Memorandum submitted by HBOS
1. INTRODUCTION
1.1 HBOS is pleased to contribute to the
Treasury Select Committee's Inquiry into financial inclusion.
This submission gives an overview of the ways
in which we contribute to this important agenda.
1.2 There are five central objectives that
drive our financial inclusion strategy.
— To maintain and develop our leading
market share in the provision of social bank accounts.
— To encourage the provision of bespoke
credit schemes for those on low incomes by offering funding and
administrative support to expert organisations eg East Lancashire
Moneyline.
— To encourage people on low incomes
to save through schemes like the Savings Gateway. Halifax is the
only financial institution piloting this project on behalf of
the Treasury.
— To actively support the provision
of financial advice and education by working with specialists
in the not for profit sector.
— To extend our presence in local communities,
offering employment opportunities and support for local projects
through financial donations and colleague volunteering.
1.3 Access to financial services has improved
dramatically over the last two decades. According to the British
Bankers Association, 25 years ago only 38% of the population had
current accounts and a third of all adults had no account of any
type. Now 94% of all households have an account of some sort.
With 56% of the stock of social bank accounts
in the UK, HBOS has the largest share of this market by some distance.
The Group's social banking market share is more than five times
its share of the current account market (11%).
We welcomed the commitment in the revised Banking
Code, which came into effect on 1 March 2005, for banks to offer
a social bank account to anyone who wants one. In common with
the rest of the industry, HBOS is committed to working with the
Government to achieve the target, set in December 2004, to halve
the 2.8 million unbanked households within two years. Latest British
Bankers Association data (September 2005) suggests that 625,000
post office accessible accounts have been opened since December
2004.
The Government's work in this sector is welcome.
We are working with both the FSA on their financial capability
strategy and the Financial Inclusion Taskforce.
2. ACCESS TO
BANKING SERVICES
2.1 Social Banking
HBOS is committed to its market leading social
banking programme. With 3.3 million social banking customers,
the Group's market share is more than twice that of our nearest
competitor.
Our disproportionately large share of the social
banking market reflects our longstanding commitment to financial
inclusion. Halifax's Cardcash account was launched in 1983 and
Bank of Scotland's Easycash account in 1991. Both accounts give
those on low incomes access to essential money transmission services.
The mechanics of our social banking products
provide a great deal of financial functionality. For example,
our Easycash account offers an ATM card, direct debit and standing
order facilities. Customers can access their accounts via the
telephone and internet as well as the Post Office and branches.
Customers have a cashpoint card which they can use free of charge
in any of HBOS's 2,700 ATMs and in the LINK network which has
approximately 33,000 free machines. They also have access to our
1,500 retail outlets.
2.2. Our social banking customers are typically
younger in profile than our current account customers. For all
our social banking customers, these accounts are an important
first step on to the financial services ladder.
Customer circumstances change. Our social banking
customer base is a dynamic one. A number of our customers move
to mainstream current accounts, ie accounts offering an overdraft,
over a period of time. The British Bankers Association reports
that, across the industry, 125,000 social bank accounts accessible
at the post office have been upgraded to fuller-featured accounts
since April 2003. Over the same period, HBOS has upgraded 87,000
accounts.
2.3 The socio-economic profile of our social
banking customer base underlines our commitment to tackling financial
exclusion:
— 25% of our customers with a social
bank account have an income of less than £4,500. We estimate
that HBOS accounts for a 21% share of this segment of the UK social
banking market. These customers are in the poorest 5-10% of households
in the country.
— 31% of our social banking customers
have incomes of between £5,000 and £9,499, roughly the
minimum wage. We believe the Group has 20% of this market segment.
— 22% of our social banking customers
earn between £9,500 and £15,499—roughly half the
average household income. Our share of this market is about 22%.
It is again worth noting that the Group's share
of stock across all the main social banking market segments is
well ahead of the proportion of the mainstream banking market
that it accounts for. HBOS punches well above its weight in social
banking.
3. ACCESS TO
AFFORDABLE CREDIT
3.1 In common with many financial services
advisors, we believe customers should build up their savings before
they consider accessing credit. For obvious reasons, saving is
a particular challenge for low-income groups. We are working closely
with the Government to address this issue (see section 7—"Savings
Gateway").
HBOS is one of the leading providers of stakeholder
products, providing consumers with simple, low-cost investment
vehicles. We are also working with the Office of the Deputy Prime
Minister to provide shared equity schemes to help first-time buyers
onto the housing ladder and into asset ownership. For instance,
we are one of only three lenders to be working with the ODPM on
their Open Market HomeBuy scheme.
3.2 As previously outlined, one of our key
priorities is to work with specialist providers of bespoke credit
schemes for those on low incomes. Our Community Banking team has
a particular focus on this area and leads the Group's efforts.
Through this team, HBOS provides funding and administrative support
to a number of specialist credit providers in the voluntary sector.
These partnerships work well. We provide facilities, administration,
funding and advice to enable providers to offer specially designed
schemes for hard to reach clients.
3.3 East Lancashire Moneyline (ELM) is a
good example of our partnership approach. ELM provides access
to credit and debt advice for low-income individuals unable to
access mainstream credit. A typical ELM customer is somebody reliant
on state benefits using small "home credit" loans to
pay for day-to-day living costs. ELM is, in effect, operating
a micro-credit scheme with our help.
The business model is as follows. Our Community
Banking team provides the systems that allow ELM to offer its
customers the opportunity to start saving. For example, a customer
borrowing £250 over 52 weeks would have a weekly loan repayment
of £5.37. By rounding up to £8.00, the customer would
be able to save £2.63 per week and build up over £136
in savings over the loan period.
ELM's head office effectively acts as a bank
branch, supported by Bank of Scotland's systems, knowledge and
experience. It is estimated that 500 accounts will be opened this
year.
4. OUR RETAIL
NETWORK
4.1 Halifax and Bank of Scotland are two
of the best-known brands in the financial services industry. We
have a presence throughout the U.K and over 1,500 retail outlets;
we are committed to developing this network. Across the UK we
have almost three times more retail outlets in the 50 most deprived
local authorities than in the fifty most affluent.
4.2 HBOS has one of the largest ATM networks
with 2,700 machines. We are committed to the operation of this
free network. In addition, HBOS operates over twice as many free
ATMs in the fifty most deprived areas compared to the least deprived.
Following the Committee's inquiry into ATMs
in 2005, we have been working to improve the signage on machines.
All our machines now feature green colour coded signs and clear
wording. Customers can tell at a glance that they will not be
charged for cash withdrawals. We would like all ATM operators
to adopt a "traffic light" regime—green for free
machines and red for surcharging machines. Unfortunately, a proposal
to this effect that we tabled at the LINK Network Members Council
meeting in December 2005 was not supported by the majority of
the LINK membership. We will continue to press for greater transparency
around ATM signage.
5. BANKING CHANNELS
5.1 Branch networks are at the heart of
financial services and will, in our view, remain so long into
the future. In addition, many of our customers use other channels
like the telephone or internet to access our services. These channels
complement branch based banking.
Overall, we have 3.6 million customers who use
internet banking and many more who use phone banking. This is
now a significant feature of the financial services market in
the UK. Across the industry around 15 million customers use the
internet to do their banking and around 16 million use the telephone.
Over 650 of our branches have "Click and
Call" units in their banking halls offering internet and
telephone access for customers. We are the biggest operator of
such units in the UK. They are specifically designed to reduce
"digital exclusion" amongst customers unfamiliar with
the internet or who do not have access to it at home.
6. INCREASING
FINANCIAL LITERACY
6.1 Another strategic objective for the
Group is to actively support, through financial contributions
and other means, the delivery of financial literacy programmes
across the UK. The Group does so through the HBOS Foundation,
an independent registered charity.
The HBOS Foundation supports a range of projects
that address the financial literacy needs of a number of groups
across society eg deprived communities, young adults, refugees
and homeless people. As well as multi-year grants, the Foundation
also arranges for HBOS colleagues to volunteer with these charities.
The Foundation frames its financial literacy
work around the FSA's national strategy for financial capability.
This was launched in May 2004 and focuses on seven priority areas;
schools, young adults (16-25), work, families, borrowing, retirement
and advice. The table below demonstrates how our work fits with
this national strategy:
| FSA Priority Areas
| HBOS Foundation Projects |
| Schools: Laying the foundations | U.K. Youth
|
| Young Adults: New responsibilities | NCH, NACRO
|
| Work: Reaching people through the workplace
| Refugee Council, Big Issue Foundation |
| Families: Being a Parent | Refuge, Gingerbread
|
| Retirement: Planning Ahead | Age Concern, First Fruit
|
| Borrowing: Making informed decisions | Centrepoint
|
| Advice: The role of generic advice | National Debtline and the CAB
|
Details about these projects are available on request.
6.2 Alongside the HBOS Foundation's financial literacy
programme, the Group has a number of active financial inclusion
initiatives. For instance, an HBOS and A4e's "MoneyHelp"
initiative provides training and coaching for the long-term unemployed
so they can re-enter the labour market. This project receives
financial support from HBOS. In addition, the Group is committed
to providing social bank accounts to scheme participants.
There are workshops and interactive sessions being run by
A4e in the pilot areas of Edinburgh and Calderdale (West Yorkshire).
6.3 HBOS works in partnership with the Home Office and
Unlock, the national association of ex-offenders, to provide category
C and D prisoners with a social bank account shortly before they
leave prison and re-enter society. Clearly, having a bank account
is a very important step. It should help former offenders to successfully
manage the difficult transition from prison back into the community.
The Home Office believes that the Unlock scheme will potentially
reduce the risk of re-offending. Once released, the Home Office
will track the level of re-offending amongst prisoners assisted
by the Unlock pilot. The pilot is operating in Cockham Wood Women's
Prison and Coldingley Prison in the south east.
7. SAVINGS GATEWAY
7.1 Encouraging people on low incomes to save is another
key element underpinning the Group's financial inclusion strategy.
As a result, the Halifax is the only financial provider working
with the Government on the "Saving's Gateway" scheme.
This pilot aims to encourage saving by those on low incomes through
providing matched funding from the Treasury.
The pilot was run at 64 of our branches in the following
areas: Manchester, East London, Cumbria and North Lancashire,
East Yorkshire, South Yorkshire and Cambridgeshire (including
parts of Lincolnshire and Norwich). The second phase of the pilot
ended in June 2005 by which point Halifax had opened 22,000 Gateway
accounts.
7.2 A Treasury report published in March 2005 found that
the Savings Gateway has encouraged genuinely new savings amongst
participants.
— When asked at maturity, 40% of Saving Gateway
participants said that they intended to continue to save regularly,
whilst another 47% said they would save as and when they could.
— When asked why they had opened a Saving Gateway
account, almost everyone cited the financial incentive—a
pound for every pound saved.
— 78% of all participants said that it was important
to be able to open a Saving Gateway account through a local organisation.
7.3 We believe that the Savings Gateway demonstrates
that matched funding is a very effective way to encourage those
on low incomes to save.
In addition, it has allowed our branch staff to learn about
the needs of these customers. For example, Halifax branch staff
provide Savings Gateway customers with details of local financial
literacy programmes if required.
The Government is currently undertaking a review of savings
incentives and the Saving Gateway is a key component of this review.
9. CONCLUSION
9.1 HBOS has a long history of providing social bank
accounts. With a 56% market share, we are the biggest player in
this important product area. However, we are not complacent. There
is more that we and the industry can do to help tackle financial
exclusion. We look forward to continuing to work with the Government,
the FSA and the Financial Inclusion Taskforce to do just that.
January 2006
| 
