Examination of Witnesses (Questions 800-819)
MR DYFRIG
JOHN, MR
GARY HOFFMAN,
MR JAMES
CROSBY, MR
MIKE FAIREY
AND SIR
FRED GOODWIN
18 MAY 2006
Q800 Angela Eagle: I think we have
all experienced having to try and open a new account and the bureaucracy
around that, but it is harder for some. Another issue that Citizens
Advice have brought to us that is very practical is a lack of
flexibility with respect to, for example, letters of entitlement
to housing benefit or council tax benefit being accepted as ID.
For some people this is, often, all the ID they have. Are all
of you willing to accept now those kinds of letters of entitlement
so that this problem with not being able to provide a passport
or a driving licence will actually finally disappear?
Mr Crosby: We currently do.
Mr Hoffman: We would accept a
letter of introduction from the Department of Work and Pensions,
for example. As Fred said, it is a long list that we would accept
and it is very difficult to memorise what would be on it because
I tried and it is very difficult. Just to reinforce, it is a real
challenge for us because our people are under lots of pressure
from fraudsters and we have to make sure that the person opening
the account, whatever account it is, is the person that they are
saying they are. So there is quite a difficult tension at the
corporate level and at the individual, personal banker level for
us.
Q801 Angela Eagle: I accept that,
and, again, some of the comments we got when we were exploring
this difficult issue was that individuals at branch level are
actually personally responsible if they make an error and allow
a fraudster to open an account. Is there any way that you can
ease their worries about that?
Sir Fred Goodwin: It is a criminal
liability; it is not us making them liable, they are held legally
responsible. It is not our rules that do this.
Angela Eagle: How do you deal with the
training with respect to that, though? Basically, there has got
to be an amount of risk aversion here, for obvious reasons, and
it is important to get the balance right. However, what is actually
happening is that many, many people who are trying to just have
practical access to a very basic bank account are being excluded
because of it. How can we get the balance right?
Q802 Chairman: I think the Proceeds
of Crime Act comes in here, does it not? That is the problem.
Mr John: I think it is being clear.
I have the list in front of me and the ones you mentioned are
certainly accepted. It is through reinforcement and confidence
and training so that members of staff are confident that if it
is an item on a list that we provide to all branches then they
know that they are okay. It is training; you have to reinforce
it. Obviously, we have new staff coming in all the time and you
have to reinforce that through new staff. So constant training,
I would say, is most important.
Q803 Chairman: Again, back to Ian
Mullen's letter, in terms of the account-opening timescale, he
makes the point that once a bank has satisfied its obligation
under the money laundering rules to verify identification it should
take no longer than X days to provide a fully operational basic
bank account. What is "X"?
Sir Fred Goodwin: Ten.
Q804 Chairman: Ian writes X in there.
Sir Fred Goodwin: Different banks
do different things.
Q805 Chairman: What would you be
happy with in terms of the number of days here? Are we talking
about no longer than 10 days for everybody, or less than 10 days?
Mr Fairey: We would accept that.
Sir Fred Goodwin: It is producing
the plastic card, so it takes up to 10 days—it can take
shorter than that.
Chairman: Thanks for your magic answer!
Q806 Mr Love: Many witnesses who
have come before the Committee have put to us that basic bank
accounts have been designed by the banks for the convenience of
the banks. How would you respond to that criticism? Can I start
with Mr Crosby?
Mr Crosby: I think, in one sense,
it is a valid criticism because basic bank accounts are derived
from current accounts that were developed over many years. In
another sense I do not think it is because the core aspect of
the basic bank account or the, generally, social bank account
is the lack of access to credit but with access to the money transmission
system. That was never an original part of current accounts. In
fact, a lot of investment had to go on to make that money transmission
work. So I think the answer is yes and no, but hopefully, as the
years go by, we will get better at tailoring basic bank accounts
to the needs of those customers.
Q807 Mr Love: I am going through
all of you on the basis of how much you charge for an unpaid direct
debit, which brings me to the Royal Bank of Scotland and Sir Fred.
How do you make them attractive and useful to the customer group
that you are serving?
Sir Fred Goodwin: If I can just
answer the previous question as well, the design of the basic
bank account was set out in Pat 14, so the notion that the banks
have designed this to suit themselves is not true. There are differences
between the individual banks' basic bank accounts, some of which
would not meet Pat 14 requirements, but our basic bank account
meets all of them so I would not accept the notion that it was
a product designed to suit our own needs. It brings you to why
direct debits are included. Direct debits are a difficult tool:
on the one hand it can make life very easy but the trouble with
a direct debit is it is kind of binary because you are, effectively,
giving someone else control over part of your resources, and if
you do not have much in the way of resources then it does indeed
make life that bit more difficult. Obviously, the people we are
talking about here would tend not to carry a buffer in their account,
so one of the reasons why you would want access to a direct debit
would be to enjoy some of the discounts you get from a utility
company, but it is difficult to do that if the utility company
then comes and draws an amount out of your account which you do
not have control over. Only about 30% of our customers use direct
debits in the basic bank accounts, and I think many of them do
not use them just because of their binary nature. I do not think
it is so much to do with the charge; the charge is one part of
your worries but if your direct debits start bouncing ,you then
start to have problems with the originator, with the utility companies
and anyone else they are coming from. So I think it is right direct
debits should be made available as part of the account but they
are quite a tricky thing to use.
Q808 Mr Love: Can I move on to Mr
Hoffman, on behalf of Barclays. It was said by a number of the
witnesses who came before us that their estimate is that around
30% or 40% of basic bank account holders simply withdraw the money
as soon as it goes into the account and use it as cash, and hardly
use the account at all. I come back to the question: how do we
make the account more relevant to those people?
Mr Hoffman: Those people do use
it in that way and it works in that way. I reinforce what Fred
said, that the features of the basic bank account were set by
PAT 14. We do not differentiate our service by cash card account
(our basic bank account) versus other current accounts. So, for
example—
Q809 Mr Love: Can I just stop you
there? Can I ask you what research, if any, you have done into
what your customers really want? A lot of the other witnesses
who have come to us have done quite a lot of research on this
and what they tell us is that they do not want the basic bank
account as currently designed. Is that what you have found in
your research?
Mr Hoffman: No, it is not. We
have researched our cash card customers comprehensively and 89%
of them say they are satisfied with what they get in the features.
They say, in particular, they like access to ATMs, they like full
access to our counters and they like the fact that we have got
the arrangement with 12,000 post offices whereby they can get
cash over post offices. They say to us they like direct debits,
they would like them to operate more frequently and they say they
would like standing orders, which ours does not, and we are putting
standing orders on later in the year. So, no, our research does
not show that.
Q810 Mr Love: Elaine Kempson of the
University of Bristol, who, I think, is generally regarded as
one of the foremost academic researchers in this area, has suggested
that perhaps the bank could introduce that, perhaps, direct debits
are only triggered when money is placed in the account. Is that
a possibility for banks? Can you do that without raising significant
costs for yourself? Perhaps I can ask Mr Fairey, since I have
not spoken to him.
Mr Fairey: It sounds quite complicated.
I would imagine the systems investment to support transactions
of that nature would be quite considerable.
Q811 Mr Love: Is that something that
any of you have looked at? Has anyone looked at that as a possibility?
Sir Fred Goodwin: The difficulty
is that the direct debit is triggered by the originator, it is
not us. So it is the utility company that takes the money out
of your account, so you would have to be telling them, somehow,
that the money was not in the account before they triggered it
and then, somehow, storing it until the money is in the account.
Q812 Mr Love: I understand the complexities
of it, I am just wondering whether technically it is feasible
at a reasonable cost.
Mr Crosby: I think it is very
difficult. I share Fred and Mike's views but there are potentially
things that can be done because a lot of such customers are on
benefit payments which are paid weekly. The other way of looking
at it is to say how can we get the utility bills to be weekly
and get them phased properly, which would be a serious line of
inquiry, I think, because that sounds entirely plausible and less
difficult.
Mr Hoffman: Between us we process
10 million direct debits a day, so it would be a very impractical
thing to do.
Q813 Mr Love: Can I move on to access
to the banking hall for bank account holders. It has been put
to us that, in effect, if you do not allow customers to use the
bank branch itself you are creating exclusion within inclusion.
How would you respond to that? Let me ask one of the ones that
do not: Halifax, you do not allow your basic bank account customers
to use the branch. Why? Are you not creating exclusion?[1]
35
Mr Crosby: It is not that we do
not allow them; in actual fact, our cash card product is a card-based
product. So the first point I would make is that a lot of our
products are card-based rather than counter-based, but having
said that our social banking customers do enjoy access, in practice,
to our branch counters because all our management have local discretion.
So it is a mix-and-match situation. So it is not true to say that
we do not allow access. We do try to encourage such customers
to use ATMs as much as possible; it is in their interests as much
as ours.
Q814 Mr Love: Can I also ask Mr Fairey
on behalf of Lloyds TSB, who, similarly, do not provide this service.
Are you providing, therefore, an inferior level of service to
the other banks who do allow their customers to use the branch?
Mr Fairey: At the moment our literature
states that we do not encourage encashment at the counter under
£200. In practicality, we do and we provide that service
to customers. In addition, similar to Barclays, we have the agency
arrangement with the Post Office and, obviously, the full ATM
network. We are in the course of reviewing our overall product
and that will be one component of that review.
Q815 Mr Love: It has been mentioned
earlier that they can use cash machines. However, there is considerable
concern from the witnesses we have had before us that some people
have difficulty remembering PIN numbers and some people have difficulty
operating cash machines. Those people are generally considered
to be the elderly. Is there any form of discrimination against
the elderly by refusing them access to the branch itself? I come
back to Mr Crosby. Do you think you are discriminating in some
way against the elderly?
Mr Crosby: I am completely confident
that my local management would exercise their discretion in the
right way in those circumstances. I do not think that is, in any
sense, discrimination. We do have on site colleagues to help customers
with ATMs, because we recognise that invariably customers will
require help.
Q816 Mr Love: Can I ask the question
the other way round and congratulate the others who do allow their
customers. What advantages do you see to being able to allow your
customers to use a branch? Sir Fred.
Sir Fred Goodwin: It goes back
to what I said at the start, I think, about universal availability;
I think it is just pretty basic stuff here, that if you give somebody
an account then they should be able to use your facilities.
Q817 Mr Love: Mr John?
Mr John: I think it also gives
a competitive advantage. We do not bar our BBA customers from
going in the branch. We encourage them to use self-service, but
if elderly people wish to use the counter they can. Indeed, if
elderly people find it difficult to read the leaflets we will
give them a leaflet which is enlarged. I think, as an industry,
we think a lot about elderly and disabled people and we do a lot
in that area. Sometimes some of these things come down to competitive
advantage. We may do something; some of the other banks may do
something else.
Q818 Mr Love: Can I ask you, finally
(and I leave it open as to who wants to start the response): clearly
you have a competitive situation between banks but there is also
some merit in having a basic bank account that has similar features
across the whole range. Is there a strong argument for a basic
set of features to a bank account which allow banks, then, to
compete to improve on that basic set of features? What should
those basic features be?
Mr Hoffman: I think there is some
advantage in consistency of some basic features, which is about
access to cash, access to ATMs, access to banking services, or
access to your cash wherever you want it. There are also some
features around direct debits and making payments. I think, beyond
that, yes, there are competitive features that different ones
of us would add.
Q819 Mr Love: Mr John, you mentioned
about competition; you feel that you are doing well and certainly
this Committee noted the features of your basic bank account.
Do you feel that other banks should follow your lead?
Mr John: Having a competitive
product the customer is obviously going to benefit. I think that
in the interests, perhaps, of understanding the product it is
wise to have some basic features, which I would think that most
of the products would have. However, I think it is also a good
idea to have some differentiators in the product. As I commented
earlier, I would not wish to see our market share in basic bank
accounts drop below what it is at the moment; I think it is a
very useful stepping stone to people moving into different forms
of product, particularly those that want a cheque book at a later
stage. Indeed, we find that a lot of people do move on to other
products.
Mr Crosby: I think, inevitably,
a lot of the basic features will be common. However, I think,
in the end, going back to your first question—how do we
in the end best serve these universal customers with products
that are most tailored to their needs—it is let market forces
do it. I think it is about competition driving innovation, both
in terms of the service we provide and the features.
1 35 Note from Witness: Halifax's social banking
customers do have access to their branch network. Similar to other
banks, these customers will be able to use the self-service facilities
for day-to-day transactions and the counter for larger transactions. Back
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