Examination of Witnesses (Questions 760-779)
MR DYFRIG
JOHN, MR
GARY HOFFMAN,
MR JAMES
CROSBY, MR
MIKE FAIREY
AND SIR
FRED GOODWIN
18 MAY 2006
Q760 Chairman: We have already been
notified of that quite a long time ago; we like Chief Executives
here but we are happy to accept that issue. Could I, first of
all, thank, particularly, Sir Fred and Gary for the work on cash
machines which has been going on over the past few weeks, and
the working party which we have established under my chairmanship;
you have been very helpful and the work of this Committee, one
intends, will be to come back on that, hopefully, to have a resolution
to the situation by the end of the year. I am very grateful for
the work that you have put in and the contribution that you have
made on that. Can I just start with this question: the Government
and the banks have agreed to work towards a goal to halve the
number of adults and households with no account of any kind and
to have made significant progress in that direction within two
years. How would you assess the progress you have made so far?
Not everyone needs to answer that point. Has anyone any particular
views on it?
Sir Fred Goodwin: I think there
has been quite good progress made, and the number is coming down;
it is quite a bit lower than it was at the start but I think there
remain a number of barriers or issues to helping people get these
accounts and getting people to know that they want these accounts.
I think, in some instances, individuals do not necessarily appreciate
that these accounts are available, so there are a few things still
to do. Looking at the raw numbers, considerable progress has been
made in getting more customers into these accounts.
Q761 Chairman: What is your bank's
strategy for ensuring that you make a fair contribution towards
meeting this goal?
Mr Hoffman: Recognising, of course,
that no one institution can do the whole thing, we realise we
have got an important role to play in it. We have had a financial
inclusion team for about five years and established a financial
inclusion fund two years ago. We have got about 400,000 basic
bank accounts or cash card accounts, as we call them, and of course
there has been significant progress on the POCA as well. So taking
what we have all done together with the POCA we think there has
been substantial progress. It is important from our perspective
that our basic bank account is seen as an integral part of our
suite of current accounts. We do not deal with that off the side
of a desk, we do not regard it as a second-class citizen in terms
of our current account suite; it is an entry level product and
we give the same service over counters, over ATMs and through
the arrangements we have with the Post Office to our cash card
customers, and that is an important point, I think. On the other
hand, we recognise we cannot do everything. We have done a lot
on the supply side. We recognise that, for example, in terms of
small loans, it is not in our commercial interest to do high volume
small loans, but we have recognised that for some time and got
some arrangements with credit unions in terms of funding them
to make sure that they can reach some of these disadvantaged communities.
Q762 Chairman: Are you all confident
that all levels of your organisation have signed up to deliver
the shared target, bearing in mind the Banking Code Standards
Board mystery shopping results?
Sir Fred Goodwin: I think we were
quite happy with our results from that survey.
Q763 Chairman: What did the Banking
Code Standards Board find for each of you then, in terms of overall
rating? For example, Lloyds, Mike?
Mr Fairey: I think we have shared
with you, Chairman, our rating this time around, which was amber—previously
green but amber on this occasion.
Q764 Chairman: Which means there
is quite a bit to do yet.
Mr Fairey: There were three particular
areas identified and, obviously, we have worked with the Standards
Board to identify actions for improvement and those actions are
being put in place.
Q765 Chairman: What were the weaknesses
then?
Mr Fairey: They were principally
threefold, as I have mentioned. One was about our staff putting
customers into the right account. The second was a process issue
where we had a rather cumbersome process for a small number of
our accounts which we have improved. The third was, basically,
ensuring that our staff were able to provide customers with the
right advice and put them in the right account. So actions have
been taken to improve, and our numbers, likewise, I think, demonstrate
that we are opening proportional accounts; we estimate that we
have around 17% of new accounts opened.
Q766 Chairman: Looking at the Banking
Code Standards Board's survey, the information they have provided
indicates that of the 16 banks that took part in the survey the
four banks' basic bank account literature was not displayed in
over 90% of branches. One bank only recognised the need for a
basic bank account in 37% of cases (in fact, there was a regression
from the previous year), in three banks over 30% of customers
were actively dissuaded from opening a basic bank account and
in three banks over 45% of basic bank account customers were required
to send additional ID documentation away to a processing centre.
So there does seem a bit of a need for improvement. Gary, your
rating?
Mr Hoffman: Our rating was amber,
too, alongside Lloyds. In the mystery shopping that was done last
year there were some things found, particularly in our branches,
that we needed to improve. They were in four specific areas: availability
of literature in every branch alongside the rest of our current
account suite (it was found there was not always the case—we
have put that right); the second thing was about ID and verification,
to make sure that cash card customers could be ID'd and verified
in branches rather than having to send some stuff off centrally,
and we have made that process change a few months ago. The third
was about education and training for our people, and we have reinforced
the education and training for all of our people for all levels
of the organisation, and the fourth was about credit reference
searches, where there was a danger that we were leaving a mark
on the credit record of some customers, and we have made a change
so that we do not do that any more. Of course, it is important
that when customers open any account, including this account,
we make sure that the customer is who they say they are, so we
have to make a check with the credit reference agency just to
identify them and verify them, but we do not do a credit search.
Q767 Chairman: The other three were
green, but are there any particular points you want to make?
Mr John: I think there is one
point around the brochure that I would like to make, and that
is availability of the brochure. We deal with basic bank customers
in exactly the same way that we do anyone else coming into the
banking hall, and we have a generic leaflet that does not say
a particular bank account, but within it has a suite of bank accounts.
Therefore, I think, sometimes, when they ask: "Do you have
a basic bank account leaflet?" yes, we do have it but I think
the first conversation is to establish what are the needs of that
customer. So that can be quite confusing. Also, I think ID and
V, we now do all that verification within the branch itself. One
other point that has not come up is timescales for opening the
account and then the card and the PIN number. Again, this is very
much in line with all the other accounts that we open. I will
not repeat the credit search point but it is in the same way.
Q768 Chairman: I have received a
letter from Ian Mullen sent to Seymour Fortescue looking at ID
verification, at account opening timescales, credit searches,
et cetera, so I know discussions are going on in that particular
area. Sir Fred?
Sir Fred Goodwin: We were green
and there were no remedial actions arising from the Board's findings
but I would recognise the issues that have already been mentioned.
There are some issues that we continue to work with. Availability
of literature is one—making sure it is always there.
Mr Crosby: We were green but I
think we were reminded of the need to have brochures available
everywhere and visible, to some extent. Dyfrig's point is relevant
to us as well. There were also questions on occasion about the
detailed knowledge of our colleagues in the front end about the
specific products. That is always a good thing to pick up on.
Q769 Chairman: So that, perhaps,
for all organisations to be signed up is still an issue?
Mr Crosby: I would not necessarily
say that. I think we do a lot of mystery shopping ourselves; it
is a valuable tool for finding out whether what we think should
be happening at the front end is actually happening. The key thing
is not that you find things that need fixing but that you actually
do something about it.
Q770 Chairman: That information remains
confidential at the moment. It just seems to me that this may
be an issue on which the industry could be shooting themselves
in the foot, because there are people making good progress and
there are others maybe not making good progress. What is the problem
with having a public declaration of it? Sir Fred, would you like
to see that?
Sir Fred Goodwin: We are quite
happy to do that. We have indicated that to you and to the Banking
Code Standards Board.
Mr Fairey: We have some concerns
because I think it is important to put the information in context.
So, in our case, if we are quoted as being amber I think it is
important to put in context that, notwithstanding being amber,
we have opened our proportional share of accounts.
Q771 Chairman: If the information
is made public and you get an opportunity to put that in context
you would be quite happy?
Mr Fairey: I think probably we
would, but I would certainly want to consider it because I think
just the provision of isolated information can be as misleading
as it is informing.
Mr Crosby: We are happy to go
along with the industry-wide position on such a matter. We will
certainly look at it. The only thing I would say is that there
are a myriad of these types of processes going on, a lot of them
are internal and we would not be publishing all of them, but if
this was felt to be something of such public importance—
Q772 Chairman: That is the reason
we have invited you along as chief executives, because if we have
a trade body we do not get any movement. Since it is yourselves
here, you can say: "Right, let's go with it", so that
you five can go back and say: "Look, let's get moving on
this." I have written to every chief executive and have had
a range of comments. My main conclusion is we are not making any
progress, so I would like to make progress this morning and I
would like positive comments from you on that.
Mr Crosby: I do not think there
is a specific reason for not disclosing them.
Mr Hoffman: On this specific,
because of its import, I am happy, as I have talked about with
Barclays this morning.
Mr John: I would go along with
the industry, whatever the industry—
Q773 Chairman: I did not quite understand
that.
Mr John: Can I put it this way:
I do not think one bank should publish; if you are going to publish—
Q774 Chairman: The fact is, if I
can get from all of you this morning, the five main banks, that
you are happy for that to be made public then that gives a boost
to the Banking Code Standards and others to ensure that there
is public disclosure. You are happy with that?
Mr John: Yes.
Chairman: So everybody is happy. Good.
Q775 Peter Viggers: If this were
a shareholders' meeting how would you justify opening basic bank
accounts? Is it profitable?
Sir Fred Goodwin: In common with
a number of our products it is not immediately profitable, but
there is a basic principle at stake in this, which is about inclusiveness
and about the universal offering through the branches. We do that
on the basis that no one, in our view, benefits from there being
financial exclusion; if we can bring more people into the system
then there will, we believe, be more business in due course. No
one benefits from people being outside the system, and so in common
with many of our products—for instance, our student accounts
are not profitable—we do it in the belief that they will
become profitable customers later on, and by helping people to
become financially included there is more business there and that
would be profitable business for us.
Q776 Peter Viggers: You say "it
will be profitable business". On an objective, hard-headed
business assessment, is it profitable to operate basic bank accounts?
Sir Fred Goodwin: Not per se,
but we view basic bank accounts as a stepping stone to other products,
to help people to become included and, therefore, to get better
control of their finances and their lives and become customers
with whom we can do profitable business.
Q777 Peter Viggers: So, on an objective,
hard-headed assessment, it is going to be profitable in the longer
term and, therefore, you are prepared to subsidise it now, or
are you really doing a social service because you are being nagged
by people like us?
Sir Fred Goodwin: I think we would
certainly see a social service element to this, so that would
partly come under corporate responsibility. But at the core of
this, from our perspective, this is part of the overall model
of universal availability. By getting people into the financial
system they will migrate on to other accounts. I do not imagine,
in years to come, unless there is some dramatic change in the
style of the basic bank account, that basic bank accounts would
become profitable for us, but it is by migrating customers from
there through that we believe that we will benefit.
Q778 Peter Viggers: There seems to
be coming through quite a strong strand of public accountability
and social conscience rather than profit.
Sir Fred Goodwin: I think they
work hand-in-hand.
Mr Crosby: I would say that in
all my years in the job no single shareholder has ever challenged
me on our commitment to social banking. We have been in the market
for 20 years and we have roughly 50% of the market, and they understand
that to the extent that it adds value directly through the P&L
line it is over time. Equally, they accept, I think, that banks
occupy a privileged position within society for financial markets
in general, and have certain responsibilities. So I think there
is a balance. Having said that, it is also true when you have
had those accounts on the books for decent periods, years not
months, you learn how to help those customers on to the next rung.
It is a starting point. Of itself the basic bank account is not
going to do the trick; it is going to reduce the number of unbanked
but it is not going to bring people fully into financial services.
The next stage is very important as well, and that of course is
ultimately more profitable for us.
Q779 Peter Viggers: Do any of you
monitor and cost basic bank accounts, and cost and assess the
number of people who migrate from basic bank accounts to full
banking services?
Mr John: We monitor the number
of accounts that migrate from basic bank accounts, yes. Over the
period that we have been doing this 65,000 have migrated to other
accounts, predominantly to the use of a cheque book. They need
the use of a cheque book and a debit card.
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