Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 360 - 379)



  360. Do you think it should have been enshrined in the banking code that those banks that do not meet the 10 days should be subject to disciplinary measures or even financial penalty?
  (Mr Crosby) I cannot comment precisely on how the banking code would work but there is a new reference in the latest version of the banking code on switching and complying with service standards.

  361. Would you favour financial penalties, Mr Crosby?
  (Mr Crosby) I think it is too early to say that at this stage because we have a new automated system coming in. I think that the new automated system will make a huge difference.

  362. Would you be happy about that, Mr Goodwin, or if any other bank missed the 10 days?
  (Mr Goodwin) If they are the right penalties, but I think we are focusing in here on one aspect of switching which is the provision of information to the other bank. After you have provided the information to the other bank, your worries have only started because, once that information is provided, the other bank, on behalf of the customer, then contacts all the direct debit originators, ie all the utility companies, magazine subscriptions and so forth that you have direct debits for. They have to change their records to make this happen. So, where the problems all start is usually at that end and it is not down to the banks solely to fix this issue. What we have been talking and debating here hitherto has been the provision of information to the other bank. It is then the contacting of the other bank and synchronising or co-ordinating the direct debit switching from your old bank to your new bank that matches the transfer of your physical balance across and where customers get upset is when the direct debit is taken twice, by the old bank and new bank, or neither and they start getting arrears letters from the supplier. These are the sorts of issues which arise and I would be loath to blame the old bank or the new bank or the utility company or whoever else uniquely for this. So, by all means, if you are introducing penalties, then we would have penalties in the system, but it does not always automatically follow that they would flow to the old bank. There are good reasons—you and I would possibly agree that they are not all that good reasons—as to why this is difficult at the moment. Getting your employer to send your salary to a different account needs to be dealt with. So, it is quite a tricky task. The automation that we are talking about later on this year should help with a great deal of it. There will still be the opportunity to miss co-ordinates, some elements of switching, which will cause customers some angst. I guess that is a function of how complex some of the payment facilities available to our customers are. The ability to have direct debits, BACS, standing orders as well as cheques and so on makes it slightly more complicated around switching.

  363. I would finally like to put this to you: we can put a man on the moon but we cannot get bank details transferred within 10 days. Can you tell us, Mr Goodwin, as far as NatWest is concerned, whether there will be a time in the next 12 months or the next two years where anyone who wants to switch from your bank can have their details transferred within 10 working days. Can you give that guarantee here today?
  (Mr Goodwin) It would be foolish for anyone to give a guarantee like that when you have so many potential circumstances arising as we have and as many combinations of circumstances arising. What I have already said is that we already work to that as a guideline. Anything which goes over that is non-compliant as far as we are concerned and we are introducing, on a pan industry basis, systems towards the end of this year which should automate the transfer of the data to other banks which takes away another layer of complexity, but there will still be issues after that, not of NatWest's unique making or anyone else's unique making.

  364. So you cannot see a time when 100 per cent of potential transferrers will get their transfer effected, as far as information is concerned, within 10 working days.
  (Mr Goodwin) I can see that arising before you would get to the point where all the switching would be as smooth as everyone would want it to be.

Mr Davey

  365. I am sure you are all aware that the Treasury published a consultation paper on standards for retail financial products. In particular, it is proposing some CAT standards for basic bank accounts. Could you say whether you think this will make any difference at all. Are you already meeting these sorts of standards? Do you think this is just a public relations exercise? I ask that to Mr Crosby, first.
  (Mr Crosby) I think it is very helpful to get clarity around the definition of what constitutes a basic banking account. I think we were probably the first organisation to launch basic bank accounts 15 years ago; we have promoted them actively over that period, we have around 2 million today and I think we took 285,000 new ones last year. So, it has been an important area for our business. I do think that, in that area of the market, transparency is ever more important and CAT standards help there.

  366. So you welcome this.
  (Mr Crosby) Yes.

  367. Mr Goodwin?
  (Mr Goodwin) I think it is a good thing for basic bank accounts. Our basic bank accounts and indeed most people's basic bank accounts meet the standards that were set down by the OFT in relation to basic bank accounts but a CAT mark would perhaps give a greater degree of visibility to the customers.

  368. Mr Head?
  (Mr Head) I am in favour of CAT standards on all products. We have been talking a great deal about rates so far but it is also around fees and conditions as well which quite often customers miss. For example, that they have to pay £30 for a letter which is written. So, we would welcome actually covering those sorts of things as well because it gives additional protection.

  369. Mr Williams?
  (Mr Williams) Basic bank accounts were drawn up pretty tightly from Policy Action Team 14, so we were pretty much following formula. I think the social exclusion debate demonstrates that the greatest reason for financial exclusion is people's misunderstanding of the market and product. If there is anything such as CAT standards which will assure people the products are straightforward and that there are no man traps, then that is a good thing. It is quite appropriate for basic accounts.

  370. So, you all welcome these new standards. That only leaves me with the question, why did the banking industry not do it before and why is it so reluctant to be regulated? Mr Crosby?
  (Mr Crosby) I do not think we are reluctant to be regulated in that sense. We were one of the first organisations to argue in favour of the regulation of mortgages when we judged it to be necessary.

  371. Mr Goodwin?
  (Mr Goodwin) Again, I am not sure because, from where we sit, it does feel somewhat regulated. We are talking about the CAT mark in the context of basic banking. There are a plethora of products out there. I do not know how practical it is to CAT mark every single product. There are a variety of different current accounts and a variety of different savings accounts, mortgages and so forth. I welcome a CAT mark because that would bring commonality across, a one layer product, but I do not know how—

  372. Why do you think the banking industry did not do it before? You all think it is a good idea. Why has it taken so long to do it?
  (Mr Goodwin) I think there has been quite a degree of commonality as to the actual content. The banking code has brought together quite a number of product features. It is not within the banking industry's gift to come along and put an independent CAT mark on itself. If you look in the banking code, the banking code is, in a sense, a form of CAT marking. It is not as visible as a CAT mark but the banking industry has actually done a great deal through the banking code to come up with standardisation across products and product features, but it is not as clear-cut as a CAT mark.

  373. Can I move on to competition in the small business area. I know that is subject to Competition Commission inquiry, but were you not rather shamed by the findings of the Cruickshank report? I read one extract from it, page 151, "The combination of charging SMEs for money transmission services and not paying significant interest on their positive balances indicates the provisions of money transmission services to these customers are highly profitable" and, elsewhere in the report, he does take the four big banks in particular to account for their failure to have competition in this area. Do you think the findings of the Cruickshank report were valid, Mr Goodwin?
  (Mr Goodwin) Not in that respect, no. I think there is considerable competition amongst all of the players in that field. The fact that small businesses are charged for money transmission accounts and are not paid interest on the balance is a feature of the proposition which is made available to them and the basis on which that proposition is made available to them.

  374. But small businesses in Britain face much higher charges for money transmission services than in competitive countries.
  (Mr Goodwin) I think the Cruickshank conclusion about the overall provision to small businesses and banking was not that. If you pick the one element that is charged for, then, yes, that, compared internationally, was higher, but if you take the overall proposition and interest rates and so on and charge the same businesses, I believe the Cruickshank conclusion was actually that it represented a reasonable proposition.

  375. So you expect the Competition Commission to give your bank and your immediate competitors a clean bill of health.
  (Mr Goodwin) It would be wrong for me to preempt any outcome from the Competition Commission or to try and guess what it may say about us or other banks.

  376. So you are fairly relaxed about it?
  (Mr Goodwin) I am not at all relaxed about it. We are going through the process with the Competition Commission which I guess we are getting on towards the middle of at the moment. That process has a long way to go and I do not think it is for me to try and pre-empt or pre-guess or speculate about the outcome.

  377. But you were not worried that Cruickshank was saying that your bank, along with others, is profiteering from this sector?
  (Mr Goodwin) I think anyone would be worried to hear anyone say something like that about their business but I do not happen to agree with the finding. I think that when you actually go in and examine the facts, as the Competition Commission are doing, it is possible to come to other conclusions. It remains to be seen which conclusions the Competition Commission will actually come to.

  378. Do any of the other witnesses have major business areas in small businesses? I believe they do not. Would any of you like to comment on Cruickshank's findings on small businesses?
  (Mr Crosby) I will. I think that we broadly concur with them. If you look at the factors that have brought about intensifying competition in our core mortgage and savings market and are now moving into the retail banking market and I will summarise them—and we have talked about it already today. Firstly, the ability to easily port the product from one provider to another; secondly, the transparency and openness of charges as per CAT standard; thirdly, the range of choice of providers and perhaps even the service channel, the choice between coming into a branch or to telephone. All of those are matters which have brought about terrific investigation of competition first in mortgages and savings and now in banking. Pretty well none of them apply in the SME sector and I think that must be the issue.

  379. So why do you think banks like NatWest are so complacent and so relaxed about this?
  (Mr Crosby) I cannot comment on that specifically; I cannot comment on internal attitudes of competitors.

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