Examination of Witnesses (Questions 400
TUESDAY 18 JUNE 2002
400. Mr Targett, what is your objection to this?
(Mr Targett) We do not have any specific objection
to that. My issue is that I am just concerned that price controls
may be a deterrent to people entering the market.
401. That is a bit of spin on it, is it not,
to call it price controls? Why would a bank expect on these current
account balances to be earning, let us say, Bank of England base
rates and paying out 0.1 per cent? Why should you have that sort
of free ride?
(Mr Targett) I am not sure I would describe it as
a free ride, but we do not have any objection to meeting the competition.
402. You and Mr Crosby referred to this as price
control as though it were some over-centralised regulation. Is
it not just a matter that you have not been exactly generous in
the past and the Competition Commission is saying raise this somewhat
to be fairer to the customer?
(Mr Targett) We basically price our services to meet
the competition. Whether they are generous or not, we will meet
the market. If we do not meet the market we will lose business.
403. Is your objection really that you are being
asked to pay more than you might have done otherwise if you had
been left to your own devices?
(Mr Crosby) No. In the Competition Commission requirements
on business accounts, we are already, and have been for some time,
paying more than they will require banks to pay. My only concernand
I want to be very clear that it is a marginal concernis
that we are the major competitor coming into this marketplace
and it reduces the distinctiveness of our offer to customers.
We believe we will change the marketplace in conjunction with
others over a period of time. We will not do that unless we acquire
new customers and attract new customers. From our point of view
that means we just have to change and develop our marketing proposition.
It does not change the overall thrust. That is the only concern
I have. It is not in the sense that it is forcing us to do something,
not even near to forcing us to do something we are not already
404. Would it not be fair to say that if the
real argument were one of you maintaining distinctiveness by the
rate you pay, you would not have had to wait for the Competition
Commission to raise this issue? You could have raised the rates
you are paying out on these various accounts of your own accord,
whereas at the moment the rates are very low, 0.1, 0.2 per cent.
I have a list of them here.
(Mr Crosby) Two years ago we launched paying interest
on current accounts in the personal sector, which had nothing
to do with any competition inquiry. As soon as we merged with
Bank of Scotland we launched the same initiative on the high streets
of Scotland at Bank of Scotland. Within weeks we moved to do the
same thing in business banking. We have not been driven or pushed
by the Competition Commission or any authority in any direction.
We have done those things because we see it as the most overt
way of competing to attract new customers.
405. This recommendation which the Competition
Commission have made on current account balances is welcomed by
all. That is the gist of what you are saying.
(Mr Harley) It is certainly not unwelcome. The issue
for us is that it seems to be a short-term remedy and I think
it should be a short-term remedy.
406. Mr Targett, is that true for you?
(Mr Targett) We will meet the competition. We are
not forced to do it because we are not caught up in this, but
we will do it to meet the competition in that area. It is a fairly
narrow focus just to look at that particular issue. We would look
much wider than that in terms of trying to satisfy customers rather
than just interest on current accounts.
407. Let us move on. The Competition Commission
also talked about a national scheme for sharing branches. When
we had the Big Five here that was anathema to them, they could
not possibly co-habit in that sort of way. Yet if I add up the
number of branches between the three of you, you would have 2,430,
more branches that any of the Big Five. How do you receive this
proposition to look into the possibility of sharing branches and
therefore spreading your presence around the United Kingdom more
than you could do individually.
(Mr Crosby) We have said that we are interested in
pursuing the discussions. It is very difficult to be clear what
it would mean in practice. It would require a high level of co-operation
between banks who are hopefully, increasingly being much more
competitive with each other. In some ways it is slightly counter-intuitive,
but giving greater access to customers does improve choice and
choice improves competition. The logic is there. It is a question
in the midst of our discussions, in which I am not personally
involved, as to whether it could be made workable.
(Mr Targett) We are not against it. We are in a similar
position: we have to understand the detail. We would be in a situation
in terms of branches where over the last five years we have closed
far fewer than the rest of the competition, so we are very acutely
aware of making sure that we do provide a service, particularly
in remote areas and that people do have basic banking. The concept
is one we are not against exploring, so we would get involved
in discussions as well.
(Mr Harley) The devil is in the detail. I agree with
my colleagues that it is how it would be applied. It works at
a technological level with the ATM networks, so I guess it could
work with over-the-counter transactions as long as the detail
is worked through with sufficient clarity.
408. Is it not up to you as to how it is applied?
You could negotiate this between the three of you now as a means
of competing in remote areas where otherwise you would not be
able to afford to keep a branch going. Why is it a matter for
further discussion? You could get together and sort this out as
a competitive feature of the scene, could you not?
(Mr Harley) We could do it on a bilateral basis as
we and probably most of us have done with the Post Office. We
do have bilateral agreements.
409. Is this question being actively and positively
considered or is this just something which is going to slide away
into the mists of time?
(Mr Crosby) It sounds as though we are all taking
the same position and we are engaging positively in the discussions.
Frankly, having read the transcript of the previous hearing you
had with the Big Four, it does not seem likely that the Big Four
are going to embrace the concept.
410. Not at all, but that does not preclude
you embracing it.
(Mr Crosby) To make it really practical, it should
include everybody and that is the nature of the proposition and
that is an important element of the Competition Commission's logic
and an important element of their proposition. I am not saying
that if it fails we will not look at it outside the Competition
Commission's inquiry. At the moment our focus is very clearly
on that. I would say to you that I do not think discussions are
very well advanced at this stage, because the discussions the
Competition Commission are having with the Big Four have got bogged
down in every other area, including the implementation of interest
on current accounts which looks likely to be delayed. It is very
early stakes in this one at this stage.
411. Why should it not be a competitive feature,
nothing to do with the Competition Commission, by which you, the
smaller banks, could address competition with the bigger ones?
(Mr Crosby) It is something we will look at, if the
opportunity is there after the Competition Commission.
412. May I bring to your attention a letter
I received on 5 June after the last banking inquiry from the Chief
Executive of the Post Office. He says, "You will have noted
from the evidence given by the banks to the committee . . . they
are not keen on the concept of shared branches for the supply
of business banking services. Post Office Ltd already has an extensive
national network of branches" indeed the Clerk has indicated
to me that there are 17,500 throughout the country so that dwarves
anything there has been before. Mr Mills suggests to me "This
would seem to offer a ready-made solution to many of the issues
raised in the report and . . . help the banks to increase access
to their business banking services, particularly in more remote
locations". Apart from the Competition Commission, would
you engage with Mr Mills on that particular issue?
(Mr Harley) Absolutely. We already have a bilateral
arrangement with the Post Office and we would look to expand that
as we build the SME business. Yes, it is a perfectly reasonable
(Mr Targett) It is a good solution. We have done a
similar deal in Australia.
(Mr Crosby) We have some areas of co-operation with
the Post Office and we can build on it.
413. You have already stressed the importance
of the credit history transfer. What steps are being taken and
how are they progressing to achieving this?
(Mr Crosby) In our case, we have established a system
of making credit histories available to customers wanting to leave
us. We have that system in place and we have made all that available
to the OFT.
414. Credit histories have to be something agreed
between you and the big banks as well. Are there positive moves,
for instance to agree a proforma or the headings of what should
be in the credit histories? Where does this proposition stand?
(Mr Crosby) I am not present at the discussions but
I believe it is at the centre of the discussions between OFT and
the four clearers at the moment. Naturally, given that they have
90-odd per cent of the market, they will be issuing 90-odd per
cent of the credit references, so one would therefore not necessarily
expect to be at the centre of the discussion with the OFT as to
how it should be done. For our part, we have made available to
them the detail of our own system that we already have in place.
415. You are not involved in the actual discussion,
despite the fact that you are the recipient of many of these.
(Mr Crosby) We are involved but honestly I am being
realistic: we are not as central to this aspect as the four clearers
have to be.
416. I declare an interest as a Member of Parliament
for a rural area. Would each of the three of you very quickly
give me one figure for the number of branches you have closed
in the last three years in what would be designated rural or semi-rural
areas? Can you just whip through that?
(Mr Harley) I shall have to get back to you on that
one, but the number of branches we have closed in total is fewer
than 50. In terms of their designations, I would have to check
(Mr Targett) I shall have to check and
come back as well.
417. If you could write to us. May I just explain
the background to this? There is an interest in rural areas about
proper provision of services and I know you have a business to
run but there is legitimate public interest. What would you say
the split is? Do you actually worry about closure of rural branches,
or is it just another business decision?
(Mr Harley) No, we have a very clear view that we
do not like to, nor would we, close the last branch in town.
418. That is a policy judgement which you make
whenever you are deciding for commercial reasons which branch
(Mr Harley) Absolutely.
(Mr Targett) We are in a similar situation. I will
come back with the statistics. I come into this job new and I
am looking at our branch network as well. We have a similar position
in terms of rural branches: we would not be the last person in
town to leave. We would rather look at what we call clustering
to make sure that even if it is part-time hours there is some
sort of representation.
419. Could you give us some data on that and
Mr Harley as well?
(Mr Targett) Yes, we could get it for you.
(Mr Crosby) We have roughly 1,060 branches across
the UK at the moment. In the last two years we have closed no
more than 50 and I do not believe we have withdrawn from any location;
it is where we have two very close together generally.
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