Examination of Witnesses (Questions 260
TUESDAY 14 MAY 2002
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 clearlybusiness.com, 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
managerand a lot of the survey evidence points to thisprovides
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.
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
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
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
(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.
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 wayswhich 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?
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
Mr Mudie: It is easy when you have the
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 extentalthough
not all of you, there are some honourable exceptionsabout
the Universal Bank. If we are to provide fair services to people
in all communitiesyou have also made great play on needing
your customers to stay with you; you are fighting each otherwhy
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
(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
(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
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 ...
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.
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
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.