Memorandum submitted by Barclays Bank
1. We welcome the opportunity to provide
written evidence to the Committee's inquiry into banking, which
follows on from the Committee's earlier report "Banking and
the Consumer". Since this report was published there have
been a number of developments, which we would like to draw to
the attention of the Committee.
2. The Select Committee's report made a
number of recommendations that have been taken up by the industry
as part of the response to the Julius report and its implementation
and through the current review being conducted by Professor Kempson,
the new independent reviewer of the Banking Code. We have detailed
some of the retail and business banking market changes from a
Barclays perspective in a later part of this submission.
3. There have also been a number of developments
in terms of industry initiatives to promote products and services
to advance financial inclusionand Barclays has been at
the forefront of many of these.
4. Finally, and most importantly, the financial
services market for both personal and small business customers
have seen considerable competitive activity including a series
of well publicised moves by new entrants in these markets.
2000 WITHIN BARCLAYS
5. The Committee should be aware of a number
of developments within Barclays since the Cruickshank report was
published in 2000 and the Select Committee started its original
WoolwichBarclays PLC acquired
the Woolwich in the autumn of 2000, a deal that was warmly welcomed
by the market and which brought a number of specific benefits
to the Barclays businesses, not least the brand name of Woolwich,
its innovative thinking in terms of product development and its
respected mortgage business.
Legal and General Link-UpIn
early 2001 we introduced an innovative deal with Legal and General
to provide, as a single-tie provider, a range of financial service
products produced by Legal & General. The ability to provide
this leading brand of financial services to Barclays customers
has greatly improved the quality of products provided. We believe
this innovative arrangement to be a forerunner to the depolarisation
of financial services on which the Financial Services Authority
is currently consulting.
Open PlanThis innovative product,
initially developed by Woolwich, allows customers to pool their
current account, savings accounts and mortgage. It has attracted
over a million customers in the Woolwich alone and has recently
been launched nationwide by Barclays in the UK, already attracting
more than 100,000 further customers. We have now also introduced
the service into Spain (with mortgage applications rising by a
factor of eight) and Portugal.
Access to banking servicesWe
have invested heavily in updating and improving our branch network,
spending over £100 million in the 2000-01 period. In addition,
we are extending opening hours in branches on weekdays as well
as at weekends where there is perceived customer demand for this.
At the end of the two-year phase of investment, 85 per cent of
our branches will be opening longer hours. To achieve this major
enhancement of customer service we have negotiated a flexible-working
package with Unifi, which will provide 2,000 new jobs in our branches.
Post OfficeWe have an established
arrangement with the Post Office that allows our personal customers
to use over 15,000 post offices for day-to-day banking services
free of charge. This is particularly convenient for customers
who do not have ready access to a branch. In addition our telephone
banking service has continued to grow and our online customers
now number over 3.3 million. We are also participating in the
BBA's "shared branches" projectwith three Barclays
branches involved in this projectto test personal and business
customers' appetite to use branches of banks other than their
Helping customers in difficultyIn
line with our policy of helping customers who are in financial
difficulty we reacted quickly and sympathetically to the plight
of many of our farming and other customers affected by the Foot
and Mouth crisis. We introduced a three-month loan break, later
extended, for our farming customersand then also made this
available to other affected businesses. We supplemented these
initiatives with a rural regeneration fund providing over £1.5million
to charities and organisations which helped to regenerate rural
communities during the crisis.
Promoting world class diversity and
equality practicesBarclays has made a major commitment
to this by way of our executive committee signing an Equality
and Diversity Charter. This charter commits us to rigorous measurement
and reporting of progress on the commitments made. Our diversity
programmes seek not only to differentiate Barclays from our competitors,
but also to strengthen our business performance for the benefit
of shareholders, customers, employees and the community at large.
Each business area within the Barclays group has been set equality
and diversity objectives which will contribute towards our wider
goal. An example of our programme includes the establishment of
a sexual orientation task force to review Barclays' UK employee
benefits. The results of this review are being used by Unifi as
a case study in equality and diversity policy in action. A further
example of our programme has been the extension of our career
break scheme, previously only available to staff with childcare
6. We are increasingly concerned by the
growing burden of formal regulation as well as the increasing
tide of overlapping and informal Government and other reviews,
to which the financial services industry has been subject. As
Barclays Chairman, Sir Peter Middleton, put it in this year's
Annual Review and Summary Financial Statement:
"It is in the interests of all stakeholders
to have effective regulation. However, it is crucial for the future
of banking to strike the right balance between, on the one hand,
protecting the safety and security of the system and customers
and, on the other, encouraging innovation and making it easier
for customers to deal with financial institutions. We must avoid
a regime that increases the cost of doing business, which ultimately
leads to higher prices and could constitute a barrier to entry
and depress competition. Barclays has a significant role in the
UK economy, and we will continue to work with the authorities
to help influence a proper balance".
INTO SME BANKING
7. The Competition Commission report contained
a number of positive findings in respect of banking services provided
to SMEs, including:
Good quality service, including services
to ethnic minorities which the Commission looked at specifically;
High levels of customer satisfaction84
per cent of customers satisfied or very satisfied with their main
Ready availability of credit on reasonable
No substantive issue about the withdrawal
of overdrafts from customers;
Contrary to speculation, the banks
do not receive or retain value (float) from the cheque clearing
No evidence that the banks deliberately
cause unnecessary delay in enabling customers to switch to other
Branch closures have not been the
result of any anti-competitive behaviour on the part of the banks
and there is no evidence that they have been excessive in the
8. We have two principal concerns about
the Competition Commission's findings (and the Government's response):
First, we remain firmly of the view that competition
in this sector is intense and vigorous. We believe that the Commission
failed to appreciate the extent and nature of competition and
that the characteristics of the market they identified, on the
contrary, demonstrate the presence of strong competition rather
than a lack of it in this context eg our offer of free banking
for start-ups. We therefore reject the Commission's conclusion
that we restrict price competition or charge excessive prices
and that the degree of excessive pricing can somehow be measured
by reference to the Commission's calculation of excessive profits.
This is because (which is our second main concern)
we completely reject the finding of "excessive" profits.
We consider that the Commission's analysis of profitability is
seriously flawed. Consequently we believe that the introduction
of price regulation in any form is misconceived and, further,
that it is likely to damage, rather than to enhance, the competitive
process by, for example, undermining the competitive strategies
of smaller providers and deterring potential competitors from
entering the market.
9. Furthermore, the proposition that any
long run profits above the cost of capital are "excessive"
does not reflect the realities of the market economy. In so far
as the Commission's approach lends support to that proposition,
we disagree with that also. The Commission's conclusions were
not benchmarked in any meaningful way to provide a test of its
assumptions and findings. Using the Commission's calculations
22 out of the 38 sectors in the FTSE All Share list of companies
would have generated "excessive" returns in 2000 and
the "excess" would be equivalent to 33 per cent of the
profits of all listed companies. Any attempt to reduce profits
to the cost of capital would have disastrous implications for
funds invested in pension schemes.
10. Our view is that the Commission's assessment
of our profitability is based on flawed methodology and false
assumptions. To base the analysis on the most recent three years,
which were at the top of the economic cycle, is clearly inappropriate
in a highly cyclical business. The Commission made a number of
arbitrary assumptions in their assessment, on matters such as
long run bad debt rates and capital base. This seriously undermines
the Commission's analysis and findings.
11. As to the remedies that we are required
to implement, while we do not believe they are necessary, we broadly
support suggestions that will enhance competition in the market
place, for example by making switching easier and pricing more
12. We intend to work constructively with
the OFT to ensure the remedies required are introduced as smoothly
as possible and that they appropriately reflect the findings of
the Commission and the Government's conclusions.
13. Barclays small business customers receive
a broad and comprehensive service which aims to address all stages
of the business cycle. Start-up customers receive between 12-18
months' free banking and are assigned a Business Banker from a
highly trained pool of 1700 managers. Prospective start-up businesses
are invited to attend one of 350 "Start Right" seminars
run each year in conjunction with the National Federation of Enterprise
Agencies. 92 per cent of Barclays new business start-up customers
are happy to say they are satisfied with the relationship they
have with their Business Manager.
14. Barclays helped set up more than 240
new business start-ups (60,000 overall) every working day in 2001.
15. Established business customers can choose
between a local relationship service or a direct proposition.
The local relationship service features a named business manager
who will provide a comprehensive range of services, including:
Visiting the customer at their workplace,
subject to availability.
Periodic business reviews.
Business development service for
customers wishing to expand and/or diversify.
Locally run seminars covering topical
business issues affecting SMEs.
Barclays Business managers are seen
as providing the best quality of customer support, achieving an
overall 86 per cent satisfaction rating.
16. Business Direct is a telephone and online
service launched in 2001 designed to meet the needs of the growing
number of small business customers who prefer to deal with us
this way. The service offers customers savings of up to 20 per
cent on bank charges. Customer satisfaction levels are 90 per
17. Barclays Business Support, our specialist
"intensive care" unit has 11 teams around the UK focussed
on returning ailing businesses to financial health. In 2001 1,270
businesses, approximately 75 per cent of those referred to the
unit, were returned to financial health. To achieve this objective,
the unit lent an additional £117 million of new money. As
mentioned earlier, during last year's Foot and Mouth crisis Barclays
was quick to respond with tailored support for our farming customers.
18. Recent changes we have made to our products
and services include:
Two new high interest bond issues.
The addition of Euro and US$ facilities
to our Business Premium Account.
Reduced prices on Commercial Mortgages
and new product features to including capital release, mid term
capital holidays and lump sum payment options.
A full range of new debit, credit
and charge cards to help companies simplify their expense management.
The re-launch of our Cash and Cheque
Advantage services making it easier for customers to pay in at
branches without having to queue at the counter.
On-line merchant services for e-traders.
19. The new voluntary code of practice covering
businesses and clubs/charities with annual turnover up to £1
million, became effective on 31March 2002. A number of banks including
Barclays had been operating separate business codes for many years,
but this initiative under the BBA draws these together into a
consistent framework, similar to the Personal Banking Code which
has also been operating for many years. Barclays subscribes to
the code and has adopted it for all its business customers in
the United Kingdom irrespective of size. Existing customers are
to be sent a leaflet summarising the code, and this will also
be included in the pack given to new customers when they open
20. In order to comply with the Business
Banking Code we have:
Developed training to be completed
by all our staff who deal with business customers.
Reviewed our products and services
to ensure that they meet the requirements set out in the code.
Reviewed our terms and conditions
and marketing material.
21. Compliance with the Code is included
in our audit procedures and we have committed to completing an
annual statement to the Banking Code Standards Board who may ask
for supporting evidence.
22. The Government conducted a consultation
last year into the possible regulation of payments systems. We
are currently awaiting further details as to how the Government
proposes to take these ideas forward.
23. We support a light touch form of regulation,
which is both flexible and adaptable to a rapidly changing market
place, and that will stimulate competition. We support transparency
of pricing for all customers, open and non-discriminatory access
to payments systems for users and the continued delivery of high
standards to customers. We agree that the OFT should be the lead
body in this process.
24. As concrete proposals are developed
we believe that it is important to take the following into account:
The success, safety and soundness
of the UK payment systems to dateand the danger of inadvertently
compromising this through simplistic analysis.
The complexity of payment systems
and therefore the importance of identifying the specific issues
that the proposals are seeking to address, and consequently ensuring
that any measures are proportionate and appropriately targeted.
The changes already taking place
as a result of the increasingly international nature of payments
and the consequent danger of regulating nationally without regard
to the broader international context.
25. The industry as a whole has been undertaking
a number of projects to improve further and modernise the industry.
BACS automation of the notification of when an account is transferredthis
was implemented in November 2001 and is improving the speed at
which accounts can be switched.
Investment in the Continuous Linked
Settlement Bank (CLSB) project to eliminate time zone risk for
Ensuring simultaneous exchange of
security documentation for payment in the UK thus speeding up
settlement of transactions for customers.
NewCHAPswhich modernises the
platform for CHAPS from a proprietary gateway to the use of the
SWIFT network and also improves the system's robustness.
A system providing a one-stop billing
and payment point for consumers via the Internet.
NewBACSupdating the BACS infrastructure
to provide more timely information and enhanced security, increased
capacity and greater system robustness.
ATMsChip card Acceptanceensuring
the ATM network is upgraded to be ready to process chip cards
by July 2002the introduction of chip cards will be a major
tool in reducing card fraud and will enhance our ability to add
additional services for our customers.
of interbank guidelines to enable technical developments to allow
for account aggregationthe process where customers will
be able to view all their accounts in one place securely even
when they are held in different banks.
26. Since the Committee's report "Banking
and the Consumer" the retail market has continued to be characterised
by vigorous competition and innovation. New entrants are regularly
appearing in various segments of the market and customer levels
and products are changing on an almost monthly basis. For example,
we launched our innovative product Open Plan nation-wide last
year. Barclays Open Plan provides a completely new approach to
current accounts and savings. The mortgage, credit card, savings
and current accounts markets have all seen a variety of developments
across the industry.
27. From a Barclays perspective this has
included a number of developments which we referred to earlier,
Improving the choice for customers
to access their banking services such as the extension of branch
opening hours, telephone and online services.
Improving our products through the
link with Legal and General.
Strengthening our mortgage proposition
following the acquisition of Woolwich.
The development of new products like
New loyalty schemes for regular customers.
The move towards individual pricing
for customers by Barclaycard.
Other new personal banking products.
28. We believe that considerable progress
has been made on the issues identified in the Select Committee's
previous report and in the subsequent work undertaken by the Julius
Committee, whose recommendations were broadly welcomed by the
banking industry, as was their view that the banking code was
an exemplar of its kind. Much of what was suggested has either
been introduced or is well on its way towards being implemented
as part of the independent review of the banking code currently
being conducted by Professor Kempson.
29. Barclays has been at the forefront of
innovation in products and services to promote financial inclusion
as well as supporting organisations with innovative approaches
to tackling these problems. These developments include:
Disclosurethe pioneering work
Barclays has undertaken in the disclosure and reporting of its
activities in under-invested communities. Last year's Social Report
carried details of both our business and personal data, exceeding
the recommendations of the Social Investment Taskforce. This year's
Social Report carries data about business survival rates for the
Support for Community Development
Financial Institutions (CDFIs)in 2001 Barclays directly
supported six CDFIs, approving subsidised funding of £1.15
million and grants of £165,000.
Support for regional economic development,
including the establishment of a special unit within Barclays
Business Banking called the Urban and Regional Economic Development
unit (URED) which works to develop commercially viable products
supporting economic development and regeneration. URED has established
four SME investment funds covering Objective 1 areas with Barclays
contributing £84 million of the overall £200 million
fund. We have also allocated a further £20 million of equity
financing to support the new regional venture capital funds (RCVFs)
which will provide smaller amounts of finance to companies than
is normally offered by venture capital bodies.
The continuation of our successful
programme of Start Right seminars in conjunction with the National
Federation of Enterprise Agencies. These seminars are aimed at
those in the early stages of running their own business or considering
self-employment and last year we ran 379 in total. This year we
have also introduced the Kick Start seminar programme for established
businesses facing financial difficulties.
Working with the Government to help
with the Universal Bank, both in terms of a financial contribution
as well as support for the migration of many millions of benefit
recipients to Automated Credit Transfer (ACT) payments.
Cash Card Accountthe introduction
of our basic bank account in October 2000. We have already opened
over 140,000 accounts, with new accounts opening at a rate of
around 8,000 per month.
Woolwich runs an innovative pilot
called "Open Plan for Everyone" with People for Action
and a number of housing associations. The housing associations
are authorised to complete account applications with tenants in
their own homes.
The agreement to sponsor the introduction
of PEARLS, a financial management system for credit unions. PEARLS
has played a key role in the expansion of the credit union movement
in many parts of the world and, through our support for the Association
of British Credit Unions Limited (ABCUL), we hope that this success
will be replicated in the UK.
Supporting innovative organisations
like Salford Money Line and the Aston Re-investment Trust.
Our continued commitment to supporting
free independent money advice for those in financial difficulty.
Last year we donated £1.8 million through the Money Advice
Trust and Consumer Credit Counselling Service. This support extends
to the National Debtline and Business Debtline pilots. Our support
exceeds £5.5 million over the last five years.
Participation in the BBA 'Shared
Banking Services' pilot which was launched in January 2002.
A commitment that we will not close
a branch where it is the last bank in the community.