Examination of Witnesses (Questions 140-159)
MR MARK
LOVELL, MR
JON TRIGG
AND MR
STEVE HART
14 FEBRUARY 2006
Q140 Chairman: What type of bank
account do you help them with?
Mr Lovell: All sorts, whatever
is most appropriate for them. Our experience on that will vary
across the country.
Q141 Chairman: The evidence we have
had regarding basic bank accounts is that it is pretty hard for
people to get basic bank accounts in banks, and you make it seem
very easy, which is good if that is the case.
Mr Lovell: A lot of our work is
about one-to-one intervention and I think Steve will probably
quote a better example than I would, but if we go down to a bank
with a client and help them open a bank account it is very easy.
If the client themselves—
Q142 Chairman: What I am saying is
that that conflicts with the empirical evidence that we had at
Toynbee Hall this last week, when we went to see people in Toynbee
Hall and the workers who were helping people, particularly immigrants,
coming into the financial sector, were explaining to us how hard
it was. So your picture is exactly the opposite.
Mr Lovell: There are two aspects
to what is difficult about it. One is the process of actually
being welcomed into any financial institution, and if an individual
client goes by themselves often I do not think they are made to
feel welcome. The second layer would be the paperwork and bureaucracy
that is associated with opening a bank account, and on both of
those counts it is a very supportive and facilitative process
that we take people through. It is highly cost intensive in terms
of the way we deliver it, but a process that you can deliver nonetheless.
Steve can give you a good example.
Mr Hart: If I give you an example.
Last week a gentleman, who was on Job Seeker's allowance, 35 years
old, went into a bank and they told him because of the amount
of income that he was putting into the account that he would not
be able to open one. One of our advisers decided to go along with
the person and, lo and behold, the bank then decided to open up
a bank account for the individual when we were explained that
we were working with the Department for Work and Pensions on this.
Another example is a Lloyds TSB bank in West Bromwich had a banner
outside the bank saying that if you do not have £250 to open
an account you will not be opening an account. Again, we went
along and they were happy to open a bank account for that individual.
Chairman: Angela Eagle.
Q143 Angela Eagle: Could you take
us through, in your experience, what the basic issues are? Lack
of money, but it sounds to me as though the banks are welcoming
in a corporate way because they have all told us in their evidence
to us that they are pushing basic bank accounts, but there seems
to be a disjunct between what they say centrally and what actually
happens at the branch level.
Mr Hart: I think that ID is probably
one of the biggest barriers to opening any account and I think
a lot of the banks use that as a reason for individuals not opening
an account. So the sort of support we can provide for that is
duplicate birth certificates, for example, and the purchase of.
If it costs £30 to get a duplicate it is money that these
individuals do not have. Also, working with Job Centres and so
on with personal identification documents seems to be another
way around it. So I think ID is one of the biggest barriers and
I think it is also used as an excuse for them not to open bank
accounts.
Q144 Angela Eagle: You are semi-confirming
from your anecdotal evidence what I suspected might be happening,
which is although banks think it is good to publicly say that
they are going to be involved in basic bank accounts they do not
find them profitable and there is a more covert policy down at
local branch level that actually puts people off. Is this your
basic experience?
Mr Hart: Absolutely. Every day,
with the hundreds of people we are working with.
Mr Lovell: Related to that as
well is whether or not it is covert. Actually there is a big difference
between a strategic intent to try and provide financial services
to this client group and the practical barriers to doing that,
because our experience also indicates that no one bank, financial
institution is better than another; it depends very much on how
you are able to engage at a local level.
Q145 Angela Eagle: So what further
action do you think banks need to take to reduce those barriers
at local level to opening basic bank accounts, assuming that the
goodwill is there and not a covert policy of barring people at
local level, even though they are saying nice things at national
level? What are the things you think need to change to assist
people in opening bank accounts?
Mr Trigg: I think that they need
to convert that strategic intent into consistency across their
network. The major problem that we find is lack of consistency.
If you have a branch manager in Sandwell, and what have you, for
HSBC, who is very committed to supporting individuals into accounts
you have struck lucky, and that individual will be very, very
good in supporting their staff in introducing people to appropriate
accounts, particularly basic bank accounts. But the next-door
branch of HSBC may be a very, very different story, and that is
one of the huge issues that we have. We find it is more by omission
at bank level, and so on. So I think they definitely need to work
on consistency, but I do think there is a discussion to be had
around incentivisation of basic bank accounts and how staff within
the banks are incentivised to open accounts. I would hesitate
to go too firmly down that line because the bottom line is that
they are institutions there for a profit motive to deliver shareholder
value, and, yes, while they do have a certain responsibility I
would not countenance forcing them to do a lot of activity that
would lose them a lot of money.
Q146 Angela Eagle: Do you think if
they allow some of the 1.9 million households—nearly three
million people who do not have access to bank accounts at the
moment—into the system that they may well make profits in
the medium to long-term since people very often do not change
their banks once they begin banking, and by definition people
who are opening bank accounts may well go on to get employment
and become quite good customers?
Mr Lovell: I think there is a
definite logic to that point and it is interesting because that
is where we started our discussions a few years ago with the high
street banks, and that was actually around dormant bank accounts
that actively invest some of this into this service and longer
term you will get a pay back on it. I think part of the difficulty,
in response to the question, is that it almost starts in the middle
and it is presupposing that the basic bank account is the right
financial service and product to support the needs of this client
group, and I think that is almost where the banks are stumbling
because our experience certainly indicates that a fundamental
overhaul is required to get an appropriate package of financial
services for clients in poverty.
Q147 Angela Eagle: Would you tell
us what that appropriate package might be in your opinion, from
your experiences?
Mr Trigg: I think that we need
to look entirely at the product set that the individuals are.
I think there has been far too much emphasis on trying to shoehorn
this customer base into a high street banking model that simply
does not work for them. The high street banking model that we
have is very lucrative and highly successful, but if it were going
to work for this section of the market place it would have done
it by now. I think the review has to focus on what products do
these clients need and what do they use now? And that is that
they have a need for a current account of some type and within
that I think there needs to be some saving structure with an incentivisation
to save so that they can start to build up assets and have a savings
culture. And there needs to be access to affordable credit with
that. Apart from that level of services there is not at this stage
need for too much beyond that. The people who we are looking at,
and so on, our customers, do not want to buy equity bond ISAs;
that is not what they are looking to do. They want some basic
products that do not make them feel different from anybody else.
They do not want to have a card that says, "You are poor";
that is not it, it is about mixing with everyone else with the
appropriate product set. There is a lot of talk about affordable
credit in the market place and whether these individuals should
be borrowing, so I think there is a lot of parochial comment about
that, and so on. The fact is they need to borrow in small amounts.
Q148 Angela Eagle: For example, clients
of yours might need to borrow to buy clothes to start a job—very
basic things, very small amounts.
Mr Trigg: Yes, they are not looking
for £5000 for a holiday to Florida; they need £250 over
six months to replace a fridge, or even for Christmas.
Mr Hart: Or even £50 to buy
a pair of work boots so that they can actually start work. It
is very small.
Q149 Angela Eagle: Do you think on
that kind of small level of borrowing they do not need to pay
large amounts of penalty clauses because often that happens with
people borrowing small amounts and if they cannot pay back they
get into big debt for very small amounts.
Mr Trigg: Exactly. I think there
are a lot of problems around that in the way that APR is calculated.
It can look on a relatively small amount of money as though it
is a huge APR and so on, but actually when you look at the amount—borrowing
£100 and paying back in six months £120—it is
not a massive amount in terms of pay back but at APR level it
looks horrendous. But I think there is definitely room in the
market place for more competition to bring those rates down.
Q150 Angela Eagle: Can I just ask
about money laundering regulations because when we visited Toynbee
Hall we saw them being applied quite ludicrously in some instances
to people. Do you have any thought on how the demand for personal
identification could be finessed a bit to make it more practical?
You did mention that ID is one of the biggest issues for your
clients trying to access any kind of account. Do you have any
views on how that might be shifted?
Mr Trigg: It needs to be strongly
simplified. At the moment it is disproportionate for this sector
of the market place, and whilst completely understanding the need
to combat money laundering and so on the FSA has put out guidelines
about what can be accepted and that is very broad range and so
on, but the fact is that that has not translated down to the front
line in terms of what people can actually show. The ability to
show benefit letters and so on, most banks would accept that,
but their staff do not know they will accept that and that is
a huge issue. So I do not think that the money laundering regulations
per se is the issue, it is the application of them to the
proportion and manner that is the real issue. I think we do need
to look at specific forms of ID that this section of the market
place would use.
Q151 Angela Eagle: Such as?
Mr Trigg: It is definitely around
officials from the Department for Work and Pensions, Job Centre
Plus and so on, all of that type of identification, most of which
is acceptable to banks and so on, but there needs to be a re-emphasis
that that is acceptable, and realise that what these individuals
are looking to do is that they are not going to be depositing
thousands and thousands of pounds in the account, and if they
do it throws up every red flag there is in the banking system.
So we need to do away with, at the front line end with staff,
this fear—and I think there is a genuine fear in bank staff—that
if something goes wrong they will be held accountable, so the
easiest thing is to cut people out.
Mr Lovell: It comes back to the
Chair's point earlier, which is a few years ago one of the things
we started doing is when you took someone who was not in work
down we got an agreement with a number of banks actually that
a letter from us, because of the work that we did with government,
also was supportive of ID, particularly for people who had no
fixed address, and that greatly enhanced the process. But that
was a local arrangement, so again it comes back to the practical
application. It is very different sometimes, I think, to the way
that the strategic intent is interpreted.
Q152 Angela Eagle: One final question:
is there a particular bank or institution that is really good
at this and one that is really bad? Who would you put at the top
of your list and who would you put at the bottom?
Mr Lovell: Gosh, what a strong
question! I am probably too far away to offer an opinion.
Mr Hart: Shall I talk from a practical
point of view? From the day-to-day work that our advisers are
doing I honestly cannot say that there is one sitting at the top
of the list. As Jon was saying earlier, you can go to one bank
at the top of the high street and go to another and you get a
completely different service. So our work on a local level with
banks is really key, it could be HSBC; it could be Lloyds TSB,
so there is no bank in particular.
Angela Eagle: That is very diplomatic.
Chairman: Peter Viggers.
Q153 Peter Viggers: There is undoubtedly
a barrier which prevents a large number of people from taking
out a bank account and it is accepted, I think, that there are
considerable advantages to the individual if they do take out
a bank account, but the kind of bank account that Jon Trigg has
described to us with current account savings, forms of credit
and so on, is not profitable from the banks' point of view. It
is a fact that money transfer and current accounts are not profitable
from a bank's point of view; the bank needs to sell a whole package
in order to get remunerated.
Mr Trigg: Yes.
Q154 Peter Viggers: So there are
a number of models here. One is the model that we had described
to us last week in the United States by the Citizens Bank, which
gives modest salaries to their employees but big incentives to
encourage the staff to get people banked. That is one way ahead.
Another way that you have just described is that you go with an
individual to open an account, and that is another model as it
were. And the third model is to tell the banks that it is going
to be profitable for them in the long run because customers will
get to like the banks and use them. Which of these models do you
think is the right way ahead?
Mr Lovell: Coming back to Angela's
question, if you broaden the question out to an international
basis, I would say that some of the examples we have seen in the
US and places like South Africa would be amongst the best and
the UK would be amongst the worst in terms of dealing with this
client group. From the examples that you have just put on the
table it is the package of services which needs to be delivered
by an institution which is committed to and understands how to
deliver its services to this client group in a profitable way,
and I think one of the challenges that the UK banks face is that
their infrastructure is geared in a certain way to deliver the
service to the customer. If you begin to look overseas you see
that, for example, some of the retail methodology, as in retail
services based on some of the large outlets, for example in South
Africa, underpin the banking methodology that is delivered to
clients in this market place. So the whole infrastructure sitting
behind the bank is a very different one to the ones that have
grown up in the UK. So I think if you can get organisations using
a different platform and delivering these services and you can
get a blended portfolio of products that is, I would say, our
favourite solution. I think it is also not just about the banking
product itself, there is evidence that suggests that once people
open a bank account they will be broadly better off. Our experience
though is that there is still a lot of work and we try to focus
on this in terms of developing the consumer skills of the client
group that we are talking about, and that relates to making uniformed
choices and being able to differentiate between the services in
the market place, and once you open a bank account being tutored,
supported in a way to make the best use of both the account and
the other services and products. So if I can give you two quite
specific examples? On our work on direct payment one of the situations
that we have discovered latterly, when you get down to a smaller
and smaller client group of people who do not have bank accounts,
is that they open it but then, for example, if they are used to
a cash economy they draw all the money out any direct debits are
sent into default and then they say, "See, bank accounts
do not work for me and it does not help." And it is an educational
and support process which is vitally important to the individual.
Related to that—and this is where you see the proliferation
of door to door lenders and loan sharks—it is often a last
port of call; whoever knocks on the door at the time of financial
need is where you channel your attention. So I think there are
two elements to the discussion: one is the range of the products
and services available from the market to the consumer, but also
supporting this consumer base and making informed choices about
where they use those services effectively.
Q155 Peter Viggers: How do you cast
out your net for customers as a company, and how are you remunerated?
Mr Lovell: It is lots of different
ways because we work with lots of different parts of government.
I think sitting at the core of a lot of the work we do is a community
engagement principle, which is getting into the local communities.
So whether it is welfare work that we are doing on the financial
inclusion agenda or business support we are out in these disadvantaged
areas securing the customer base. That is not just our direct
work; I think one of the things that we have learnt over the years
and is vitally important is that you engage with those stakeholders
in the community who are trusted sources of information to the
client base. So, for example, with many of the different faith
sectors we work with local faith leaders who will support and
encourage people to participate in activities—it is not
just a direct onslaught.
Q156 Peter Viggers: Do you charge
the people you advise on a commercial basis or are you subsidised?
Mr Lovell: Most of our work is
funded via government in terms of public sector contracts.
Mr Hart: Can I also pick up on
the home visit aspect which you have just covered? Lloyds TSB,
going back to the question asked before, have home visit officers.
If you look at the loan shark they actually knock on people's
doors because a lot of people that they are targeting will actually
be in their own home, so Lloyds TSB, for example, are working
with customers in their home, in particular incapacity benefit
customers and people with disabilities who are homebound. So it
is good to see that is happening. Our home visit team that is
actually out and about now is very, very successful.
Q157 Peter Viggers: Is that thought
to be commercial by them?
Mr Hart: From the customer that
we are going in to see?
Q158 Peter Viggers: Does Lloyds TSB
think that it is cost effective to have home visits?
Mr Hart: Yes, I believe they do.
Chairman: Susan Kramer.
Q159 Susan Kramer: Can I just follow
up on this with one more question because the organisational structure
which you are starting to hint around is interesting? When we
were in the United States we saw the examples of community development
banks which make this their exclusive client base, if you like,
and they are very successful in penetrating it. Also the community
banking movement here in the UK has proposed that banks should
start looking at, say, a shared facility where they bring credit
unions or community development funds or whatever, other groups,
into the same physical building to provide a group that is much
more targeted at these kinds of individuals. Looking at those
kinds of examples do you have some thoughts on what would be your
ideal blueprint?
Mr Lovell: Yes, I think that is
probably heading in the right direction in terms of our experience.
I think one of the key challenges in the UK—to broaden out
the point before specifically responding—is that the join-up
between private sector, public sector and the voluntary community
sector is critical to address financial inclusion/exclusion, and
I think that at the moment that is still very, very fragmented.
There is evidence of it beginning to happen but I think that you
often find banks are unwilling to engage with the community banks;
community finance initiatives sometimes are very focused on their
vision and their mandate and want to focus on that to the exclusion
of all else. So the joins which you have described are quite hard
in practical terms sometimes to bring about. The key to me in
the point that you made—and I think it is critical, and
you are right—is about the service facility being in the
heart of the community and being available and accessible, and
that then relates to the service. If you walk in and, for example,
if I am illiterate and I walk in and I am faced by a barrage of
paper it does not matter where it is because I am still predisposed
to walk out. But if I walk in and the process takes account of
my particular needs as a consumer then that engages me and that
keeps me there and I think that is where the type of engagement
that you are talking about and the co-location works very well
because you have that support facility on hand.
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