Examination of Witnesses (Questions 520-539)
MR JOHN
VARLEY, SIR
FRED GOODWIN,
MR SHANE
FLYNN AND
MR MICHAEL
GEOGHEGAN
26 OCTOBER 2004
Q520 Mr Cousins: On that basis inevitably
some areas would get a more intense marketing pressure than others.
Sir Fred Goodwin: They tend to
be groups of people rather than areas.
Q521 Mr Cousins: Those people would be
in certain neighbourhoods, would they not? That is rather an obvious
conclusion from what you have just set out.
Sir Fred Goodwin: Is it?
Q522 Mr Cousins: For example, membership
of the Institute of Chartered Accountants is not distributed
evenly across the country, I would suspect. You do not expect
the Institute of Chartered Accountants to be concentrated into
particular neighbourhoods?
Sir Fred Goodwin: That is but
one group. It might be more dispersed than you think but there
are a variety of different groups. The point I am making is that
geography is not the driver of what we do.
Mr Varley: We will test the market
in pretty much all post codes across all parts of society. The
response rates vary quite significantly and where we see better
response rates we will market.
Q523 Mr Cousins: What are the characteristics
of the places where your response rates are higher?
Mr Varley: It sounds a rather
platitudinous response to your question but the characteristics
are: we market where we succeed. If you are asking me whether
there are particular characteristics in terms of income, no. There
are not.
Mr Geoghegan: As far as I am aware,
we just market the product, not by geography.
Q524 Mr Cousins: There is not evidence
that is fully conclusive about this but there is a good deal of
evidence to suggest that the penetration of credit cards varies
a lot by income and by social group. Would you say that was fair?
Sir Fred Goodwin: I am not sure
that in seeking to answer the question you would be seeking facts
and evidence or not. The availability of credit would I hope track
creditworthiness but I would be loath to make any direct leap
across from creditworthiness to any social attributes.
Q525 Mr Cousins: Do you not think it
would be sensible to acquire some information on characteristics
of people who have credit cards as a piece of internal risk assessment
and good housekeeping?
Sir Fred Goodwin: Anything we
can do in risk assessment and good housekeeping we do invest in.
If there was anything else we could invest in, I think we would
most certainly do it because it is the single most important thing
in this business to get your risk assessments and judgments accurate.
We do invest in those things but it is also important that we
do not set out with any particular stereotypes about people's
ability to repay based on where they might live or what they call
themselves.
Q526 Mr Cousins: Absolutely. You did
identify in evidence to the Committee the fact that people wish
cash flow problems that cause them financial difficulty are not
necessarily people from low income groups. They are people who
suffer shocks in their lives, whether personal or economic. It
would be quite wrong to draw the conclusion that the Committee
is discussing are characteristics of the very poor. Perhaps you
would like to confirm that. I thought that was an interesting
point to make.
Mr Varley: I would certainly confirm
it as well.
Q527 Mr Cousins: What about MBNA?
Mr Flynn: I would go back to something
I said earlier about ability, stability and willingness. The thing
we look for in our portfolio and in the people who apply for our
products is how stable they are. When we look at stability, we
are thinking in terms of how long they have been at an address,
how long they have had employment. When it comes to ability, it
is income and household income and, when it comes to willingness,
there are quite a few attributes that we would find. We would
expect that the customers that we have in our portfolio reflect
those things that we are looking for and I think they do.
Q528 Mr Cousins: HSBC?
Mr Geoghegan: Our view would be
similar to the others here. It gives assistance to a number of
people who get themselves into difficulties so that they can be
helped by not only the bank cards that are provided by all the
major banks but also our subsidiary, HFE, caters for people who
get into those difficulties. We believe that is a service that
helps those people through a difficult time in their lives.
Q529 Mr Cousins: I think all of you made
reference to the fact that you gave cash contributions to the
Money Advice Trust. Could you give me, off the top of your heads,
some idea of what sums of money we are talking about?
Mr Flynn: In our case, we do not
track it. I do not have the information for the Money Advice Trust
but for all of the organisations it will be somewhere in the £1
million area for this year.
Sir Fred Goodwin: Only a couple
of weeks ago we announced a renewal of our support for the Money
Advice Trust in the sum of 1.7 million.
Mr Varley: Our charitable giving
last year overall was—
Q530 Mr Cousins: I am not talking about
charitable giving. I am being very specific.
Mr Varley: An important component
of what we give would be the direction of assistance into the
area that you have talked about, the money advice sector. Like
a number of those sitting around this table, we have supported
the money advice sector for some time. The sorts of amounts involved
will be similar as Sir Fred has referred to in the case of Barclays.
Q531 Mr Cousins: Perhaps it would be
helpful if the Committee could have details of that because it
would provide us with a comparison of maybe your turnover or something,
so that we can see whether there is an industry pattern or whether
there are variations between institutions.
Mr Flynn: I think the benchmark
for us should probably be our asset base rather than turnover.
Mr Geoghegan: Or possibly delinquency.
Q532 Mr Cousins: That is one that helps
you of course.
Mr Flynn: Turnover is not used
as a measure in this.
Q533 Mr Cousins: You are not carrying
the fixed costs of the branch networks that your competitors are.
Mr Flynn: No, we are not.
Q534 Mr Cousins: Perhaps turnover would
be better. This is for the other three of you: do you think it
is a good idea, if the Treasury were so minded, to introduce targets
for basic bank accounts?
Sir Fred Goodwin: I do not. I
think it should be up to people to choose. How do you then go
about fulfilling your target? There is this notion that when you
get to your quota you have to stop to allow other people to have
their quota. At a practical level, I am not sure quite how you
would do it. Anyone who wants a basic bank account should have
the freedom to choose who they get it from. We have a basic bank
account product in all of our brands. We have had it for a long
time. It is marketed as freely available within our branches,
subject to money laundering checks, and we are adding customers
to it at a fairly healthy rate. We have a healthy market share
and I would be quite happy for our market share to be bigger.
If you came up with a quota, you would present us with the problem
of having to shrink the number of basic bank account customers
we have and I am not sure how you do that. There is a free market
out there and the important thing is that basic bank accounts
are available and that customers can have access to them.
Q535 Mr Cousins: Do the functions on
the three of your basic bank accounts include debit cards?
Sir Fred Goodwin: Yes. There is
a specification for what constitutes a basic bank account. I think
the OFT came up with it.
Q536 Mr Cousins: There is some evidence
that has been produced for the Committee that credit scoring techniques
kick in which deny some people basic bank accounts.
Sir Fred Goodwin: The definition
of a basic bank account does not include any credit.
Mr Varley: There is no credit
check.
Q537 Mr Cousins: No; credit checks on
the people applying for the account.
Mr Varley: There is none. The
obligation that the industry accepted was that anybody can apply
for a basic bank account and, provided they can identify themselves,
they will have one. I would agree with Sir Fred. I think targets
are another area where there has been movement in the industry.
We, in our own case, have issued 300,000 basic bank accounts.
We are marketing them actively. There is strong flow every month,
month in, month out. My real hope is that the industry will get
to where you would like the industry to be just as a natural competitive
basis.
Q538 Norman Lamb: You made the point
about not marketing products to students. Did I get that right?
Mr Varley: Increases in credit
limits.
Q539 Norman Lamb: You market the product
but not increases in credit limits?
Mr Varley: Correct.
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