Select Committee on Treasury Minutes of Evidence

Further memorandum submitted by Lloyds TSB Group

  I was interested to hear that the Committee is to take evidence from Ian Harley, Steve Targett and James Crosby on Tuesday 18 June as part of its inquiry into Banking.

  In light of the Committee's interest, I thought that you might appreciate further information on Lloyds TSB's view of the Consumers' Association Switch with Which? campaign. I would also like to elaborate on a point made by Peter Ellwood, Group Chief Executive of Lloyds TSB, in his evidence to the Committee on 14 May.

  At that Committee session, Mr Ruffley referred to the Which? campaign which claims that the difference between the interest paid on current accounts by the "big four" and other providers such as Abbey National and Halifax represents a "£500 million rip-off" by the "big four". In his evidence, Mr Ellwood made the point that this campaign seeks to compare 'apples and pears' in contrasting current accounts paying 0.1 per cent interest on credit balances with accounts paying between 2 to 3 per cent. There are two important facts that we believe underpin our view.

    —  Accounts paying between 2 and 3 per cent are available to a small percentage Customers:- they impose strict eligibility criteria and insist on a minimum monthly income of £1,000 per month in order to qualify for these rates of interest.

    —  Not all current account products have the same level of functionality and/or service.


  Over 72 per cent of the adult population would be excluded by the income restrictions of Abbey National and Halifax's "interest on current account" products. They are simply "cherrypicking". If Lloyds TSB were similarly to introduce a £1,000 monthly minimum income restriction, over 59 per cent of our existing customers and 84 per cent of new customers would not qualify.

The "internet only" banks pay interest on current accounts, because they do not have, and therefore do not provide their customers with access to large branch networks. As Smile explains on its internet site ". . . we don't pay the same overheads."


  In contrast, Lloyds TSB offers its customers free access to 2,200 branches, 4,400 ATMs, internet banking, telephone banking, 17,500 Post Offices and 35,000 trained frontline staff.

    —  Nearly three times more customers tell us they value convenience compared with credit interest when opening an account.

    —  Abbey National Customers have, on average, to travel more than twice as far to reach a branch compared with a Lloyds TSB customer. Over 64 per cent of consumers can drive to one of our branches in five minutes compared with only 37 per cent for the Abbey National and 57 per cent for the Halifax and, of course, "Internet only" customers have no access to branches.


  Following a series of initiatives, switching is now easier than ever before, and even Which? acknowledges that a large majority of customers experience no difficulties in changing accounts. The consumer therefore benefits from real choice. They receive a product, which is free of charge. They can choose who they want to bank with, decide the most convenient delivery mechanism and the most appropriate account for their circumstances. In making that choice, the consumer can elect for a service based on "anywhere, anytime banking" accessible to "everyone" which is Lloyds TSB's strategy, or a narrower offering.


  Over 75 per cent of our customers never go overdrawn. The Which? campaign only quotes our highest rate of 17.3 per cent on the "switchwithwhich" internet site; the reality, however, is that 56 per cent of our customers' borrowing is at a rate of 14.8 per cent or less. This is in contrast to those Halifax customers who pay in less than £1,000 per month, who pay 18.9 per cent on overdrafts.


  The Committee may also be interested to know that Abbey National extends its minimum monthly income requirement to basic bank account customers. The Abbey National Instant Plus account, targeted at the financially excluded, requires a minimum monthly deposit of £250. The Halifax Cardcash basic bank account also only allows cash withdrawals of over £300 at any branch counter.


  There has been considerable public comment over recent weeks regarding Alliance & Leicester's plans to charge £1.25 to customers of other banks to withdraw money from remote ATMs. Abbey National has also said recently that it is considering whether to dispose of 100 of its machines in remote areas.

  I would like to assure the Committee that, at Lloyds TSB, expanding our ATM coverage and upgrading our existing machines to provide a better service to our customers, remains at the heart of our business philosophy. In remote areas, our customers are served by a comprehensive range of distribution channels including ATMs, even though they are often uneconomic by sheer virtue of low usage and higher maintenance costs. In March 2000, Lloyds TSB was the first bank to introduce an ATM code of conduct which remains and we have no plans to introduce fees for ATMs.

  I hope these thoughts may be helpful ones to you and to the Committee. Please do not hesitate to get in touch with me if you would like us to clarify or expand on any of these points.

14 June 2002

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