Memorandum submitted by Nationwide Building
Society
INTRODUCTION
1. Nationwide Building Society is the UK's
fourth largest mortgage lender, second largest savings provider,
and seventh largest high street financial organisation. We are
also the world's largest building society, with more than eleven
million members.
2. Nationwide is proud of its record of
promoting transparency, honesty and fairness across the financial
services industry. As a mutual, owned by and run for the benefit
of our members, we aim to offer a broad range of great value mortgages,
savings and other financial products, while charging as little
as possible for day-to-day services.
3. The Society welcomes the Committee's
inquiry into financial inclusion and is pleased to submit brief
written evidence to the inquiry.
ACCESS TO
BANKING SERVICES
4. As a mutual, we offer all members free
day to day banking, and we do not charge a fee for cash withdrawals
at any of our network of more than 2000 ATMs. All our current
account customers can do business through branches or via the
24 hour internet banking or telephone services, and all our current
account customers can withdraw cash and check their balances at
any Post Office branch, free of charge.
5. Nationwide is the only building society
to offer basic bank account facilities, which we have been doing
since July 1999. Customers receiving our basic account facility
can operate their account in the same way as those on our standard
current account, but will not be offered an overdraft facility,
cheque book, or debit or credit card. The account offers a cash
card which enables customers to withdraw money and check their
balance at any of our branches, cash machines and any Post Office
counter. Basic account customers can also use Nationwide's internet
banking facility to manage their money, and receive credit interest
on balances in their account.
6. Although Nationwide's basic account does
not offer an overdraft facility, it does have a £30 `buffer
zone'. This means that if a customer has £25 in their account
and a £50 direct debit is being processed the payment will
be honoured and no fee charged.
7. Nationwide is committed to playing its
part in ensuring that those who want banking facilities are able
to access them and benefit from the added flexibility and choice
that is available to those with a bank account. However, we are
concerned that many providers are not doing their fair share in
catering for Basic Bank Account customers, and we have seen a
larger number of applications for basic accounts to Nationwide
than we would have expected from our share of the current account
market (in some branch areas basic bank openings account for more
than 50% of total current account openings), and the required
administration has the potential to impact negatively on service
for all our customers. We think it important that all providers
in the market do their fair share if consumers are genuinely going
to be helped and the Government's target for decreasing the numbers
of people without a bank account is to be met, and we would welcome
the Committee's inquiries into the position.
8. Nationwide has for some years been expressing
concern about the threat to the UK's network of free cash machines,
and has previously submitted detailed evidence to the Committee's
inquiry into charging cash machines. In particular, the Society
is concerned that the future of free cash machines away from branches
is under threat. Comparing LINK figures for September 2004 and
September 2005, at end September 2005 there were 23,931 charging
ATMs and 32,355 free ATMs, compared with end September 2004 when
there were 20,685 charging and 32,463 free. This gives an increase
in the number of charging machines of 3246 (16%) compared with
a decrease of 108 (0.33%) in the number of free machines. If this
pattern continues, there is a real possibility that free access
to cash will not survive other than at bank and building society
branches and a few other locations such as main post offices.
9. In 2004 we estimated that the annual
cost to consumers of charging cash machines was £140 million,
and we now forecast that in 2006, this will grow to £250
million.
10. The threat to the free cash machine
network is a concern as it impacts on every consumer, but Nationwide
would be particularly concerned if cash machine charges fell disproportionately
on lower-income groups. It seems intuitive that with the proportion
of machines which charge growing so rapidly, the burden would
fall most heavily on people without debit or credit cards, who
are most reliant on cash and on using ATMs to access their cash.
This would include young people aged 11-16 as well as customers
with basic bank account facilities.
11. The trend for high street banks to sell
off their non-branch ATMs to charging operators, and the rapid
growth in the number of charging machines in locations such as
convenience stores, off-licences, petrol stations and pubs, also
have an impact. These changes mean that in areas where there are
no bank branches, or where branches may have been closed, the
chances are greater that the nearest machines will be fee-charging.
12. There appears to be little or no monitoring
by Government of the impact of the increased numbers of charging
machines in order to assess any adverse social consequences. It
is important to understand how increasing charges at ATMs and
falling numbers of free ATMs outside bank and building society
branches could impact on lower income groups and those who may
be less mobile or more reliant on cash.
13. Nationwide would like to see active
monitoring by HM Treasury, which has responsibility for policy
regarding financial inclusion, of the growth in charging machines
and the impact on consumers, especially in areas of social deprivation,
with a view to identifying any public policy implications.
INCENTIVES AND
BARRIERS TO
SAVING FOR
PEOPLE ON
BELOW AVERAGE
INCOMES
14. Nationwide understands that a wide-ranging
review of ISAs and other savings vehicles and incentives is expected
from the Government in early 2006. We welcome this and look forward
to engaging in a discussion around savings incentives, including
incentives for people on below average incomes. We particularly
look forward to receiving details from the pilot of the Savings
Gateway, testing the effectiveness of matched funding from Government
to incentivise saving by low income groups, which have not yet
been made public.
15. Nationwide supports the continued use
of the ISA brand for tax-efficient savings. Our research shows
that many of our customers are using the cash ISA as a flexible
savings account, with around two thirds of our cash ISA holders
investing less than their full allowance, and around 50% of cash
ISA holders making a withdrawal during the year. Nationwide has
therefore suggested that, rather than an annual ISA allowance
for individuals, an annual cap on savings into ISA could be more
effective for savers, including those on lower incomes. This would
allow funds to be invested and withdrawn freely to the cap limit.
We hope to discuss this and other ideas for incentivising savings
as part of the 2006 review.
16. Nationwide has been a Child Trust Fund
provider since the scheme was first launched in January 2005,
and is one of only four high street organisations to offer both
cash and equity Child Trust Fund. We believe the Child Trust Fund
is an important scheme to encourage the savings habit among young
people, whatever their background, and welcome the larger amounts
paid to children from low income families. Nationwide believes
that the Government should announce now its intentions to keep
the amount of its contributions under regular review and aim for
regular increases to avoid the value of the fund contributions,
and the extra payments for children from low income families,
being eroded by inflation.
FINANCIAL EDUCATION
AND ACCESS
TO FINANCIAL
ADVICE: YOUNG
PEOPLE
17. Financial education and capability,
especially among children and young people, is a major challenge
and Nationwide would like to see and participate in a joint effort
by Government, industry and parenting groups to work together
to create new messages on savings that make the subject exciting
for children.
18. One of the Government's goals for the
Child Trust Fund was "to build on financial education to
help people make better financial choices throughout their lives".
19. Nationwide would like to see an additional
top-up to the Child Trust Fund made to children aged 13-16 who
achieve agreed financial education goals. Financial incentives
to learn have already been used with the Education Maintenance
Allowance and the Connexions scheme and Nationwide believes that
there could be benefits in using a similar approach to encourage
and reward financial education among children and young people.
We believe this would reinforce the messages about the benefit
of saving into Child Trust Fund and help children understand and
appreciate the value of the asset they will gain at the start
of their adult lives.
January 2006
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