Select Committee on Treasury Minutes of Evidence

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 inclusion—and 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.


  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 banking inquiry:

    —  Woolwich—Barclays 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-Up—In 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 Plan—This 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 services—We 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 Office—We 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" project—with three Barclays branches involved in this project—to test personal and business customers' appetite to use branches of banks other than their own.

    —  Helping customers in difficulty—In 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 customers—and 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 practices—Barclays 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 responsibilities.


  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".


  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 satisfaction—84 per cent of customers satisfied or very satisfied with their main bank's service;

    —  Ready availability of credit on reasonable terms;

    —  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 cycle;

    —  No evidence that the banks deliberately cause unnecessary delay in enabling customers to switch to other providers;

    —  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 circumstances;

  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 transparent.

  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 cent.

  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.

    —  Stakeholder pensions.


  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 their account.

  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 date—and 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. These include:

    —  Switching—electronic notification. BACS automation of the notification of when an account is transferred—this 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 bank customers.

    —  Ensuring simultaneous exchange of security documentation for payment in the UK thus speeding up settlement of transactions for customers.

    —  NewCHAPs—which 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.

    —  NewBACS—updating the BACS infrastructure to provide more timely information and enhanced security, increased capacity and greater system robustness.

    —  ATMs—Chip card Acceptance—ensuring the ATM network is upgraded to be ready to process chip cards by July 2002—the 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.

    —  Account Aggregation—Development of interbank guidelines to enable technical developments to allow for account aggregation—the 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, including:

    —  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 Open Plan.

    —  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:

    —  Disclosure—the 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 first time.

    —  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 Account—the 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.

May 2002

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