Memorandum submitted by the British Bankers"
Association (BBA)
EXECUTIVE SUMMARY
Financial Inclusion requires the involvement
of many players and BBA Members have shown, and continue to show,
their commitment to this in a variety of ways.
Considerable progress has been made in advancing
the shared goal of halving the 2.8 million adults in households
without a bank account within two years from November 2004. There
are currently 17 banks and building societies that offer a Basic
Bank Account that can be accessed through the Post Office and
the roll-out has been very successful with, as at the end of September
2005, 1.52 million accounts opened since April 2003. In addition
there are some 3.6 million, non post office accessible accounts
in existence. Some of these have been in operation since well
before the launch of universal banking and satisfy fully the needs
of customers.
Research shows that 91% of Basic Bank Account
holders are confident that the Basic Bank Account meets their
needs and a similar percentage agrees that it is good that there
are no overdraft facilities on the account. At the time of the
survey two thirds reported that they did not have any other financial
products but 77% feel more confident dealing with money as a result
of having a Basic Bank Account.
The banking industry is providing £182
million over five years to fund the Post Office Card Account (POCA)
and there are in the order five million accounts in existence.
We consider the POCA to be a component of the Financial Inclusion
Programme and the Government should review and clarify its future
intentions in this area as a matter of urgency.
Comments made about the difficulties of providing
standard documentary evidence to open a Basic Bank Account have
been considered carefully and reflected in the new JMLSG Guidance,
expected to be published towards the end of January.
The focus of attention would naturally appear
to be moving to Access to Affordable Credit and our members consider
that this can best be provided through a combination of Credit
Unions, CDFIs and the Social Fund. In addition to direct financial
support to Credit Unions and CDFIs, the industry provides assistance
in areas such as risk management and training.
In terms of Financial Education and Access to
Financial Advice we have supported the work being led by the FSA
on the National Financial Capability Strategy in numerous ways.
Financial literacy should be a component of the curriculum throughout
a child's life at school. A step change will be required to ensure
that all adults have sufficient understanding to be able to manage
budgets and plan for their future. Financial education pilots
have been delivered across a range of employers, future action
however needs to be targeted, prioritised and subject to persuasive
business cases.
There is support for initiatives such as the
Child Trust Fund to encourage those on below average incomes to
save. The decision on whether or not to commit further resources
to such initiatives will, of course, depend on their relative
success. The Saving Gateway pilots have highlighted the need for
these initiatives to be linked together to form a comprehensive
and portable savings "lifeplan".
Success in extending Financial Inclusion and
reducing poverty will only be achieved if all parties in the public
and private sectors play their part on both an individual and
collaborative basis. In addition to direct provision of services,
support to Credit Unions and CDFIs, joint initiatives with agencies
such as Citizens Advice and funding of free independent money
advice, the industry provides finance for micro firms starting
up and for people going into self-employment. Banks are also amongst
the biggest corporate contributors to charities and an element
of this money goes to helping disadvantaged communities and education
initiatives to enable children to break out of the poverty cycle.
With 220 Member Banks from over 60 countries,
the BBA is the authoritative voice of the banking industry in
the UK. Approximately 60-70 Members are involved in the retail
banking market in the UK.
BBA Members are committed to meeting the standards
of good banking practice as set out under the Banking Code. The
voluntary code that allows competition and market forces to work
to encourage higher standards for the benefit of customers. The
Code is independently monitored and enforced by the Banking Code
Standards Board (BCSB) and independently reviewed, by open consultation,
every three years. In February 2005, Stephen Timms MP, then Financial
Secretary to the Treasury, said in evidence to the Treasury Committee:
"I think the Banking Code is an excellent example of self-regulation.
Elaine Kempson has done an excellent job. I think everybody who
looked at it said that it has worked very well as a self-regulatory
model."
Our members are committed to increasing Financial
Inclusion. Specific initiatives are quoted for illustrative purposes
only and should not be viewed as a comprehensive record of activities.
The BBA is pleased to provide evidence to the Treasury Committee
on Financial Inclusion.
1. ACCESS TO
BANKING SERVICES
In November 2004, banks and HM Treasury agreed
to a shared goal—to make significant progress towards reducing
by half the 2.8 million adults in households without a bank account
within two years.
Basic Bank Accounts are clearly an important
stepping stone in Financial Inclusion hence, we are delighted
with the progress made in opening these accounts. At end-September
2005, the net total number of Post Office-Accessible Basic Bank
Accounts opened since the advent of universal banking in April
2003 was 1.52 million. This equates to a net average of around
150,000 Basic Bank Accounts being opened each quarter.
Basic Bank Accounts are designed for people
who want to ensure that they cannot overdraw their account or
who might not meet the bank's criteria for opening a standard
current account. There are currently 17 banks and building societies
who offer a Basic Bank Account that can be accessed through the
Post Office.
Following the 2004 independent review of the
Banking Code by Professor Elaine Kempson, the Code was strengthened
to require banks to offer a Basic Bank Account to any customer
requesting one—with some necessary caveats—and to
offer a Basic Bank Account to customers for whom such an account
appears appropriate.
In addition, it should also be noted that some
banks were offering basic bank accounts, with limited functionality,
well before the launch of universal banking. There are some 3.6
million such accounts that, although not post office-accessible,
fully satisfy the needs of many customers and can be accessed
through those banks" branches and ATMs.
Basic Bank Account Functionality
The majority of Basic Bank Accounts are accessible
via branch, post, telephone and internet. Features typically include
the ability for payments, for example pensions and benefits, to
be credited direct to the account, withdrawals by plastic card
through cash machines and the facility to pay bills by direct
debit, thereby achieving savings. This type of account does not
provide overdraft facilities nor, typically, a cheque book.
To ensure Basic Bank Accounts are fully meeting
their intended purpose Millward Brown was commissioned by the
industry in 2005 to conduct research amongst account holders.
1,000 adults who had opened a Basic Bank Account in the previous
12 months were questioned and the findings showed that:
— 59% of customers were "unbanked"
prior to opening a Basic Bank Account, ie had no other bank account.
— 50% of customers came from a household
with no prior bank account or a POCA.
— 48% of customers found out about
a Basic Bank Account through bank staff. Only 5% found out via
the Benefits Agency.
— 91% of Basic Bank Account holders
are satisfied with the way the account has been handled.
— 91% of Basic Bank Account holders
are confident that the account will meet their needs.
— 36% of Basic Bank Account holders
have explored using other bank accounts with more features as
a result of their experience with their Basic Bank Account. For
customers under 34-years-old, this figure is 50%. 15,000 Basic
Bank Account holders have upgraded their accounts to a standard
current account.
— Only 1% of active users of Basic
Bank Accounts would consider closing their account and not opening
another.
— 92% of account holders agree that
it is good that the account does not allow customers to get into
debt.
— 92% agree that it was simple and
straight forward to open their account. Indeed, customers cite
the simplicity of the Basic bank Account as a reason for opening
the account.
— 88% are satisfied with the facilities
that the account provides.
— 77% are more confident with dealing
with money as a result of having a Basic Bank Account.
— 66% of Basic Bank Account holders
do not have any other financial products.
— 82% of account holders withdraw their
cash from an ATM (only 8% use counter service).
— 29% of Basic Bank Account holders
use direct debits.
Post Office Card Account (POCA)
In addition to Basic Bank Accounts, the banking
industry is providing £182 million, over five years commencing
2003, to fund the Post Office Card Account. There are in the order
of five million POCAs in operation, allowing customers to receive
state benefits electronically and access their money via the Post
Office. Where an individual opening/having opened a POCA is aware
of its limited functionality, but decides nevertheless it meets
their requirements, this we consider results in Financial Inclusion.
The POCA is therefore, we consider a component of the Financial
Inclusion Strategy. If the view continues to prevail, however,
that holding a POCA does not meet the definition of Financial
Inclusion, their future needs to be determined. To avoid disruption
for account holders, Members are of the view that careful consideration
should be given to enhancing the functionality of these accounts.
This area requires urgent review and clarification by the Government.
Identification and Verification
The current most common documentary evidence
used for verification of a person's identity is a passport or
photocard driving licence, and, separately to verify address as
part of a person's identity, a utility bill/Council Tax Bill/Benefits
Book. The Joint Money Laundering Steering Group (JMLSG) Guidance
Notes highlighted that the list of documentary evidence in which
these items are found is neither exhaustive nor mandatory. However,
problems arose with opening Basic Bank, and other types of accounts
for those who do not possess evidence of their identity in circumstances
where they could not reasonably be expected to do so. The current
Guidance notes therefore state, in line with the relevant Financial
Services Authority (FSA) Money Laundering Regulation, that a firm
may accept as identification evidence a letter or statement from
a person in a position of responsibility who knows the client,
that tends to show that the client is who he/she says they are,
and to confirm their permanent address if he or she has one.
Evidence available to the banks, and which was
corroborated by a survey carried out by the FSA, suggests that,
for the great majority of retail customers, account opening with
the standard identification evidence described above is quick
and hassle free, but this is often not the case with those Special
Interest Groups that may not possess the standard documentation.
In the light of this, the revised JMLSG Guidance contains three
significant changes:
(a) a distinction is made between information
that a firm should collect about a customer's identity, and evidence
that the firm must verify.
(b) for the great majority of customers,
for anti-money laundering purposes, a firm in a face to face situation
will be able to verify, from documents that give a high level
of confidence in an individual's identity, the customer's full
name and photograph and either his/her residential address or
his/her date of birth. The effect of this will be to enable identity
verification to be carried out with the production of a single
document (either passport or photocard driving licence, one or
other of which according to the Home Office around 90% of the
population possess); and
(c) expanded guidance on documentation that
may be accepted, on a proportionate and risk-based approach, for
those customers who cannot reasonably be expected to possess standard
documentation.
In recent years, a number of large retail firms
have introduced internal Help Desks designed to ensure that issues
arising from Special Interest Groups are dealt with centrally
and on a consistent basis.
The new JMLSG Guidance is expected to be published
towards the end of January and firms will aim to have introduced
the new procedures within six months of its subsequent approval
by a Treasury minister (a typical large retail bank may have to
communicate the changes and train around 20,000 counter staff
or more throughout the UK).
It should be borne in mind that the legal obligation
on a firm and staff is to obtain satisfactory evidence of a customer's
identity (not to check specified documents). If, in the particular
circumstances of a case, a firm is not satisfied, it must not
open an account. Where there is an application for credit, a firm
will normally wish to carry out additional checks on the customer.
A bank has to strike a balance between the requirement
to guard against financial exclusion even though some documentary
evidence may give a lower degree of confidence, and its obligations
under the Money Laundering Regulations 2003 to forestall and prevent
money laundering.
2. ACCESS TO
AFFORDABLE CREDIT
Having made significant progress on the shared
goal, it is natural that the focus of attention of the Government
and the Financial Inclusion Taskforce is moving to access to affordable
credit. Our Members believe that affordable credit can best be
provided through a combination of Credit Unions, Community Development
Finance Institutions (CDFIs) and the Social Fund. The industry
supports these initiatives in a variety of ways. For example,
through direct financial support to Credit Unions and CDFIs, together
with the provision of expertise and resources in specific areas:
such as risk management software, premises, staff, or training.
Initiatives that combine sophisticated risk management software
from banks and local knowledge and reputation of a Credit Union
have been proved to be very beneficial. Illustrative examples
of support by our Members in this area include:
— The Co-operative Bank has supported
the launch, in 1998, and development of the Co-operative Family
Credit Union in the Greater Manchester area. Preferential banking
facilities are made available to many Credit Unions.
— Barclays has provided financial support
to assist the development of PEARLS, a system that uses a set
of financial ratios to monitor the financial stability of Credit
Unions.
— RBS Group has provided strong support
over the last 9 years through investment in and grants for the
development of CDFIs throughout the UK. RBS are also actively
working on a pilot programme in partnership with the Grampian
Housing Association (a registered social landlord) to develop
a saving and loans initiative, which will make affordable credit
available to those unable to access mainstream credit. Under the
programme, small loans are made available to the Housing Association's
tenants on the basis that the Association guarantees the loans.
The provision of micro-finance by mainstream
lenders is generally not considered to be cost effective. The
cultural differences, eg entering bank premises as against delivery
of small loans in cash to the door, should not be underestimated.
Our Members believe that a reformed Social fund
could be a useful source of affordable credit.
3. FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
We have supported the work being led by the
FSA on the National Financial Capability Strategy in numerous
ways. The BBA agrees strongly with the sentiment expressed by
Callum McCarthy's in his speech last year that "the principal
responsibility for a society with literate and numerate citizens
clearly lies with government, and with the education system."
We were particularly pleased, therefore, to see the announcement
in the 2005 PBR that the Government will now address the important
topic of financial capability more explicitly in the curriculum
by including it in the new functional mathematics component of
GSCE mathematics. We have made continuous representations that
responsibility for literacy in those up to 18 years old must rest
with the Government. We will continue to push for inclusion of
financial literacy in the curriculum throughout a child's life
at school, and some of our members will of course want to continue
the excellent work they have been doing with schools. For example:
— HSBC, through its UK HSBC Education
Trust, facilitates donations for educational courses. It is aiming
to raise the academic achievement of young people and improve
their vocational skills through both formal and informal learning.
— Last year RBS celebrated the 10th
anniversary of its Face to Face with Finance programme. In addition
to the provision of financial education materials, it involves
their retail staff being trained to help teachers in schools to
deliver a teaching programme for 11-18 year olds on personal money
management and enterprise. Over 780,000 children have been taught
in more than 3,200 schools nationally.
Turning then to adults. Everyone agrees that
a step change is required to ensure that they have sufficient
understanding to be able to manage simple budgets and plan for
their future—particularly important when there is growing
need for self-provision in areas like pensions. The financial
services industry has a responsibility to ensure that its products
and services are transparent and well explained. It is generally
recognised that there is no captive audience in terms of the adult
community and thus, progress is likely to be more difficult. Consequently,
any action in this regard needs to be targeted and prioritised
with a clear sense of the precise needs which the exercise is
aiming to address. Activities involving our Members in this area
include:
— Lloyds TSB Group chairs the FSA Workplace
Working Group of the Financial Capability Programme. The Group
is a cross-sector team from industry, trade associations, unions,
and the not-for-profit sector. Financial Education pilots, involving
some of our Members, have been delivered across a wide range of
employers with the aim of helping employees make the most of their
money through planning, budgeting and having a better understanding
of the financial marketplace. Arrangements are being made for
additional pilots to be carried out in 2006.
— Some of our Members' activities in
this area are geographically focused, reflecting the origins and
concentration of the organisation. For example, Alliance and Leicester
over the period 2001-05 made donations to the Leicestershire Learning
Zone, a scheme that provides one-to-one teacher coaching and literacy
consultants.
The results of the FSA's baseline survey together
with the learning from the work place pilots will be crucial in
devising an optimal plan for financial capability amongst the
adult population. The development of robust and persuasive business
cases is vital and we look forward to seeing the work being conducted
by the FSA in this regard.
4. INCENTIVES
AND BARRIERS
TO SAVING
FOR PEOPLE
ON BELOW
AVERAGE INCOMES
In principle, there is support for initiatives,
such as the Child Trust Fund and the Saving Gateway, that encourage
those at the lower end of the market to save, but of course, the
decision on whether or not to commit further resources to such
initiatives depends on their relative success.
HBOS is the sole provider of accounts in the
Saving Gateway pilots. The first pilot was launched in August
2002 in five locations. Across the scheme as a whole, the average
balance in people's accounts was £282. A high proportion
of participants aspired to save the maximum amount of £375
and half achieved this goal. With the matched funding, these savings
represent a considerable increase in people's asset-holding. Indeed,
before they opened their Saving Gateway account, 56% had no money
saved at all.
The accounts in the second pilot are currently
in the "maintenance" phase and the first set of maturities
will be in September 2006, with the final set in March 2007. The
second pilot was designed to test alternative match rates, different
monthly contribution limits, the effect of an initial endowment,
and the support of a wider range of community financial education
bodies. It will inform the development of matching as a central
pillar in the Government's strategy for promoting saving and asset
ownership.
HBOS's overall experience of the Saving Gateway
pilots has been positive, but there have been two key issues:
— A higher than normal number of customers
had difficulty providing the required Anti-Money Laundering/Identification
requirements. This is being addressed through the JMLSG (see section
1 above).
— Capacity within the branches was
stretched due to the very high take up rates experienced from
such an attractive proposition. This may be an issue if the pilot
is extended across the UK, but will very much depend on the acceptance
criteria (which was widened for this pilot) and the method of
product delivery (no telephone or internet application processes
were developed for this pilot).
The Saving Gateway initiative has highlighted
that one of the issues is a lack of understanding about how all
the Government's existing initiatives link up together. We suggest
that these initiatives should be linked to form a cohesive and
portable savings "lifeplan" ranging from Child Trust
Funds to the Saving Gateway to ISAs to Pension provision.
5. THE ROLE
OF GOVERNMENT,
THE FSA AND
OTHER BODIES
AND ORGANISATIONS
IN PROMOTING
FINANCIAL INCLUSION
It is right for the Government, FSA and other
organisations such as the consumer groups, to work together to
achieve the goal of reducing financial exclusion. However, it
must also be recognised that while every effort is being made
in this important area, there will always be a group of people
who will wish to remain "unbanked".
The BBA has fully engaged with the Chair and
Members of the Financial Inclusion Taskforce and discussions have
taken place with them on a number of key issues, including banks"
strategies for the promotion of Basic Bank Accounts. It is widely
acknowledged that, as afar as Basic Bank Accounts are concerned,
the supply side of the equation has been met. However, additional
action will be required to generate further demand. This will
require effort by many bodies, including the Government.
We are supportive of, and our Members actively
engage in, the work being lead by the FSA on Financial Capability
(see section 3 above). From a Financial Inclusion perspective,
we consider that the existing split of regulatory responsibilities
between the FSA, OFT and BCSB should remain. The issue of achieving
a balance between the responsibilities of consumers and providers
needs to be taken into account in any future Financial Inclusion
initiatives. This will lead to less prescriptive legislation,
which adds to cost and complexity of provision of financial services'
products.
We consider that agencies, such as the National
Consumer Council (NCC), SAFE and Money Advice Trust (to which
the industry makes a significant contribution), have a key role
to play in tackling Financial Inclusion. Examples of collaborative
initiatives include:
— The Lloyds TSB Group work with Community
Finance Solutions in support of the Community Banking Partnership
(CBP). Working with the New Economic Foundation, the National
Association of Credit Union Workers and Salford University, the
CBP aims to provide financially excluded households with a seamless
service offering savings facilities, affordable loans, access
to basic banking services, bill and debt repayment systems, money
advice and support.
— Barclaycard's involvement in the
Horizons Programme, an umbrella campaign utilising the skills
and experience of four partners—Citizens Advice, One Parent
Families, Parentline Plus and Family Welfare Association. The
Programme aims to support disadvantaged lone parents in making
the transition out of debt and poverty.
6. THE BENEFITS
OF FINANCIAL
INCLUSION AND
THE EXTENT
TO WHICH
FINANCIAL INCLUSION
MEASURES CAN
CONTRIBUTE TO
COMBATING POVERTY
AND REDUCING
BARRIERS TO
EMPLOYMENT
Holding a bank account, access to affordable
credit, the role of Credit Unions and CDFIs, and access to money
advice are some of the measures that can make a contribution in
combating poverty and reducing barriers to employment. However,
achieving a basic education and acquiring technical skills are
more important in gaining employment and escaping poverty. Basic
Bank Accounts and POCAs can boost the confidence of previously
"unbanked" people in financial affairs and can encourage
them to better manage their money, as well as save. A satisfactory
track record and/or credit history can allow Basic Bank Account
holders to migrate to current accounts with enhanced functionality,
including credit and encourage them to open interest-bearing savings
accounts.
As part of their mainstream operations, banks
provide a huge amount of finance for micro firms starting up and
for people going into self-employment.
Banks are amongst the biggest corporate contributors
to charities and part of these contributions go to helping disadvantaged
communities and education initiatives to enable children to break
out of the poverty cycle. A recent publication, "The Guide
to UK Company Giving 2005", by John Smyth, published
by the Directory of Social Change, shows that the top five of
the 25 largest contributors to the community are all banks and
that their combined contributions exceed the total contributions
made by the other 20 companies in the list, over £144 million
in 2003-04. Similarly, six banks feature in the table of the top
25 UK companies by charitable donation, with their combined contributions
again exceeding the total given by the other 19 companies in the
list by more than 50%.
January 2006
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