Examination of Witnesses (Questions 860-879)
MR DYFRIG
JOHN, MR
GARY HOFFMAN,
MR JAMES
CROSBY, MR
MIKE FAIREY
AND SIR
FRED GOODWIN
18 MAY 2006
Q860 Jim Cousins: I found that last
series of exchanges really quite helpful but, Mr Goodwin, you
also said, perfectly properly, that the Post Office is a competitor,
or a potential competitor, and I really think we do need to tease
out where you are really positioned on this issue. Do you want
to see a sort of Post Office Card Account Mark II with wider functionality
able to take deposits, the very important point you yourself brought
up, which would, of course, be a very serious competitor for all
of your organisations? Is that your preferred objective? Is that
something you would be comfortable with?
Sir Fred Goodwin: Absolutely.
I think we have to get to a place where it is fish or fowl. We
have a number of quite effective competitors and they are sitting
here, and the fact you might have to put another chair on the
end for the Post Office is not an issue for me. Alternatively,
if the Post Office wants to be a national service or the counter
to the nation, which I think was the original hypothesis, that
is fine as well but that then takes you to a different place with
the Post Office. It cannot run with the hare and the hounds, though,
and that is what it is trying to do at the moment.
Mr John: I think the Post Office
Card Account with 4.25 million customers has indicated that an
awful lot of people find this product acceptable. When you think
that 30% of those do not have any other form of banking, I think
it is probably that part that worries me that we are not making
progress along this path, and I would certainly like to see the
card developed further. It seems a shame, having got to this point,
that it could not be developed further, but so far as the Post
Office is concerned itself, and I do distinguish between them,
there is a formal alliance with another bank which allows them
to be direct competitors on a number of different products to
us. Therefore I think you have to distinguish between these; there
is a fundamental decision that needs to be made. But the Post
Office Card Account, we cannot take it away from it, serves 4.25
million people I guess happily at the moment and I think, as has
been mentioned before, it would be good to see that card developed
further. After all, we have contributed quite a lot of money to
it; it is successful.
Q861 Jim Cousins: Can I ask you all,
then, what is your position, because if the card account were
to be developed it would be very important that whoever was operating
the card account was a member of the LINK network. What would
your position be about that?
Sir Fred Goodwin: Membership of
the LINK network is available to anyone who wants to come in and
abide by the rules of LINK. The Post Office already operates ATMs,
albeit fee-paying; if it wants to join LINK that is fine, as long
as it operates ATM machines. LINK is not a scheme—
Q862 Jim Cousins: But the Post Office
told this Committee roughly a week ago that they wanted to be
a member of LINK and they were being prevented from becoming a
member of LINK.
Sir Fred Goodwin: I am not sure
who is preventing them from becoming a member of LINK.
Mr John: LINK is an organisation
that was set up purely for ATMs and therefore the integrity of
LINK needs to be maintained within that overall role that it has.
LINK is open to a lot of people and, as has been said, a lot of
members do join it.
Q863 Jim Cousins: Yes, but I come
back to the point that the Post Office told this Committee that
they had asked to be a member of LINK and had been turned down.
Sir Fred Goodwin: They asked to
be a member of LINK to do a very specific thing which was to issue
cash manually and be treated as if it was a LINK transaction.
That is not what LINK does. So it is a bit like asking to join
a rugby club to play football. They did not ask for normal membership
of LINK in the way we are all members of LINK. They were asking
to create a new scheme effectively, and that was what LINK said
"No" to, I think unanimously.
Q864 Jim Cousins: I see a lot of
heads nodding and I think it is unnecessary to trawl around, if
that is your collective view, but let me be clear about what you
are saying. Despite the fact that potentially it would be a serious
competitor, you would be happy to see a Post Office Card Account
Mark II run by somebody with wider functionality, able to take
contributions, able to pay in money, able to take deposits, and
potentially, and I am not asking you to be committed on this right
now, but potentially a member of the LINK network and therefore
a new very serious competitor, and you would be, in principle,
happy with that situation?
Sir Fred Goodwin: If they would
be prepared to pay for the development of the account, unlike
POCA I.
Q865 Jim Cousins: But that is money
that has been paid. It is gone.
Sir Fred Goodwin: Absolutely.
Yes.
Q866 Jim Cousins: That is helpful.
Now, I wonder if I could ask you to consider the standpoint of
people typically that I am very concerned about, low income owner/occupiers
who want to buy a new central heating boiler that would be cheaper
to run than the one they have, low income self-employed people
or agency workers, the man with a van, competing very often with
VAT-free gangs of Ukrainians. What are you doing to help people
like that to get through their lives with all the small loans
that such people will need to sustain themselves properly?
Mr Hoffman: I think there is a
very important role there for credit unions, and there are 500
credit unions in the UK, and increasingly they are being successful
at reaching those types of customers and we work closely with
some of those credit unions to provide support, training and some
software that has professionalised them.
Q867 Jim Cousins: Now, this was part
of your evidence, Mr Hoffman—well, it was not yours but
it fits in with several other people's written evidence to this
Committee. Let's just tease out the implications of what you have
just now said, and they are this: "We do not want to deal
directly with these people; we want to farm them out to credit
unions and perhaps, you know, contribute small sums of money to
keep the credit union network going." Is that really your
position?
Mr Hoffman: No, and that is not
what I am saying. What I am saying is, of course, we offer banking
services for lots of different customers but it is not commercially
viable for us to offer high volume of very low value loans to
customers that credit unions are set up to do, and we think credit
unions, and there are 500 of them in the UK, are well placed to
do that and we are helping to support them to do that.
Q868 Jim Cousins: Well, let's just
take other responses to that issue.
Sir Fred Goodwin: I do not think
there is any sense in farming out, or anything else. We had a
discussion earlier on about micro credit and for micro credit
read credit unions. There is clear evidence from many countries
in the world that a thriving micro credit marketplace can exist
hand-in-hand with the banks. You need go no further than Ireland,
for instance, to a situation where that pertains most satisfactorily.
Micro credit can be best offered and best administered—and
I am not talking in terms of IT or anything else but just the
process of helping people determine how much they can afford and
how to get money—in the communities. So supporting credit
unions is not a fobbing off but is entirely consistent with the
desire to see people included.
Q869 Jim Cousins: Maybe I am not
making my point clearly enough, Mr Goodwin, but I am making a
point about low income owner/occupiers, low income self-employed
people and agency workers. They are not strange creatures who
exist perhaps as a percentage of the population in carefully defined
deprived areas, whatever they may be. We are talking about very
large numbers of people in our community who are to be found everywhere.
Sir Fred Goodwin: A low income
owner/occupier would have a range of financial services products
available to them. The man in the van, as you described him, would
find himself well supported by the offerings from SMEs from I
think everyone sitting on this side of the table. It is a very
vibrant marketplace with good availability. Most SMEs, as it happens,
tend not to have credit. Most, three quarters, of SMEs tend to
be in funds rather than borrow, but we have a very vibrant business
in each of those areas. I was responding to the comment about
credit unions. Those people, as you characterise them, are very
well catered for.
Q870 Jim Cousins: I want to be clear
whether you regard the kind of people I am talking about as sort
of secondary in some way, who ought to be dealt with by a special
range of institutions which specialise in dealing with secondary
people, with secondary needs, or whether you regard them as mainstream
people, part of the mainstream spectrum, that you are seeking
to serve. What I am not clear about is where you are all coming
from on that.
Sir Fred Goodwin: It should be
very clear. I set out here and have mentioned on two occasions
now that we are a universal model, and a universal model is a
universal model. I do not think we view any of those people as
secondary or in any other way. It is not a way we look at customers.
They are customers of the bank, and we have a vibrant business
in both of these areas, as it happens.
Mr Crosby: I think both those
groups would have good access to financial services products generally,
certainly in our bank, and we would have a range of products that
they could use. I think we would service both owner/occupiers
and a man with a van.
Jim Cousins: Thank you.
Q871 Chairman: Moving on to default
charges, again, just to clear up a bit, the National Consumer
Council told us that levying high charges on those customers who
were least able to pay is clearly inappropriate given that the
account is supposed to meet the needs of people on low incomes.
How far do you agree with that?
Sir Fred Goodwin: I think the
only charges which are levied relates to the direct debit, the
conversation we had earlier on. There are no other charges around
these accounts but because it is a fixed fee charge then it is
disproportionate in the sense that they describe it as being in
common with other fixed fee products and services.
Q872 Chairman: Are there any other
comments, mindful that in the last Parliament we did look at credit
card default charges and it ended up with the OFT?
Mr Crosby: I agree with Sir Fred
but I would also add that there is particular scope for applying
discretion in these areas. We would typically waive the first
charge and we would always encourage any customer in this situation
to talk to us. The charges are to help us and help the customers
keep the account in good order, but there should always be a conversation
and that is the key thing, and we encourage our colleagues to
encourage customers to do that.
Q873 Chairman: In terms of access
for basic bank customers, James, could you just reiterate for
us so we are clear what your approach is now, because there has
been press comment that those in basic bank accounts do not get
access. Could you just clear that up for us?
Mr Crosby: Our total universal
social banking products include the cards we started writing 20
years ago, Cardcash, and more recently Easycash, the two products,
and together our total social banking universal counts for over
3 million. In terms of access to characters we have not and are
not changing the terms of these. What we have said we are doing
and have piloted is initiatives to encourage more high levels
of usage of ATM amongst those customers than has been the case
in the recent past. I do not expect, as we roll those initiatives
out, that will lead to anything other than quite a good proportion
of customers still using counters but we believe it is not just
in our interests but fundamentally in our customers' interests
that we help them to use ATM's, show them how and encourage them
wherever possible to do it. In a sense it is part of developing
financial capability and access.
Q874 Chairman: How can we ensure
that low income in deprived areas is adequately served in the
provision of cash machines allowing free cash withdrawals?
Sir Fred Goodwin: Funnily enough,
the task force you have set up will play quite a role in that
with the opportunity to focus on starting to agree a definition
or a map of where this need exists and then tackling it. I am
confident that in terms of the traditional through-the-wall type
ATM we are all active in that market. We installed about 400 new
machines last year, and I would be confident there are not too
many opportunities to put through-the-wall machines in that have
not been exploited, but perhaps using some of the technology that
exists now for smaller ATMs based in offices and shops might well
open up the opportunity to close up some of the gaps which I think
do exist.
Q875 Chairman: James, you announced
that HBOS will be adding an extra 300 cash machines to the Halifax
network over the next five years. How many of these will be alongside
other existing free machines, and how many will be in areas that
currently lack access?
Mr Crosby: I think it is about
a 50/50 split. About half of them will be in new areas.
Q876 Chairman: Maybe you could write
to us on that?
Mr Crosby: Yes.
Q877 Chairman: HSBC recently announced
an extra 500 free machines. How many of these will be alongside
existing free machines?
Mr John: All our ATMs are free.
What are we doing at the moment? We are meeting—next week
from memory—the Citizens' Advice Bureaux. We have already
asked them for help to identify where they would consider to be
the most appropriate areas to put these machines into, so we will
work with them on deprived areas to locate some of these new machines.
There are 500 going in.
Q878 Chairman: The Campaign for Community
Banking Services informed us that in 2005 HSBC closed the last
bank branch in Ogmore Vale in the Welsh valleys and removed the
last free cash machine. Is that the type of area that you will
be able to expand into again?
Mr John: It may well be. What
we look at in that particular case is the distance from that location
to the next ATM. I happen to know Ogmore Vale quite well because
of my background but I think it is important to identify also
not just rural areas; there are deprived areas clearly within
conurbations which you need to take into account as well.
Q879 Chairman: How many of you use
charging cash machines in preference to free machines? None of
you? Fine. Let us move on to access to affordable credit. Sir
Fred, you noted the role RBS played in the credit union task force
set up to examine ways in which banks could work more effectively.
Why was the recommendation of the task force to develop a central
service organisation not progressed, and what more do you believe
the mainstream banking sector can do to support credit unions
in terms of resources and expertise?
Sir Fred Goodwin: There were a
variety of recommendations on deposits which were taken forward
including how credit unions would be regulated and the deposit
guarantees and deposit protection schemes interact with credit
unions, to get to a place where they were regulated by the FSA
and the cost of that was borne by the rest of the industry. But
at the core of the recommendations was the recommendation that
a central services agency was set up. As you look around the world
where credit unions have been particularly successful there is
almost a direct mapping to a central services organisation which
provides a lot of the support. Running a credit union is not a
straightforward matter, and it is most successful where you have
people deeply rooted in the community—
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