Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 260 - 279)



  260. In all this discussion about small and medium-sized enterprises, what is the scope for expanding the telephone banking and internet banking services, particularly geared to small and medium-sized enterprises?
  (Mr Barrett) Great potential. We run a product called Business Direct, which allows people through PC banking to connect directly with the laptops of the account managers who look after the account. It is a problem for some of these very small businesses to fund the technology and the software for their own offices but in general I see great potential for new business models to emerge which will help the small business community in particular and which will make them less dependent on a physical site for access to their bank. There is a fair amount of that going on as we speak. We have something called, we have Business Direct. These are various initiatives which we are putting out there to help the small business customer reduce their costs and increase their access to us. I see more of that coming.

  261. You mentioned potential. How near are you to realising some of this?
  (Mr Barrett) I am not sure. It is growing but as we have seen with the collapse in the technology bubble, there is quite a big gap between the hype about the speed with which people take up these facilities and reality. As a result you have had some dramatic crises in people getting ahead of the consumer too fast. It is a question of "steady as she goes". This is not very helpful, but I would say you should expect to see continuing growth and probably picking up speed over the next three years. At the moment people are very reluctant to get into capital expenditure because the economy is a bit uncertain. Therefore you may not see it take off quite as much as conceptually you would expect. That has been our experience to date. The consumer takes a long time. If you go back to 1984, debit card/point of sale terminal technology was completely perfected. It took 14 years for it to take off. There is a little bit of lead/lag between the capabilities technology has and people's adoption of it. The trick is to have it and provide it to them at speed when they are ready to take it up. I expect to see small businesses in particular be a big beneficiary of technology.
  (Mr Ellwood) I would agree with that. It is a tremendous potential. We have about 20 per cent of our SME base who sign on for the internet but they do not all use it. I agree that it is going to take a number of years before we see that figure get to be very significant. It does offer real benefits to the SME customer and we encourage the use of it.
  (Mr Goodwin) There are two aspects to this. We would actively encourage the retention of the human element. It is important to have the functionality available and we do have it available if customers want to use it; indeed for money transmission, day-to-day activities, they are very effective channels. The relationship manager—and a lot of the survey evidence points to this—provides more than just advice in relation to banking. Our preference is to continue with the human contact with SMEs, albeit ultimately leaving the choice to the customer.
  (Mr Barrett) I agree with that; multi channels.
  (Mr Dalton) We have the same approach. We believe that the right thing for us to do is offer our SME customers, our personal customers, any customers, all the channels and let them choose which they would like to use and when they would like to use it.

Mr Mudie

  262. I see an attack on the Chancellor and complacency has been shown in each of the areas we have discussed with you. The Competition Commission report pointed out that between you over the last three years you have overcharged your business customers by over £2 billion. They pointed out that you were acting against the public interests, you were possibly harming those businesses and you come and complain about the outcome of the Commission's report. Is there not a case for you to look at yourselves and say you ought to put your house in order?
  (Mr Goodwin) You asked us to come today and you asked us what we thought of the Competition Commission's report. We did not come here today to complain about the Competition Commission, nor indeed to attack the Chancellor. Indeed I am not aware of anything I have said which could be taken as an attack on the Chancellor. I sincerely believe nothing that could be said should evidence any complacency.

  263. Price controls are outrageous, etcetera.
  (Mr Dalton) The Chancellor did not come up with the report, did he?

  264. The Chancellor accepted the report. Moving away from that, I want to see you come before us and say "Hands up. £2 billion is a lot to take". The banks are a very important part of the economy but so are small businesses. They are the mainstay of the economy. You have been overcharging them over £2 billion. You shake your head. You do not accept that. The Competition Commission are wrong, the Chancellor is wrong.
  (Mr Goodwin) I could not make that any clearer than I did and I am entitled to have that view. I have tried to advance a rationale for that view and that remains the view.

  265. That remains the view but the view of the Competition Commission and the view of the Chancellor of the Exchequer is that you are overcharging. Do you just dig your heads in the sand or do the four of you say you ought to have a look at yourselves before something even more drastic happens?
  (Mr Goodwin) We indicated what we are doing in response to one of the earlier questions. We are liaising with the Director General around the remedies which were put forward by the Competition Commission.

  266. That is exactly it. You are responding to them. Are you going to come with any initiatives yourselves beyond what the Competition Commission put on the table?
  (Mr Goodwin) I know for a fact that a number of the remedies the Competition Commission put on the table were already in place at the Royal Bank and some of the others represented here today.

  267. You are quite happy if the Competition Commission revisited you that they would find that there is no overcharging, there is real competition for credit cards: incredible, four of you, wonderful competition all with the same interest rates.
  (Mr Goodwin) As we have highlighted, any industry the Competition Commission care to visit with their current methodology is likely to show excess profits.

  268. Less than one third of your customers would still be with you if they had a second chance. You have no competition with credit cards, you overcharged the most important part of the British economy by over £2 billion in three years. So what? Is that it?
  (Mr Dalton) Mr Mudie, you make some wonderful points, but you ignore the voice of the SME customers of the banks.

Mr Beard

  269. One of the recommendations of the Competition Commission was to pay interest on current accounts for small and medium-sized enterprises or to waive the transmission charges. Are you all going to do that? Are you all going to take that up and allow that to happen to your small and medium-sized customers?
  (Mr Ellwood) We are going to look at the options available to us and they will be the subject of discussion with OFT over the coming weeks. Just to go back to this point, we have to ask ourselves why 84 per cent of the respondents on the Competition Commission's own survey said that they were satisfied with their main bank. You have to ask what reasons customers choose for having a business banking account. What they say is that they want somebody who understands their business, they want somebody who can help with a wide range of business issues, they want somebody to offer to deal with them in totally different ways—which is where customer segmentation comes in. All of these things are what they say are required from banks and if they do not get them from the banks then they move, which is why we see thousands of customers move from one supplier to another.

  Mr Beard: Could I have an answer to my question too, please?

Mr Mudie

  270. I would say that the Competition Commission went through the details and they have said you are overcharging £725 billion a year.
  (Mr Ellwood) We do not accept that on the basis that we think —

  Mr Mudie: It is easy when you have the money.

Kali Mountford

  271. Mr Dalton, you laid down the challenge just now that your business ought to be in the interests of the consumer and your customers. Three of you have pulled out banking services from villages in my community leaving them with no facilities whatsoever, no bank, no building society, yet in the same argument we have heard today, you have also quibbled to some extent—although not all of you, there are some honourable exceptions—about the Universal Bank. If we are to provide fair services to people in all communities—you have also made great play on needing your customers to stay with you; you are fighting each other—why do you continually withdraw services and why then are you somewhat reluctant to look at innovative ways of sharing the costs so that you can provide those services where you think areas are not profitable?
  (Mr Goodwin) We have not withdrawn any services from communities.
  (Mr Dalton) That commitment has been made.
  (Mr Ellwood) We have made a commitment that were we the last bank in town we would stay.

  272. Too late for three in the last three years.
  (Mr Ellwood) It is a commitment we made two years ago.
  (Mr Barrett) I had my head handed to me quite dramatically two or three years ago on this subject. I agreed that I would emulate my friends and try to be second last out of town in future. We have not closed down any rural branches and in fact the pilot test I told you about earlier is an attempt, plus the co-operation with the Post Office, to try to provide banking services in some economic way. We are trying. You will not see closures in remote communities where there is nobody else left in town any more. Having said that I would say that of all people I would ask people in government to be a little empathetic in that there are many more services much more fundamental to the well-being of that community that others find difficult to provide: schools, doctors, hospitals, etcetera. It is not an easy issue to deal with in remote and sparsely populated areas, but we are trying and you have probably seen the last of the closures which leave communities with no service at all. You have seen the last of those.

  273. But the question then must be: are you likely to return? These communities are still without support. They are not that far flung I have to say and they could be rich sources of business for all of you. It seems to me that you are switching your business to something more lucrative, easier and more cost effective. If the underlying trend is that you are interested in the customers and what is best for them, many of them would say that internet banking is not best for them, telephone banking is not best for them, they prefer the interface, face-to-face contact, as Mr Goodwin said about SMEs, but you are not providing those services in some areas. We either have to accept a solution of the Universal Bank as a reasonable one, or some sort of sharing, or something else which you are going to come up with in order to provide those services.
  (Mr Goodwin) There is a point in here. Somewhere along the way, a theory got ahead of reality in terms of closing branches and a number of management consulting firms who shall remain nameless seemed to have theories which said that if you close branches it is good and you save costs and grow income. Our experience is that branches are a very important part of how we grow income. We re-opened a branch this year on the basis that when we actually looked at it, we thought we should re-open it. We reversed all the closures which NatWest had announced. There is evidence that we are quite willing to go back and revisit. If I can open a branch somewhere and attract custom in sufficient quantities, that is what I want to do. I am much more interested in doing that, to tell you the truth, than allowing other banks to come and use existing branches. That seems to be a recipe for fewer branches rather than more. People do still like to deal with people and that is quite an important part of our model. One of the things we find in research which is very interesting is that even people who only deal with us by telephone or over the internet still place a value on the fact that we have a branch network where they could go if the need arose. This is a comfort factor. You should not assume that we are implacably opposed to opening branches or that we are trying to downsize the network we have. We are not.

  274. If you are not going to accept these findings, can we anticipate that if we give you a list of areas where we should like to see some improvement, you will all be responding?
  (Mr Goodwin) If you can put the business case for me. One of the difficulties is that customers want a branch but they are not actually prepared to go and bank there. If the business case can be made, then ...

Dr Palmer

  275. In my constituency I have 10,000 people in the town of Kimberley who do not have any banking facilities. If you are prepared to offer them banking, that is fine, but if you are not, then I suggest to you that you should not be so mealy-mouthed about the Universal Banking system. The Universal Bank is an alternative. As a society we have to offer people a local alternative. If you will not offer a branch, we need to do it some other way. Would you agree with that?
  (Mr Dalton) Yes.
  (Mr Ellwood) Yes.
  (Mr Dalton) I think I can speak for my colleagues. We are very committed to the Universal Bank.

  276. So you do not feel it is a stealth tax.
  (Mr Dalton) No. The commitment to the Universal Bank is well demonstrated in that the banks have put £180 million into it. That is a significant commitment. You call it what you want, stealth tax, transfer or whatever you want, but that certainly does not diminish the fact that a substantial amount of money has been put by these banks into the Universal Bank, behind which we are all committed.
  (Mr Goodwin) The Universal Bank without the Post Office is not actually much use to you.

Mr Tyrie

  277. As I understand you have been effectively coerced into creating the Universal Bank and coerced into finding the money to fund it. I have here a quotation of Melanie Johnson who was Economic Secretary to the Treasury. She said that they did not want to have to legislate "as some had urged to compel banks to serve certain sectors of the community but if voluntary action was unproductive and monitoring showed insufficient progress it might be necessary to consider other options". In other words, if you had not coughed up, you were going to have a piece of legislation requiring you to cough up. I repeat the question I asked before because there now seems to be some uncertainty creeping in among the four of you. Is this a disguised form of taxation or not?
  (Mr Ellwood) It is a community obligation which we are very happy to take on board. We said it will enable us to put in money which will enable this Universal Bank to get off the ground and be operated by the Post Office. We are on track for hitting the deadline at the end of this month to sign the deed.

Mr Beard

  278. May I return to the question I posed a few minutes ago? Are you going as individual banks to accept the recommendation of the Competition Commission that you should pay interest on small and medium-sized enterprises' current accounts or waive their transmission charges? Could I hear the answer from all of you?
  (Mr Barrett) We have to meet with the OFT but I shall end up in the slammer if I do not. They are not discretionary powers. This is a pretty draconian power. I do not have the choice. Do I like being forced to implement either? No. If I have to implement one, I will implement one. I do not yet know which. Yes, unfortunately this is not a matter of choice, therefore you can rest assured that the powers which are enshrined in the OFT etcetera are such that they can have their way with us.

  279. How will Barclays respond? Which will it be in the case of Barclays?
  (Mr Barrett) I have not decided yet.

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