Examination of Witness (Questions 480-499)
MR BRIAN
POMEROY
9 MAY 2006
Q480 Mr Mudie: Why did you meet six
times instead of the indicated four times?
Mr Pomeroy: Because we had a heavier
agenda than four times would have allowed. Particularly in the
first year, when we were getting to understand each other and
producing a common position, I think four times was not quite
enough, and so we have increased the frequency.
Q481 Mr Mudie: In terms of bank accounts
for the people involved, you have indicated "steady progress".
Mr Pomeroy: Yes.
Q482 Mr Mudie: And then you have
said "significant progress" elsewhere. These are vague
words—optimistic but still vague. Do we know how many banks
accounts? Do we have actual figures? The Chancellor is wonderful
about great phrases like "ending child poverty" et cetera,
but there is never data. It is the same here. What do you mean
by "steady progress".
Mr Pomeroy: Let me answer the
question about steady progress and then tell you what the situation
is as regard the availability of past statistics. When we look
at the available data showing quarter-on-quarter results for the
number of unbanked, we can see a steady material reduction quarter
on quarter. We can see this from our own surveys, which we have
commissioned, and also from industry statistics and supplementary
advice from other independent surveying. That is what we mean
by steady progress. On your question: "Do we have hard data?"
the goal which has been agreed between the banks and the Treasury
is based on a family resources survey and that is hard data. But
if you ask: "Do we know at the moment according to that survey"—which
is really the only one that counts for the purposes of the goal—"where
the banks are?" the answer is: "No, we do not."
The reason is that there is a one year delay in the publication
of that survey. They have just done fieldwork for 2005-06. That
will not be published until 2007. You will also see from our evidence
to this Committee and also from our banking report that for two
years the survey was conducted in a way which did not enable us
to compare it with the goal—which one has to say is unfortunate.
That is one of the reasons why we have supplemented it with our
own survey. The straightforward, quick answer to your question
is: "No," and we will not know until the spring of 2007
exactly where they are with the goal.
Mr Mudie: Thank you.
Q483 Peter Viggers: The Banking Code
Standards Board has identified barriers to opening accounts. We
have picked up in evidence that there seems to be a disparity
between the banks' stated intentions and the actuality of experience
of customers on the ground. Can you comment on that?
Mr Pomeroy: Yes. First of all,
there is a disparity of experience between those two things. That
is absolutely highlighted, not just by the Banking Code Standards
Board but by people working at the frontline, in the voluntary
sector; for example, working with financially excluded people,
helping them to open bank accounts. They find not just the disparity
between what the stated intention might be and what happens on
the front line, but also a disparity of practice as between banks
and as, indeed, between branches of banks. I mentioned earlier
that we have set up a forum in which we hope to have detailed
and frank discussions with the banks about precisely these issues
and we have also had one-to-one meetings with some of the banks
and they have shared with us some more confidential data. Our
perception is this: the right messages are coming from the top
of the banks—in other words, there is a core commitment
to meeting the goal—but the way it percolates down to the
frontline, which means counter staff, is very variable. You will
go to one branch and the counter staff will have been very well
trained and they will know exactly what the identification rules
are and what the banking code says and what their products are
for people on low incomes, but you might to go to another where
they are less well trained. We agree absolutely with your perception
but we diagnose it as the frontline not yet being fully trained
and consistently trained sufficiently in order to implement the
corporate policies.
Q484 Peter Viggers: The Committee
took evidence in the United States where there were real incentives
on the staff to encourage members of the public to take out bank
accounts. Did you gain a similar experience in the United States?
Mr Pomeroy: Yes.
Q485 Peter Viggers: Did you draw
any conclusions from that?
Mr Pomeroy: Of course, as has
already been mentioned, in the United States there is a Community
Reinvestment Act which puts strong incentives on banks to serve
people on low incomes. A number of banks are small, local community
banks and they themselves are frequently supported by large banks,
so there are big incentives on the banks themselves to serve people
on low incomes. If you are asking about incentives at a more micro
level (that is, from the counter, so to speak) then I cannot draw
any conclusions or comparisons between the USA and the UK. But
it is clear that at a corporate level, because of the legislative
framework in the USA, they do have that incentive.
Q486 Peter Viggers: It is well known
to every constituency Member of Parliament that there are real
problems in opening bank accounts with identification and money
laundering requirements. Can you please bring us up-to-date as
to discussions with government as to how this particular issue
is going to be cracked?
Mr Pomeroy: This is a key point
for us. If you look at the barriers to opening accounts—probably
ID—there are four or five that have been identified by the
Banking Code Standards Board, but, if you look at practitioners
on the frontline who have tried to help people open bank accounts,
the first thing they will probably mention is problems with ID.
We understand on the taskforce very clearly why there are rules
for ID and we understand the need to have effective anti-money-laundering
regulations. The anti money-laundering guidelines have recently
been reviewed, and they have been reviewed, I think, in a positive
direction so far as financially excluded people are concerned
because, rather than having to have a photo-ID such as a passport
or a driving licence, which we know that many people on low incomes
simply do not have, there are now alternative means of identification
which are acceptable. We have looked at those. I should say that
we have on our taskforce practitioners who do work on the frontline
and know exactly what the practical experiences of financially
excluded people are. Our conclusion is that the new rules—which
have just come into force, I think—are a great improvement.
We do not think they necessarily solve the problem for everybody
but we think they are a good improvement. Our conclusion is that
they probably strike the right balance between making it easy
for people who do not have standard ID, on the one hand, and,
on the other hand, having effective money-laundering rules, because,
whilst we would like it to be very easy for people to open bank
accounts, we do recognise that there has to be a balance. We think
the new rules are a considerable improvement, but it comes back
to the key point which we have already discussed: it is one thing
to have the rules; it is another thing to have bank frontline
staff trained in them and implementing them. Where we are now
is to say, "Fine, the rules look like an improvement, that
looks okay," but we would urge the banks to make sure their
frontline staff are fully trained, so that they do accept the
alternative documentation and do not turn people away because
they are not au fait with the latest rules.
Q487 Peter Viggers: Does your committee
think that market solutions will be a resolution of the problems
of people without bank accounts? Do you think it can be resolved
through market solutions or will the Government need to take additional
measures?
Mr Pomeroy: That is also a key
point for us because the shared goal which we have been talking
about, the goal that the banks and the Treasury have agreed to
reduce the number of unbanked people, is not really a market solution,
because the banks consider that they lose money on basic bank
accounts and effectively they have agreed to do something which
they consider to be unprofitable. So that is not a market solution.
That does not mean that we do not support that solution. We want
that solution to work and to be fully honoured, obviously, but
it does raise the question of whether it would be better if we
could find a sustainable way—sustainable in the sense of
profitable for the providers—of providing products to people
on low incomes. This is something which we have raised with the
banks. I do not claim to have the answer to that question but
I do think we are entitled to ask the banks to look very carefully
at whether it is possible to design products specifically for
these markets. They would perhaps be lower cost products; they
might have different features but which would be sustainable.
When we went to the United States, we did see community banks
serving people on very low incomes with products designed and
tailored for that group of people, often working out of very cheap
premises, round the back rather than in the high street and so
forth. That has certainly made us ask questions of the UK banks,
whether or not there could be a sustainable solution here. As
I say, we do not have the answer to that, but we do think the
banks ought to be looking very seriously at whether they could
design products for that market. I think it is fair to say that
the basic bank account, which is the main tool for reducing the
unbanked at the moment, is the current account that everybody
else has with a few things taken out. It is not a product designed
specifically for the low-income market and we would very much
like the banks to look seriously at that as a profitable market.
The last thing I want to say on that is: whether or not a market
is profitable may depend on the time scale over which you view
it. We could well see that there might be some communities in
this country (let us say, working class communities with a high
proportion of newly arrived immigrants, for example) which might
not be profitable today but, if you took a five or 10 year look,
as people become more upwardly mobile, become more economically
successful, may well be profitable. We do not say that we know
there is a market solution or that they can be profitable but
we do say that we think the banks ought to look very seriously
at this—very seriously at this—before they conclude
that there is no profitable sustainable market.
Q488 Peter Viggers: Some consumer
groups have called for a universal service obligation on the banks
to compel them to provide basic bank accounts. At the moment,
some of the terms and conditions of banking are adversely disproportionate
to smaller accounts. Do you have a view on the universal service
obligation?
Mr Pomeroy: Since there is a voluntary
solution in place, so to speak, the shared goal, our view is that
we should see whether or not that works, but not take something
more directive, so to speak, like a universal service obligation
off the table. It is not our view at the moment that that would
be a good idea. We think it is better to see what progress we
can make with the shared goal. As I have indicated, I think we
are making progress with it. In the background, certainly, we
would think the Government ought still to reserve that option
if other measures fail.
Q489 Mr Love: I would like to come
in quickly on the previous answer about designing an account specifically
for low-income groups. The National Consumer Council and Citizens
Advice have made some suggestions. Do you have any ideas of the
outline of such an account?
Mr Pomeroy: Yes, we do. Because
of the work we have done directly with people on low incomes—and
the workshops I mentioned to you earlier—we have looked
carefully at that and we have asked people what they want. Basically,
people want, first, an account that is easy to open, that is administratively
easy to open, so that form filling is not too daunting. They clearly
want barriers and problems like identification to be simplified
so they can get the account. It is very interesting that when
we have asked people at these workshops whether they see the benefits
of having a bank account, unprompted they often say no, but when
they are prompted they do recognise the benefits: greater security,
the possibility of using direct debits and so forth to reduce
their utility bills and so on. They do see the features but at
the same time there is an apprehension that if they have a bank
account they will lose control. It is very clear that someone
who has been used to working in cash—seeing the cash there
on the mantelpiece or in a jar or wherever it happens to be—is
daunted by having the money go into an account. You cannot actually
see it physically, how will you control it? The sort of features
that these sort of accounts need to have are features which assist
in reassuring over control.
Q490 Mr Love: Could I ask you about
two specific things: first of all, access to bank branches, where
some of the banks are not allowing that to happen and whether
that is a feature, and, secondly, a small overdraft facility short-term
to help them through payment periods.
Mr Pomeroy: If I may take the
second one first, that did come out of our discussions with people
on low incomes. It came specifically out of discussions about
direct debits. People understand that you can save £80 or
£90 a year from your utilities and telephone bill if you
use direct debits, but they also know what happens if a direct
debit hits your account and there is no money there. That is one
area where it was suggested to us that a buffer zone of the kind
you have described might be useful. Another one which of course
does exist at the moment is with ATMs: since you can only get
£10 out of an ATM if you have £6 in your account, that
sort of buffer zone already exists. But the idea of buffer zones
generally would be one such example. You mentioned also counter
access. We are aware that some banks have been withdrawing or
thinking about withdrawing counter access, so we are concerned
about that. The counter is not the only place you can get cash.
For example, if you have a bank account[2]23,
you can go to a post office, you can go to an ATM if there is
one accessible to you, especially if it is not fee charging. Nonetheless,
we would have a general concern if, having agreed the goal with
the Treasury, the banks then started removing the utility of the
accounts
Q491 John Thurso: I want to ask you about
the Post Office card account but can I first of all get this clear
in my mind. People who are currently holders of a Post Office
card account but no other form of banking, are they counted as
being included or excluded?
Mr Pomeroy: We count them as excluded
because the functionality of the Post Office card account is very
limited compared with a normal bank account. You can get your
benefit out in cash; you cannot pay a cheque in and you cannot
issue a direct debit. We do not count a Post Office card account
as being banked.
Q492 John Thurso: Potentially, when
we hit 2010 and that goes, we have a problem, in that there is
going to be quite a number of people who are going to have nothing.
Mr Pomeroy: Yes.
Q493 John Thurso: A second point
on that is that I was looking at the membership of the taskforce
and I was interested to see—given that the Post Office could
be described as one of the biggest retailers in the country, with
14,000-odd branches—that you have nobody on the taskforce
from the Post Office. Do you think that is an omission?
Mr Pomeroy: I do not think it
is an omission, in the sense that the taskforce is 12 people.
There are many stakeholders of various kinds in relation to whom
you could make a case for being on the taskforce. We have said
we would rather have a small taskforce but make sure we actively
engage with stakeholders. In the case of the Post Office we have
a discussion starting shortly with them about precisely the point
you have raised, which is the future of the Post Office card account.
May I add something? You have asked me whether it would be a problem
when the Post Office card account contract ends and I have said
yes, and I should say that we see it as an opportunity as well.
Of the 4.2 million, I think, people who hold Post Office card
accounts, 30% do not have bank accounts. That is 1.2 million people.
We see that as an opportunity of getting a large number of people
who are not currently in mainstream banking into mainstream banking.
Q494 John Thurso: Perhaps I could
ask you to amplify on that and tell us what thoughts the taskforce
has had about the future, given that we now know it is not going
to be renewed after 2010, and what replacement products would
help to promote financial inclusion.
Mr Pomeroy: We cannot be concrete
about this yet but as soon as it became clear that this was likely
to happen, we began discussions with the DWP about their own plans
and they told us that they themselves are running some pilots—I
think they may just have been completed or they may still be in
process—of looking at different ways of moving people off
Post Office card accounts into other forms of account.
Q495 Chairman: Do you think their
plans are in good shape? Are they quite sophisticated? The impression
given to us is that the Government are a bit flat-footed on this
at the moment, as to how Post Office card accounts are going to
be replaced. They have not shared them with us.
Mr Pomeroy: I do not think, Chairman,
I have any better inside information than you have on this.
Q496 Chairman: So your opinion is
the same as ours.
Mr Pomeroy: I would say it goes
one stage further. Our opinion is that we understand that no solution
has yet been devised. That may be wrong, but that is my understanding,
that no solution has yet been devised. We know from talking to
the DWP that they are looking at ways of migrating Post Office
card account holders into other forms of banking. Our interest
is in pursuing that to find out from their pilots whether there
are ways which would work. We are also about to discuss with the
Post Office—we have meetings arranged shortly—their
own take on this and what products, if any—I do not know
what their plans are—they may be planning to put in place.
But the big point for us is that, whatever the plans are—and
we simply do not know what they are because they are just in such
a mature state—it seems to us that there is a big opportunity
which we as a taskforce will be pushing on very hard, to get a
large proportion of that 1.23 million into banking.
Q497 John Thurso: The Performance
and Innovation Unit some years ago recommended a universal account
based on the Post Office. We have this unique British strength
of a wonderful network of post offices, why is it that we are
not looking at a post office based solution? Would that be something
the taskforce would look at?
Mr Pomeroy: I am sure it is something
we would look at. I cannot answer the question why are we not
looking at it because I am not privy to the discussions that may
be taking place between DWP and the Post Office or anywhere else.
It would be interesting. The only thing I would say is that our
preference always is go get financially excluded people into the
real mainstream as opposed to something which is at the margins.
I do not think that necessarily rules out the possibility of the
sort of thing you are talking about, but we would want it to have
proper functionality, full functionality, and work and give the
same facilities as if they were in mainstream banking, which the
Post Office card account at the moment patently does not. Clearly,
if somebody came up with a proposition that said, "This is
what we are planning to do here"—a new form of account,
provided by whomever—we would look at it very carefully.
We would assess it by whether it met the kind of criteria that
we discussed a few minutes ago and we would be very supportive
of it if it did.
Q498 John Thurso: Royal Mail have
said that they only require 4,000 Post Offices to operate their
mail licence and that, with the current climate, there is therefore
a danger that 10,000 could close. What impact would that have
on financial inclusion if we lost 10,000 post offices or sub-post
offices? I think it would have a significant effect. The basic
bank account, which is the main tool for brining people into the
banking system, is operated not just through bank branches and
ATMs but also through the post office counters. We know from the
research we have done, from discussions we have had with financially
excluded people, that they value their post office. That is one
of the places where they feel most comfortable going. They feel
a lot more comfortable getting their cash from a post office than,
say, from a bank branch, and, indeed, for many it may be most
geographically convenient.
Mr Pomeroy: Without having done
a detailed analysis, given the scale of the numbers you just quoted
I would have to say that would make a big difference.
Q499 John Thurso: Could I turn to
cash withdrawals. I know you have been doing a survey and research
into how low-income groups access cash and transmit money. What
did your survey reveal about the extent to which fee-charging
cash machines are used by the financially excluded?
Mr Pomeroy: The results of the
survey are not yet available. The fieldwork has recently been
completed. The agency that is doing the work for us is at present
analysing the results and we expect to publish next month, so
unfortunately we do not have yet hard results. Clearly, as soon
as that is available, we will make sure you have it.
2 23 Note from Witness: This refers to basic
bank accounts. Not all current accounts can be accessed at Post
Offices. Back
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