Select Committee on Treasury Minutes of Evidence


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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