Memorandum submitted by the Royal Bank
of Scotland
EXECUTIVE SUMMARY
Access to banking services
We provide free personal banking for everyone
provided their accounts are maintained in credit. We provide this
service to customers throughout the country by an extensive branch
network and other means. RBS was the first UK bank to introduce
a basic bank account. We market our basic bank accounts actively,
and have grown the number of our basic bank account holders by
over 20% in the last year. Our basic bank accounts are accessible
through the Post Office but there are no commercial or financial
inclusion grounds to extend this access to our ordinary account
holders.
Access to affordable credit
We make credit available to anyone who can demonstrate
their creditworthiness, and base our charges for all borrowers
on our perception of the risk involved. There has been considerable
widening of the provision of credit in recent years.
Different models are needed to provide credit
for those who do not meet the usual lending criteria. We are actively
engaged in a variety of initiatives to find, with the help of
local partners and intermediaries, effective lending models suited
to different types of requirement. We give examples. There is
no one universally suitable lending model in this market.
Financial education and financial advice
We have a tradition of involvement in financial
education, primarily through our national programme of financial
education materials used in schools across the UK, "Face
2 Face with Finance". We are founding supporters of the
SAFE programme of financial education for adults. We recognise
the importance of providing independent money advice to those
who find themselves in financial difficulties and we are the largest
corporate supporter of the Money Advice Trust.
Other issues
We highlight:
i. The need to distinguish between the unbanked
and those who do not wish to be banked.
ii. The need for a flexible and mixed approach
to meeting the banking needs of those for whom traditional banking
products may be unsuitable.
iii. The need for clarity over the role of
the Post Office and the Post Office Card Account in tackling financial
inclusion.
iv. The need to distinguish between the work
of the banks in the area of financial education, and the responsibility
of the education system for basic skills of literacy and numeracy.
EXECUTIVE SUMMARY
Access to banking services
We provide free personal banking for everyone
provided their accounts are maintained in credit. We provide this
service to customers throughout the country by an extensive branch
network and other means. RBS was the first UK bank to introduce
a basic bank account. We market our basic bank accounts actively,
and have grown the number of our basic bank account holders by
over 20% in the last year. Our basic bank accounts are accessible
through the Post Office but there are no commercial or financial
inclusion grounds to extend this access to our ordinary account
holders.
Access to affordable credit
We make credit available to anyone who can demonstrate
their creditworthiness, and base our charges for all borrowers
on our perception of the risk involved. There has been considerable
widening of the provision of credit in recent years.
Different models are needed to provide credit
for those who do not meet the usual lending criteria. We are actively
engaged in a variety of initiatives to find, with the help of
local partners and intermediaries, effective lending models suited
to different types of requirement. We give examples. There is
no one universally suitable lending model in this market.
Financial education and financial advice
We have a tradition of involvement in financial
education, primarily through our national programme of financial
education materials used in schools across the UK, "Face
2 Face with Finance". We are founding supporters of the
SAFE programme of financial education for adults. We recognise
the importance of providing independent money advice to those
who find themselves in financial difficulties and we are the largest
corporate supporter of the Money Advice Trust.
Other issues
We highlight:
v. The need to distinguish between the unbanked
and those who do not wish to be banked.
vi. The need for a flexible and mixed approach
to meeting the banking needs of those for whom traditional banking
products may be unsuitable.
vii. The need for clarity over the role of
the Post Office and the Post Office Card Account in tackling financial
inclusion.
viii. The need to distinguish between the
work of the banks in the area of financial education, and the
responsibility of the education system for basic skills of literacy
and numeracy.
1. The Royal Bank of Scotland Group is responding
to the Treasury Select Committee's invitation to submit written
evidence to its inquiry on financial inclusion. We take a long-term
view of the interest of the communities we serve, and therefore
have a natural interest in the issues surrounding the extension
of banking services to those who have hitherto found it difficult
to gain access to them. We commit considerable resources to financial
inclusion issues, and are actively involved in the continuing
search for new solutions. We propose to deal in this note with
three areas covered by the inquiry:
i. Access to banking services
ii. Access to affordable credit
iii. Financial education and access to financial
advice
And to offer the Committee thoughts about some
of the underlying issues.
2. ACCESS TO
BANKING SERVICES
2.1 We provide free personal banking for
everyone provided their accounts are maintained in credit, and
we provide this service to nearly 14 million customers across
the country through a number of different means. We have more
than 2,200 branches across the UK; uniquely among UK banks we
have publicly committed ourselves since 2000 to a policy of not
closing branches; and we have regularly opened new branches over
the last five years in areas of growth or changing demand. We
monitor regularly the quality of service we provide to our customers,
with a view to helping customers manage their finances more effectively,
and are rated highly for our levels of customer service. We comply
fully with the requirements of the DDA. We also offer Internet
banking, 24-hour telephone banking, and direct telephone access
for our customers either to their own branch or, for non-branch
customers, to employees based in the UK. To provide banking facilities
to those who live in more remote areas we operate mobile banks
in Scotland, and have recently introduced a similar service in
the West Country. This enables us to serve 300 communities each
week who might otherwise find themselves cut off from traditional
bank branch facilities.
2.2 Our customers have access to cash, through
the LiNK network, to nearly 33,000 free ATMs across the UK. The
RBS Group has the largest free ATM network in the UK of nearly
6,500 ATMs.
2.3 RBS was the first UK bank to introduce
a basic bank account—the Key Account—in 1999 specifically
for this purpose. NatWest is the only UK bank to have advertised
its basic bank account—the Step Account—on television.
We have more than a one-third share of the basic bank accounts
accessible through Post Offices—significantly above our
share of the overall personal banking market in the UK. The number
of basic bank accounts has continued to grow. The RBS Group now
has more than 800,000 basic bank account holders, an increase
since 2004 of over 20%. We responded quickly to the New Deal by
making basic bank accounts available to all those taking part
in the New Deal. For unrelated reasons, the coincidence of tougher
measures to counteract money laundering has imposed identity requirements
which have caused problems for some outside the banking system
who wish to open a basic account. To ease the difficulties which
can be faced by those who do not have the identification called
for under the Know Your Customer regulations, we have established
relationships with intermediaries like Working Links, JobCentre
Plus and Reed in Partnership, whose long-standing links to such
individuals can help overcome the problem of confirming identity.
We market basic bank accounts as an integral part of our range
of current bank accounts, and also provide standalone information
leaflets and applications. Our basic bank account customers have
full access to our branches and counters in the same way as any
current account holder; and they can use the full ATM network
to withdraw cash.
2.4 We have committed £30 million over
five years to the funding of the Post Office Card Account. Our
basic bank accounts are accessible to our customers through the
Post Office network, who can make free cash withdrawals at Post
Office counters. We also help support the Post Office through
payment of a fee for each basic bank account transaction processed
through the Post Office. In this context, there has been confusion
between the issue of financial inclusion and the question of cash
withdrawals from Post Office counters by ordinary current account
holders. The extension of free cash withdrawals at the Post Office
to our ordinary account holders is a commercial matter, entirely
distinct from issues of financial inclusion, and we see no evidence
that it would be valued sufficiently by our customers to justify
the additional business expense. Moreover, as a matter of commercial
competitiveness, since the creation of the POCA the Post Office
has begun in co-operation with another bank to sell its own competing
financial products to customers across the counter.
3. ACCESS TO
AFFORDABLE CREDIT
3.1 We make credit available to anyone who
can demonstrate their creditworthiness, and base our charges for
all borrowers on our perception of the risk involved. The debate
on affordable credit embraces concerns over the availability of
too much, as well as too little, credit. Much recent comment in
the media and elsewhere has focussed on the issue of credit having
become too accessible. While the provision of credit has grown
in recent years, we have rigorous policies in place to assess
how much our customers can afford to borrow. As our ability to
judge credit-worthiness becomes more sophisticated and reliable,
we can offer more people some credit, and some people more credit
if they wish. On the issue of too little credit there are obvious
difficulties in lending to those on low incomes who have found
it hard to secure credit from the mainstream banking sector or
who traditionally rely on alternative lenders who charge much
higher rates of interest than the banks, but whose type of service—for
example, door-to-door collections—may suit better the culture
and the income of the borrower. To help this need RBS is actively
engaged in looking for different solutions which can provide credit
at reasonable cost to those who would otherwise not be eligible
under the usual banking criteria, or who have financial needs
which they see as better fulfilled by others outside the banking
sector. While these initiatives tend to be small in scale, and
transaction costs and the degree of risk tend to be higher, they
can make an impact on the availability of credit in the local
area where they are based.
3.2 For example:
i. We have strongly supported over the last
nine years through investment and grants the development of the
Community Development Finance Institutions, and have pressed the
Government to extend Community Investment Tax relief to CDFIs
undertaking personal lending. (We hope, however, that the Government's
support for the CDFI sector will not be undermined by the uncertainties
created by shifting its funding from the Small Business Service
Investment Directorate to the Regional Development Agencies.)
We are supporting the CDFI initiative Fair Finance in East London[302].
ii. We played a leading role in the Credit
Union Taskforce set up by the Treasury in 1998 to examine ways
in which banks could work more effectively with the Credit Unions.
The Taskforce developed a plan to create a central services organisation
that would have assisted the credit union movement to reach more
people. Unfortunately the CU movement could not reach agreement
and the Taskforce's recommendations were not taken forward.
iii. We continue to look at propositions
using local institutions familiar to their residents as providers
of affordable credit which will work for those wishing to borrow.
For example, the South East Birmingham Community Credit Union
have been working over the last year with financial help from
the RBS Group to market their services to low income households
across Birmingham.
iv. We are actively working on a pilot programme
involving housing associations whereby we would make loans backed
by a Housing Association guarantee. We are working in partnership
with 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 affordable
credit. Under the programme RBS will make small loans available
to Grampian Housing Association tenants on the basis that the
Association guarantees the loans.
v. We continue to look actively at local
credit schemes which have the potential to become models with
wider appeal. And we are interested to see how the Government's
thinking on extending the role of the Social Fund may evolve.
vi. The RBS Financial Inclusion Innovation
Fund provides grants to voluntary organisations and charities
to test out new approaches to help people become financially included.
It is managed on our behalf by the charity Services Against Financial
Exclusion as part of their management of the RBS-supported UK
Financial Inclusion Forum (www.fif.org.uk). In the first round
of its work in 2004 a range of partnerships was funded, including:
— A partnership with RNIB and Citizens
Advice to investigate the needs of the blind and partially sighted
in managing their money
— A partnership in North Denbighshire
involving the CAB, the local credit union, the local authority
and housing association, and the local NatWest branch, to provide
a joined-up approach to bank accounts, money advice, affordable
credit and savings.
A second round of Awards will be announced in
early 2006.
4. FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
4.1 RBS has a tradition of involvement in
financial education. We celebrated last year the tenth anniversary
of our programme to provide financial education materials—and
trainers—to schools through our Face 2 Face With Finance
programme. We invest £1.2 million in this programme each
year. It involves over 500 of our retail staff being trained to
help teachers in schools to deliver to 11-18 year olds a teaching
programme about personal money management and enterprise. In 2005
alone the programme helped deliver lessons to over 250,000 schoolchildren
nationally across nearly 1,000 schools.
4.2 We are founding supporters of Services
Against Financial Exclusion (SAFE), an integrated programme of
financial education for adults through the development and pilot
of `step by step' financial education material and the delivery
of training programmes and outreach work.
4.3 We recognise also the importance of
providing independent money advice to those who find themselves
in financial difficulties. We are the largest corporate supporter
of the Money Advice Trust. We have funded as part of a six-year
programme the advice sector's "wiseradviser" programme
to their over 5,000 front-line advisers working for organisations
like the Citizens Advice Bureau. This has helped improve the quality
of advice given to over 1 million people suffering from financial
hardship. We fund the provision of debt self-help packs distributed
through local CABs. And we work with a range of charities to advise
and improve the financial awareness of vulnerable groups like
disadvantaged young people, single parents, people with mental
health issues and those running small businesses.
5. OTHER ISSUES
5.1 We would highlight the following:
i. It is firmly in our interest to provide
bank accounts for all who want them. But more research is needed
on the distinction between the unbanked and those who do not wish
to be banked—and the reasons why they may not wish to have
a bank account—if the Government's target for extending
basic bank accounts is to be realistic. This falls within the
scope of the Financial Inclusion Task Force, with which we work
closely. There is scope for a great deal of helpful work in this
area.
ii. There is a level of credit provision
which it is impractical for the banks to provide. That is why
other means to provide credit through intermediaries have to be
found. There is unlikely to be a single means of delivery available,
and different local models may be better suited to different contexts.
A "mixed economy" of possibilities is needed. We should
therefore avoid making too many assumptions about the inherent
suitability of traditional banking relationships, or traditional
banking products, for all those who at present do not have access
to them. This is a point recognised by many examples of research
in this field[303].
iii. The Government's approach to tackling
financial exclusion through the Post Office needs greater clarity.
The banks were called on to provide large sums of money to fund
the Post Office Card Account. But the POCA was then designed in
a way that does not support credit scoring and which in practice
handicaps the ability of those who hold a POCA to access credit.
Moreover, the Post Office has limited the functionality of the
POCA by refusing to allow card-holders to make withdrawals from
LiNK ATMs. The Government does not consider those with POCAs to
have a functioning bank account, despite the obvious usefulness
of the POCA to those who have them, and the future of POCAs after
funding ceases in 2008 is now very uncertain. It is not clear
whether the Government genuinely wishes to see the Post Office
play the longer-term role in tackling financial inclusion that
its history, customer base and network would appear to suit it
for.
iv. The banking sector has a strong long-term
interest in financial education. We plan to make much more widely
available our own financial education teaching materials (described
in paragraph 4.1) to targeted groups in need. But the industry
should not be held responsible for delivering skills which relate
primarily to basic literacy and numeracy—skills which should
remain firmly the responsibility of the education system. And
we value our freedom to develop our own creative programmes to
reach specific targets, in the way we have used the RBS Face 2
Face with Finance programme to reach schoolchildren and our partnership
with The Prince's Trust to reach disadvantaged young people.
Appendix 1
A1. FAIR FINANCE
A1.1 Fair Finance is the new name for The
East End Reinvestment Trust (EERT), formerly The Tower Hamlets
Environment Trust (THET). Until the middle of last year the body
offered low value loans and debt advice to only businesses in
low-income communities. Trading under the name Fair Finance, it
has extended its services to personal customers.
A1.2 As part of a THET pilot project, loans
and financial advice have been offered in this part of London
since 2000. RBS helped to establish the initiative by providing
£5,000 to capitalise a loan fund for lending to African and
Bangladeshi women unable to obtain a loan from a bank. In 2001
an interest free loan of £20,000 from our Community Finance
Fund was made available to provide further loan stock for small
business lending.
A1.3 In 2003, the EERT Steering Group was
formed to investigate the financial needs of communities in East
London. Community bodies, banks—including RBS—the
FSA and the Treasury were involved in the process. The Steering
Group completed its study in October 2004. The name was changed
to East End Fair Finance (trading name Fair Finance) and a new
kind of business took shape. Fair Finance was registered in December
2004 with a set of guidelines and procedures negotiated between
it and the FSA, and an accountable board was put in place. A member
of the RBS Community Development Banking team is vice-chair of
the board.
A1.4 The new business is extending the availability
of its products and services to personal customers. The long term
plan for Fair Finance is to secure enough private investment from
corporate, social and individual investors to capitalise the loan
fund to a level of sustainability, free from financial dependency.
It aims to advance financial education through mutual self-help
and to provide an opportunity for public spirited individuals
and organisations to contribute financially to deprived communities
with the expectation of social dividend rather than personal reward.
The RBS/NatWest Community Finance Fund has agreed to provide a
further £20,000 for personal lending. Local partners include:
Circle 33 House Association, Environment Trust, Esmee Fairbairn
Foundation, First Fruit, Quaker Social Action and Toynbee Hall.
A1.5 The initiative offers a range of products:
— Business loans of up to £5,000
— Personal loans of up to £1,000
— Free and impartial advice
— Provision of guarantees or indemnities
to help people borrow money from mainstream lenders
— Introducing other lenders to people
who wish to borrow money
A1.6 Fair Finance is available at present
only in Tower Hamlets, Hackney and Newham. If the model is proved
to work, the intention is to roll it out more widely.
January 2006
302 The Committee may be interested to see Appendix
1, which sets out the detail of this scheme. Back
303
For example see: Kept Out or Opted Out?, Kempson, E. and
Whyley, C., March 1999, Policy Press. Back
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