62. Providing access to bank accounts will not ensure
financial inclusion, unless those accounts are used appropriately
and do not subject users to unsuitable terms and conditions. Which?
suspected that there was "a significant difference between
the headline figures quoted and the number of accounts that are
actually being actively used by consumers who were previously
Derbyloans told us that
Possibly as many as 30% to 40% of our applicants
will withdraw all but a few pence of their wage or benefit on
the day it is credited and carry on using cash as before. All
the ownership of a bank account has done is to add an additional
step to getting access to their money and has produced no change
in their financial behaviour or aspirations.
Ms Whyley of the NCC argued that
the basic bank account model is not quite appropriate
for people who have been financially excluded. It does not offer
the benefits of financial inclusion which are going to attract
people to start changing their money management style
think the bit that has been missed out is talking to people who
are financially excluded about what banking services they need,
how they would like them to be delivered and how that would offer
them the sorts of benefits that would attract them into banks
to take those accounts out.
Mr Crosby of HBOS told us that "in one sense"
such comments were
valid criticism because basic bank accounts are derived
from current accounts that were developed over many years. In
another sense, I do not think it is because the core aspect of
the basic bank account
is the lack of access to credit
but with access to the money transmission system. That was never
an original part of current accounts. In fact, a lot of investment
had to go on to make that money transmission work. So I think
the answer is yes and no, but hopefully, as the years go by, we
will get better at tailoring basic bank accounts to the needs
of those customers.
63. The NCC suggested a number of areas where current
terms and conditions were posing problems for low-income people
operating basic bank accounts. These included problems with the
direct debit system over the lack of access to weekly payments
and disproportionate penalty charges; lack of counter access and
longer cheque clearing cycles and banks appropriating money in
basic bank accounts to pay other debts.
The NCC believed that "basic bank accounts need to be redesigned
to meet the needs of the financially excluded".
They suggested that basic bank accounts should offer counter access
at branches, a small penalty-free buffer zone to guard against
unpaid direct debits, systems that recognise and fit with the
weekly budgeting cycle, including statements and payment mechanisms;
and automated payments that are triggered by money entering the
account so that payments cannot be made without money to cover
them. Other improvements
suggested by research conducted with low-income consumers were
mechanisms that would help those on low-incomes to manage and
control their tight budgets and provide clear information on the
amount of money in the account and impending direct debits and
warning consumers if they are about to go into the red.
64. There remain questions about what will trigger
changes to the terms and conditions of basic bank accounts to
make them easier to operate and more appropriate for people on
low-incomes. Mr Hoffman believed that there was some advantage
in consistency of some basic features, but beyond that there are
competitive features that some banks would add.
Mr Crosby believed that
a lot of the basic features will be common, [but]
how do we in the end best serve these universal customers with
products that are most tailored to their needsit is to
let market forces do it. I think it is about competition driving
innovation, both in terms of the service [banks] provide and the
65. The Treasury had previously consulted on whether
there should be minimum standards for basic bank accounts, but
this option was not pursued.
Financial inclusion will require more than the achievement
of numerical targets for numbers of accounts opened. Survey evidence
indicates that a significant proportion of basic bank account
holders withdraw all their money in cash on the day it is credited
and gain little benefit from operating a basic bank account. There
needs to be a greater focus on ensuring that the terms and conditions
of basic bank accounts are appropriate and useful for those on
low incomes. We make a number of recommendations below and expect
the Treasury, the Financial Inclusion Taskforce and the banks
to discuss and take forward appropriate measures for their implementation.
Default charges and a buffer
66. Penalty charges applied by banks when funds are
not available to meet a direct debit can result in serious short-term
pressures on tight household finances. Table 4 shows the charges
levied for failed direct debits and whether the basic bank account
offers a buffer zone to prevent charges being incurred. The average
charge levied is £34.
Table 4: Level of default charges and whether the basic bank account offers a buffer zone