Select Committee on Treasury Minutes of Evidence


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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