; even within branches.
There are several issues about how you can actually set up bank
accounts and the costs of it. It is even the first hurdle of opening
a bank account which needs to be looked at as well.
192. Will the banks' own efforts at producing
no-overdraft bank accounts solve these problems of social exclusion?
(Ms Johnstone) We welcome the initiatives the banks
have recently been engaged in. There are two problems. One is
that there is a lack of publicity for these basic bank accounts.
The banks are providing them, but they do not seem to be selling
them very actively. People are unaware that there is a different
kind of account to the one they, either through their own experience
or others, expect might cause some difficulties. Another thing
for people living on very low incomes is the huge amount of time
it takes for the clearing system to work to clear cheques. If
you are living on a very tight budget, you are waiting ten days
for a cheque to clear and you just cannot manage that, you cannot
handle it. Action to reduce that time lag is needed; other countries
seem to be able to do it much more quickly. That is going to need
regulatory action if the market is not delivering it.
193. Do you think the proposal for a Universal
Bank by the Post Office with support from the banks will overcome
(Ms Johnstone) We have been watching this debate with
interest as a huge range of proposals has been put forward since
the Cruickshank Report. The latest proposal which was announced
just before Christmas combined the Post Office with the banks
working together to provide a Universal Bank. We can see much
merit in that because it provides a greater range of products
for consumers to choose from and also a greater range of outlets.
There may be a post office where there is no bank and vice-versa.
Having a unified system would be very useful.
(Ms Childs) Slightly tangentially but Ms Johnstone
has raised the point about cheque clearance times and it is an
issue for people who are on a budget. We have also discovered
a bit of a scam in relation to credit cards which is affected
by cheque clearance times as well. The time for paying your credit
card bill runs from the date on the statement. We have found that
credit card companies are delaying sending the statement out and
then they send it by second class post. By the time you have received
it, in the worst case, you have nine days to pay that bill. If
it takes, in the worst case our Which? research has shown,
11 days to clear a cheque
194. Are you saying this is the reason why the
no-overdraft accounts run by banks themselves are not going to
be useful in stopping financial exclusion?
(Ms Childs) No, I am sorry. I am making an additional
point in relation to cheque clearing to show that it affects not
only those people who are on a budget, but people who use other
forms of credit. The way in which you pay for credityou
may use your bank account, you may use a cheque to pay for itbecause
there are delays in cheque clearing times may mean you default
on your payment because there is a long time to clear the cheque
and credit cards are an example of that. In relation to the general
issue, unforeseen charges are a perennial problem for consumers
and they hit disadvantaged consumers particularly hard. The no-overdraft
helps in the sense that it lowers the charges. The question is:
what type of additional credit do people need to manage during
that period and how is that provided? That issue has not been
195. Do you think the Post Office Universal
Bank will deal with these matters?
(Ms Childs) It is too early to say. There is an interesting
correlation between the Universal Bank proposal and branch closures,
but the details of it are not entirely clear to us about how it
will deal with that specific aspect.
196. You do not think either of these proposals
will overcome the problems of financial exclusion.
(Ms Childs) They will go a considerable way to help
but we need to see more of the detail before we can definitively
197. In the United States, when we were there
in October, the Community Reinvestment Act is a matter of some
controversy even though it has been in being for over 20 years.
Do you think there are lessons to be learned from the working
of that Act for this country?
(Ms Johnstone) That is not something we have looked
at in detail, so I am not sure I can answer that question.
(Ms Childs) Again, we have not done any detailed work
but it is something we have looked at and some of the reporting
requirements and the effect on different regions is something
we have been looking at. As with Ms Johnstone, we have not pursued
that in detail.
198. The essence of it is that the bank is required
to provide loans to the area in which they operate, which is the
(Ms Childs) Yes. It is important in actually defining
an area of social responsibility. We are also looking at the role
of credit unions, but we have not completed our work there. We
are doing some practical work in Hackney. One of our researchers
is looking at setting up a credit union so that we can try to
find out to what extent that can deal with some of the aspects
of social exclusion. At the moment you see different approaches
which are dealing with different elements. It is not quite clear
to us whether it covers all of the problems yet. We would need
more detail on that.
199. You said, if I understood correctly, that
banks had not been promoting their basic bank accounts.
(Ms Johnstone) Yes.