Examination of Witnesses (Questions 780-799)
MR DYFRIG
JOHN, MR
GARY HOFFMAN,
MR JAMES
CROSBY, MR
MIKE FAIREY
AND SIR
FRED GOODWIN
18 MAY 2006
Q780 Peter Viggers: Mr Hoffman, I
think you said that you have a specific department dealing with
financial exclusion. Do you cost that as a centre of cost?
Mr Hoffman: Of course I know how
much various bits of the organisation cost, but, like the other
gentlemen, we regard basic bank accounts as both commercial and
a bit of a social obligation. We do expect it to be a step on
the ladder and we see some migration—about 30% of our cash
card accounts now have a savings part attached—but we see
it as a bit of both.
Q781 Peter Viggers: Mr Crosby, you
note that basic bank account sales declined during 2005. You said
you were not happy about this and were taking steps to increase
sales. What steps did you take?
Mr Crosby: To give them sharper
focus and make clear to the front line that they were a bigger
priority than they had obviously been seen in 2005. We made some
changes in 2005 which, frankly, had the wrong result and we set
ourselves, for the second half of last year, the objective of
doing twice as well in 2006, and we are on track to do that. I
think we see, first of all, getting 2006 to the level of share
which approximates to our share of current accounts, which is
a start, but secondly, as a starting point for doing better in
2007 and beyond. 2005 was well short of where we wanted to be.
Q782 Peter Viggers: Can I ask your
competitors whether they also have targets?
Mr John: We do not have a specific
target but I would not wish to see our market share in basic bank
accounts drop below our present share, which is above our natural
footprint—about 23% versus our natural footprint of around
15%. Indeed, like others have commented, we have taken some specific
competitive points like the £10 buffer zone that we give
to BBA customers, so if they do happen to slip up over the end
of the month or something they have that free. We do not charge
for returned cheques. These two aspects, I think, are competitive
in this market.
Mr Hoffman: We do not have any
specific targets but that is because we do not have any product
targets in our branches. We just have some targets for overall
business based upon customer need, so we do not set specific product
targets for our personal bankers, for example, for any product.
Sir Fred Goodwin: Similarly, we
do not set product targets by themselves, but there is an incentive
mechanism under which sales of particular products attract particular
benefits which go towards determining staff remuneration, and
these accounts are included in that framework.
Mr Fairey: We are very much the
same; we do not have specific targets for the basic bank account
but we obviously monitor our performance on an ongoing basis but
it is part of a composite approach to targeting within the branch
environment.
Q783 Peter Viggers: Sir Fred, in
your submission you highlighted the need to distinguish between
the unbanked and those who do not wish to be banked. Is there
an educational role to be played here by Government or by the
banks?
Sir Fred Goodwin: There is certainly
an educational role to be played by the Government and an educational
role to be played by the industry, but I think we will always
come back to a place where there are people who would prefer not
to have their finances organised in a fashion which involves a
bank or the Post Office or anyone else. There are a number of
people who would prefer to deal and find it easier to deal in
cash. I think that is a reality. I do not actually know what size
it is but various pieces of research which have been undertaken
indicate that there might be quite a substantial number of people
who fall into that category. I think, in addressing financial
exclusion, we might be better focusing our attention on those
who want to be included, but if people consciously and on an informed
basis decide they do not I think it is their right to choose.
Q784 Chairman: Sir Fred, when we
were in America recently we had a very helpful briefing from Citizens
Financial Group, which is part of your group, and Robert Mahoney.
He made the point that the Community Reinvestment Act in America
was good to get banks into poor communities because they had been
ignoring them, but now that they are in—and I quote from
him: "Citizens Bank does not view serving communities as
a result of the CRA as an obligation but, rather, as a business
opportunity". I think that is probably a good way to put
it, is it not?
Sir Fred Goodwin: I think it has
gone well beyond the CRA now, but it was definitely a catalyst.
Chairman: It is a good business opportunity.
Q785 Kerry McCarthy: Can I ask Mr
Hoffman, first, I think Barclays is currently the only bank to
publicly disclose personal sector lending data in terms of lending
to people in deprived areas. Can you tell me why Barclays feels
able to do this when the other banks do not?
Mr Hoffman: Clearly, I cannot
speak for the other banks but we think it is important to show
the progress we are making in deprived areas so we publish the
proportion of current accounts we have in deprived areas, which
is about 6%. We publish, similarly, the amount of consumer lending
we have in deprived areas, which is about 6%. We also have about
8% of our ATMs in deprived areas which is not a figure that we
have published before but something we have been doing some work
on. We just think it has helped us in our overall corporate responsibility
reporting and us making progress towards the targets that we all
share.
Q786 Kerry McCarthy: If I can ask
the other chief executives or representatives in turn why do you
not disclose similar information?
Mr John: I do not think there
is any reason why we cannot produce those numbers. We do not produce
them at the moment but we would be happy to provide those to the
Committee. I think the key thing is to have them on a consistent
basis. In other words, a very clear definition of deprived areas
and how they are reported.
Q787 Kerry McCarthy: So, say, it
was done by reference to the index of deprivation.
Mr John: Absolutely. If it is
done by that then I think we would all be on a consistent basis.
Q788 Kerry McCarthy: Would the others
concur with that?
Sir Fred Goodwin: We do report
the number of basic bank accounts. Basic bank accounts are not
a lending product. We do publish, in fact, the amount of money
we lend to business in deprived areas. That features in both our
annual report and accounts and our corporate responsibility report.
We have a 37% share of lending to business in disadvantaged areas.
As I say, we report the number of basic bank accounts. We have
no inherent objection to publishing the lending data but, actually,
a lot of the focus has been on getting the basic bank account
data reported.
Mr Crosby: We have not produced
it in the past but are very happy to do it in the future and give
that commitment.
Mr Fairey: Likewise, our approach
is one of ensuring there is consistency. I mentioned earlier the
ability to ensure that the information is taken in the right context
because the information in isolation can be misleading.
Q789 Kerry McCarthy: So far, the
Government has tried to go down the voluntary route, the partnership
route, in encouraging banks to remain engaged in deprived areas.
If the suggestion was made that we ought to go down more of a
statutory route with something like the CRA or a universal service
obligation, what would be your response to that?
Sir Fred Goodwin: Again, picking
up the Chairman's point earlier, CRA has not been problematic
to our business. Actually, funnily enough, it brought some structure
and consistency across the industry. As it happens (and if we
were doing it all over again I am not sure that you would view
the CRA again in the United States in quite its current form),
there is a degree of fairly formulaic compliance with it and a
number of the leading players have actually gone some way beyond
it. But it did act as a catalyst and it did bring some consistency
across the piece, which I think is so often helpful. At the end
of the day, the most publicly accessible data boils down simply
to our rating, and I think it is from 1 to 4. I think, principally,
if you wanted to do any further acquisitions you would not be
allowed to do it if your rating was not good enough. So you could
probably do better than a CRA if you were trying to invent something.
Q790 Kerry McCarthy: So you are arguing
for tougher statutory intervention?
Sir Fred Goodwin: No, no. This
is not about tough or not tough; it is about actually addressing
the issue.
Chairman: The CRA was good at the time
but it is easy to achieve now in terms of the standards and people
need those further—
Q791 Kerry McCarthy: I think there
were 5% of banks were judged to be not in compliance.
Sir Fred Goodwin: It is not about
getting back in five years' time and saying: "Hurrah, we
have halved the number of people who do not own basic bank accounts".
It is a step but it does not remove financial exclusion.
Q792 Kerry McCarthy: What do the
others feel?
Mr Crosby: As with all these things,
I am sure that everybody will judge the case for regulation/intervention
against whether there is a sort of cost benefit analysis in that—the
cost benefit was right. I think we do start in the UK, whatever
the challenges are, from quite a high level of participation in
banking products. We want to go further, we have conversations
about all the various things we can do to go further, but the
fact is even relative to countries that have these statutory initiatives—France,
even America—we have a high participation rate from the
start.
Q793 Kerry McCarthy: You have said
about having standards whereby the performance would be judged
the same according to, say, the index of deprivation, and you
would have an agreed measurement data. Do you think it would be
useful to work with the Financial Inclusion Taskforce on agreeing
that across the industry? Everyone is nodding—for the sake
of the Shorthand Writer. Sir Fred has already talked about the
experience in the States. In terms of your other international
subsidiaries, is there anything that you think might be applicable
to the UK that is not being picked up here, particularly in types
of products that are provided?
Mr John: If I can just explain:
obviously, HSBC has offices in many parts of the world, and if
I can highlight two countries, Canada and Australia, Australia
has, probably, one of the highest levels of banked people in the
world. In Canada we certainly offer a basic bank account product
which is quite akin to what we have here. It is a fee-based product
and it is based around a certain number of transactions that you
do for a fee and when you go beyond it you pay more, but it is
successful. In Australia something similar, where I gather the
unbanked population there is actually very low now, has been successful.
Again, the interesting thing there being, in my view (this is
a bit of research I was doing for background for this) is that,
again, a certain number of transactions are free and then they
get charged for every additional one. So I think there are some
parallels around the world, where basic bank accounts are being
offered in a similar way quite successfully.
Mr Hoffman: We have a big business
in Africa through many countries in Africa and, particularly,
in South Africa, and we are important in the society as well as
having big businesses there. So we have financial inclusion initiatives
in most of those African countries but, particularly, in South
Africa and Ghana. But it is almost at the other end of the extreme
that in Ghana, for example, over 90% are unbanked, so although
there is some learning between the UK and Ghana the solutions
might be very different because you start from different places.
Q794 Kerry McCarthy: Some of the
things we have been told about in the States are things like providing
remittance services for immigrant workers for a fee. Something
else that came up was the question of pay cheque loans, so very
short-term lending when people run out of cash just for the last
few days before their wages go into the bank. Is this the sort
of thing that you think could be developed?
Sir Fred Goodwin: I do not think
any of them are a panacea in themselves but they all just chip
away at some of the issues.
Q795 Angela Eagle: Just on that comment
about Africa and some of the lessons that might be learned, clearly
in those kinds of contexts lending and offering micro-credit can
make a huge difference to individual prospects and the prospects
for growth and development. Are there lessons that are directly
relevant to some of the deprived areas in the UK in terms of micro-credit
that may help to get people up and on their feet? Do you think
that, perhaps, those lessons have not been learned enough in some
of the more deprived areas in this country? Do you think it is
worth having a look to see whether you can learn from other experience
in the world in your branch network?
Mr Hoffman: Yes, possibly. We
have only recently bought the South African Bank, Absa, and they
have a big micro-credit initiative, so we are having a look at
that micro-credit initiative and how successful it has been to
see whether we can bring some learning back into the UK, but we
have not completed that yet.
Q796 Angela Eagle: It is an interesting
area because one of the consistent messages we get when we go
out and visit places like Toynbee Hall, and we discuss with people
who have not been able to get very easily even a basic bank account,
is the general dismissal of that kind of customer, at least at
branch level; that it is pretty universal. There is also the worry
about charges that are a big percentage of overall deposits at
that kind of level if something goes wrong. Again, do you think
there are new models that could be brought to bear to make the
whole banking sector much more friendly for those people who are
just trying to get on the ladder but are actually very low earners
at the moment?
Mr Hoffman: We are meeting with
Toynbee Hall and some other consumer bodies next week to talk
about that very topic. As I say, it is early days for us in terms
of learning from the South African micro-credit initiative but
we are meeting with the consumer bodies next week, and in particular
Toynbee Hall, because I know they have got strong views on it.
Mr John: There are some differences.
I used to work in India and, therefore, I have seen how these
micro-loans do get offered. There are slight differences. What
you tend to find is that it is a community which takes on board
the loan. I think that is the slight difference we would have
to take into account. In some areas—actually, it tends to
be females in communities, who gather together to get, be it seed
crop or some animals and so on—it does work well, but they
are very supportive of each other in those communities. There
are probably lessons we can learn but I would say that is the
only distinction I would make, with the difference.
Q797 Angela Eagle: That is a perfectly
fair point. One of the things that we have been told consistently
when we have checked with people who have tried to interact with
the banking services from a level of being excluded is that they
do not feel particularly wanted or welcomed, and that practically,
at branch level, they have problems being able to prove their
identify, for example. This is seen as off-putting and providing
very practical barriers to prevent them opening basic bank accounts.
The Banking Code Standards Board is meant to have changed this,
and the money laundering aspects of this which have caused a problem
are meant to be being loosened up. How confident are you, as head
of the corporate operation, that this will actually permeate down
to branch level and make a real difference to the barriers that
people face when they are asked for ID they do not have in order
to open an account?
Mr John: I think the list of ID
is broader for basic bank accounts than it is for other accounts.
That is the first point I would make. I welcome the initiative
that has been taken because, clearly, a single document from a
very practical processing point of view is going to be easier.
In terms of this whole process, I think one of the key things
is to make sure that the customer is clear what happens throughout
this process. In fact, one change we have made is that we now
take photocopies of anything that needs to be taken at branch
level because what we have found is that customers were quite
reticent to having a very important document posted to somewhere
else, if necessary. So that is a change which we have made.
Angela Eagle: The rest of you? This is
a universal problem across the system when we ask those who are
trying to open bank accounts.
Q798 Chairman: I would add, Angela,
that Ian Mullen's letter to the Banking Code Standards makes the
point that banks will endeavour to verify ID within branch but,
if it is necessary to verify it centrally, then original documents
should not normally be sent away. Is everyone signed up to that?
Mr John: Yes.
Mr Fairey: We have always adopted,
I believe, a very flexible approach. We currently require one
document for identity and one for address, and that can be a variety
of different forms. I think we are very flexible.
Q799 Angela Eagle: This is interesting
because when we go to see Citizens Advice Bureaux or, again, Toynbee
Hall or talk to people who have been refused on ID grounds access
to basic bank accounts, often after more than one visit, this
is not their experience at branch level. How can you make it more
effective that what you are signing up to at corporate level actually
permeates down to branch level and takes away some of the risk-averse
and unwelcoming practice that is currently going on in your banks?
Mr Crosby: I think things are
changing and it has a lot to do with the change in the money laundering
guidance. I think the challenge is particularly great for basic
bank account applications because a good deal more flexibility
was required at the front end, because a lot of such customers
maybe do not have passports and utility bills and things. So in
our organisation, because we process these applications centrally,
we have been able to change the money guidance rules for basic
bank accounts very quickly—we have not been able to do it
for other accounts—and we can see that it is a lot easier;
we can have somebody who has the experience to accept a photocopy
of a letter from a doctor, for example, as valid evidence. I think
that is a sign that it will get better, but there is obviously
more to do in terms of the reception that you are hearing that
customers are getting.
Sir Fred Goodwin: We have a brochure
that is available and it is part of the brochure for the account,
and it lists all of the type of documentation which is acceptable.
Of course, as more documentation has become acceptable, in an
attempt to try and make it easier for people to open accounts,
the brochure gets longer and longer, and if you sit down and read
it you can use one of this or two of those or an original of that.
One of the things that we continue, although I think it is now
a lost cause, to press for is, perhaps, some de minimis
level which says "Look there will be a limit on the amount
of value of transactions which go through an account, and if it
is less than X a month let's just forget the whole thing"
and if somebody tries to use the account for more than that then
they have to come in and identify themselves. There are difficulties
with that because of the Government's treaty obligations internationally,
but actually we are going to continue to spend time talking about
this because despite the improvements which are coming through
in the money-laundering guidance—and they continue to come
through—this is still a challenged area, not just incidentally
for basic bank account customers.
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