Memorandum submitted by the British Bankers'
Association
1. The BBA is the leading UK banking and
financial services trade association and acts on behalf of its
members on domestic and international issues. Our 219 members
are from 60 different countries and collectively provide the full
range of banking and financial services. They operate some 130
million personal accounts, contribute £35 billion to the
economy, and together make up the world's largest international
banking centre.
Executive Summary
2. BBA members have a continuing commitment
to the financial inclusion agenda, which they have demonstrated
in a number of ways; in particular through their participation
in initiatives designed to improve accessibility and advance the
shared goal of halving the number of households without a bank
account, such as Basic Bank Accounts, funding of Post Office Card
Accounts and the Saving Gateway pilot schemes. We believe that
the increase in confidence and financial knowledge that participation
in such schemes brings has the additional benefit of improving
take-up of other financial services, such as savings products.
3. The banking industry is active in the
area of shorter term savings and continues to be innovative in
developing simple, easily accessible products. These products
are of course regulated, provide protection for customers, and
therefore should be differentiated from the type of schemes typified
by the unregulated Christmas hamper market, which specialises
in schemes designed to lock in savings for a fixed period to facilitate
a planned one-off spend.
4. At the time of Farepak's collapse, the
BBA voiced their concern that many of the affected customers were
likely to be financially excluded and that this raised the issue
of the advisability of people taking part in unregulated savings
schemes outside the mainstream financial services. However, it
also points to the need to ensure that accessible and secure savings
products are available to service this market, and that consumers
are provided with clear information on the relative risks and
rewards of different products and schemes.
5. The BBA supports initiatives such as
the Saving Gateway and results of the pilot studies so far are
indicating that this type of scheme is capable of encouraging
more people to save. However, we are keen that there should not
be a "one size fits all" approach to shorter term savings
products and that innovation should continue. Banks are at the
forefront in designing savings products targeted at specific consumer
groups and taking into account their particular needs.
6. Financial capability is a key concern
in regard to consumers' understanding of the importance and benefits
of saving to enable better financial planning and management.
The BBA has participated closely in the work being driven by Government
in this area and banks provide wide-ranging support for initiatives
to improve financial literacy from childhood through to retirement.
The benefit of savings for all should remain a key part of this
agenda.
The Role of Saving in the Government's Strategy
on Financial Inclusion
7. HM Treasury has set out within its recent
report "Financial inclusion: the way forward" that financial
inclusion is about improving accessibility to financial services
to ensure that everyone is thereby enabled to: manage their money
effectively, securely and confidently; plan ahead and to cope
with financial pressure; and deal with situations of serious financial
difficulty. Ready access to a full range of banking and other
financial services will be required in order to deliver against
this agenda, including those relating to the provision of savings
products, which enable people to plan ahead to manage short-term
variations in income and expenditure and to cope during periods
of more serious financial pressure.
8. The BBA concurs with HM Treasury's view
of what financial inclusion is about and remains committed to
moving the agenda forward. Our members have, in particular, supported
the initiatives to improve accessibility to basic banking services
and, indeed, agreed a shared goal with HM Treasury in 2004 in
relation to reducing the number of adults in households without
a bank account. They have opened over a million Basic Bank Accounts
for people who had previously had no bank account at all, are
contributing £182 million towards the Post Office Card Account
and continue to fund free independent debt advice.
9. In our view, the increase in confidence
and financial knowledge that the provision of Basic Bank Accounts
brings to the account holders has an additional benefit in that
it also improves access to other banking services, including the
wide range of savings products available. This is borne out by
research recently carried out by HBOS, which has shown that the
proportion of their social banking account customers in deprived
areas also holding savings products stands at 31%. It is, of course,
part of the core banking model that our members offer savings
products on a short-term as well as long-term basis and with a
range of different features. We refer below to the wealth of savings
products currently available and to some of the innovative and
accessible products launched in recent times.
10. We would, however, emphasise the need
to maintain, and potentially increase, the breadth of offerings
within the savings field in order to reach those who might otherwise
be excluded from such products and in recognition of the different
needs of different consumer groups. For example, the document
prepared by Brian Pomeroy entitled "Review of Christmas savings
schemes" suggests that the particular features of these types
of schemes might make them more attractive to those on lower-incomes.
Such features generally include the fact that customers are "locked-in"
for a period of time leading up to Christmas and that savings
can ultimately not be withdrawn as cash, but rather as goods or
vouchers. Schemes of this nature may be inconsistent with the
more mainstream savings model offered by most banks, but there
are indications of products being developed to incorporate some
of these features. This is also an area in which credit unions
and the Post Office, with its wide network of outlets, have a
key role to play. The additional effects of people saving via
the credit unions being an increase in the funds then available
for lending out. We do agree that Government should continue to
encourage development of suitable savings products across all
regulated providers to broaden choices available to consumers
and ensure that consumers are properly informed of the relevant
features of such products.
The Role of the Saving Gateway
11. In principle, the BBA supports initiatives
such as the Saving Gateway that the Government has been piloting
as a tool for encouraging saving amongst lower income households
and for promoting engagement with mainstream financial services.
The Saving Gateway is structured as a fixed term, regular savings
account, with payments being matched by contributions from the
Government up to a ceiling. In its recent responses to the Committee,
Government has noted that the evidence from the pilots is showing
that incentivisation to save through matching might provide a
better framework for support of lower-income savers, for whom
tax benefits are often not applicable. We will be interested to
see how Government intends progressing this initiative and whether
there is an appetite for committing further funds.
12. The Halifax is the financial institution
given the sole responsibility for piloting the Saving Gateway.
HBOS has reported that over 23,000 accounts were opened by the
Halifax during the first pilot which, finished at the end of 2006,
and approximately half of all savers say they intend to continue
to save on a regular basis once the pilot is over. An independent
review of this pilot concluded that the scheme was capable of
encouraging people to begin saving on an on-going basis. The second
pilot is still underway and awaiting review by Government to decide
on the next steps, but the Halifax has noted their support for
the initiative.
13. We also note that consideration is being
given to incorporating features of hamper schemes, such as lock-ins,
to make the Saving Gateway more attractive to users of such schemes.
We have commented earlier on the need for there to be a wide range
of savings products available to consumers and suggest that more
work is done to understand the needs of specific target markets
for each product and not to attempt a "one size fits all"
approach. The key will be to ensure that consumers are made aware
of the availability of different savings schemes and products
and the risks and rewards associated with each.
The Role of Financial Capability in the Context
of the Shorter Term Savings Market
14. The BBA supports the Government's long-term
financial capability aspirations and considers that financial
capability skills are important across all areas of personal financial
management, including an understanding of the importance and benefits
of saving. We have participated closely in the work carried out
in this area to date and will be responding in due course to the
Thoresen Review's call for evidence. In this regard we commented
in our recent response to HM Treasury's consultation paper "Financial
capability: the Government's long-term approach" that a Generic
Financial Advice service should cover both debt and savings aspects
of a consumer's financial circumstances. We also consider that
the review should cover all types of saving schemes, including
those typified by the Christmas hamper schemes, which are not
covered by current financial services regulation.
15. Our members provide support to the provision
of financial education in schools through organisations such as
the Personal Finance Education Group, consistent with the view
that financial education should start at the earliest possible
stage with all children being taught financial capability skills.
Financial education is something that everyone should have a right
to, so that the next generation understands financial matters
better. However, this is not something industry can drive on its
own and we believe that the main thrust needs to come from Government
to ensure that financial education is available to all, by making
this a part of the core curriculum.
16. Banks also provide funding for organisations
such as the Money Advice Trust, the CAB and Toynbee Hall in addition
to offering free general advice to their customers, as part of
the drive to improve financial capability skills amongst adults.
There are numerous initiatives launched by the banks themselves
as part of their community projects to reach out to those who
might feel excluded from the financial system due to their lack
of understanding. We consider that it is important to build on
this work and provide a stronger focus on existing advice networks,
through additional promotion, resources and funding, before considering
any new developments in this area. This approach is most likely
to achieve early and better long term results in making advice
available to those who need it.
17. We have given emphasis above to the
need for a wide range of products to meet the need of different
consumers in relation to short-term as well as longer-term savings
requirements. We would therefore also suggest the need to provide
consumers with comprehensive accessible information and advice
on the relative merits and risks associated with such products
to enable informed choices to be made, whilst recognising that
the level of choice itself is likely to be off-putting to those
in lower-income groups. This may be particularly pertinent in
the case of consumers attracted to Christmas hamper schemes, who
may feel excluded from saving through the mainstream financial
system but may also not be aware of the associated costs and disadvantages
of hamper schemes, for example loss of interest.
Responses to the Recommendations Contained in
Chapter 4 ("Savings for all") of the Committee's Twelfth
Report of Session 2005-06 and in Paragraph 62 of the Committee's
First Report of Session 2006-07
18. Within the Government's response to
the Committee, we note the desire to restore consumer confidence
in the hamper industry for this year in the wake of the Farepak's
collapse, and that this is likely to be brought about by the establishment
of ring-fenced accounts to protect advance payments made to providers.
It is of course the case within the regulated financial services
arena that any money effectively held on behalf of clients is
afforded protection in some way. We think it is important that
the distinction between regulated and non-regulated providers
is made during any campaigns to inform consumers, together with
any special measures being taken to improve asset protection.
19. We have referred earlier to the Government's
response in relation to the pilot schemes on the Saving Gateway.
This is an area in which our members are likely to have some involvement
if it is decided to progress this initiative and, as noted, we
await the decision on whether or not further resources will be
committed.
The Design, Promotion and Regulation of Products
in the Shorter Term Savings Market, Including Hamper Products,
Christmas Savings Accounts and other Similar Products and Potential
Products
20. When giving consideration to the design,
promotion and regulation of all savings products careful consideration
needs to be given to target markets, specific features and likely
providers. There is currently a wide range of products available
and our members continue to be innovative in this field, as part
of the drive to promote the importance of the need to save on
a cradle to retirement approach. For example, the introduction
of Child Trust Funds was welcomed by the BBA and we support the
extension of the ISA regime.
21. In regard to shorter term savings products
in particular, reference to the products listed by Moneysupermarket
indicates over 4,000 savings products, of which almost 2,500 are
classified as "easy access". It is clear that there
is no shortage of accessible shorter term savings products and
additional products continue to be developed. However, the focus
of future promotion activity will need to be on clarity of what
is on offer. In particular, people at the lower-income levels
might need more help in assessing what is an appropriate savings
product and this should be considered as part of the generic financial
advice solution.
22. Our members continue to make their products
more accessible and attractive to consumer groups across the social
spectrum, to encourage saving at every level. Lloyds TSB launched
their "Save the Change" scheme whereby every time a
debit card is used the amount is rounded to the nearest pound
and the "change" placed into a savings account. As part
of its financial inclusion agenda, the Halifax is piloting a Christmas
Savings Account to its social banking customers, where savings
can be taken out in the form of cash or high street vouchers,
but with the protection of the Financial Services Compensation
Scheme. To encourage savings, Barclays includes a savings account
application with their Basic Bank Account ("Cash Card")
brochure and enables regular savings by standing order for any
amount. This segment is also attracting newcomers, such as ING
Direct who offer "simple" savings and other products
which can be operated by phone as well as online.
23. BBA members are clearly active in this
area and it is possible that more will consider offering products
with some of the specific features seen in Christmas hamper and
other similar schemes. It is important to recognise that these
schemes do provide a means of saving for those who, for one reason
or another, may not feel able to participate in the mainstream
financial market. Other providers are entering into the hamper
market and may be more suited to provide products with the relevant
features sought by consumers (eg credit unions and some major
retailers) and the Post Office is also well-placed in this respect.
24. In regard to the regulation of shorter
term savings schemes particular attention needs to be given to
the range of methods of saving, which may not all be captured
under the normal definitions of a savings product. For example,
money paid under Christmas hamper schemes is not currently afforded
any protection as the schemes are not considered as savings schemes
in regulatory terms, but as advance payment for goods. Nevertheless
consumers taking advantage of such schemes inevitably will consider
that they are saving. It is clear that such schemes require better
protections to be put in place for customer assets, as is the
case for money held within mainstream financial products, particularly
as the people attracted to such schemes are likely to be less
well-able to bear any losses occurring.
25. The BBA and its members will continue
to support initiatives in this area and to develop innovative
shorter term savings products in the hope of encouraging savings
amongst those who may currently feel financially excluded.
April 2007
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