House of Commons |
Session 2008 - 09 Publications on the internet General Committee Debates Saving Gateway Accounts |
Saving Gateway Accounts Bill |
The Committee consisted of the following Members:Chris Stanton, Sarah
Hartwell-Naguib, Committee
Clerks attended the
Committee WitnessesHelen
Banks, Policy Director, Retail Division, British Bankers
Association Adrian Coles, Director
General, Building Societies
Association Alan Cook, Managing
Director, Post Office Ltd Mark
Lyonette, Chief Executive, Association of British Credit Unions
Ltd Kevin Seller, Head of Government
Services, Post Office Ltd Public Bill CommitteeTuesday 27 January 2009(Afternoon)[David Taylor in the Chair]Saving Gateway Accounts Bill4.31
pm The Committee
deliberated in
private. 4.37
pm On
resuming
The
Chairman: I remind Members and witnesses that we are bound
by the deadline that we agreed this morning, which means that
todays sitting must end by 6.30 pm at the latest. If necessary,
I shall interrupt Members or witnesses in mid-sentence.
We shall now
hear evidence from Helen Banks of the British Bankers Association;
Adrian Coles of the Building Societies Association; Mark Lyonette of
the Association of British Credit Unions Ltd, Alan Cook of Post Office
Ltd; and Kevin Seller, head of Government services for Post Office Ltd.
You are most welcome. We are grateful that you have given us your time
and experience this afternoon. We look forward to hearing your
evidence.
First, I ask
you all to say a couple of sentences about yourselves, so that we know
what your involvement with the legislation might be.
Helen
Banks: Good afternoon, Mr. Chairman. I am
Helen Banks from the British Bankers Association. I am a director on
its retail team, with specific responsibility for financial inclusion
and financial capability matters among others. I have seen the Bill
through its consultation stages.
Adrian
Coles: I am Adrian Coles, director general of the
Building Societies Association. We represent the mutual building
societies in the UK. They have a good record in promoting the
individual savings account and the Child Trust Fund. We therefore have
a natural interest in the legislation.
Mark
Lyonette: I am Mark Lyonette, chief executive of
ABCUL, the credit union trade association. The 500 credit
unions have just over £600 million in savings, some of which
will obviously be for people in exactly this target audience.
Alan
Cook: I am Alan Cook, managing director of Post
Office Ltd. As you may well know, we have 11,500 branches and a growing
aspiration to be a key player in the financial services market and, in
particular, to make a worthwhile contribution to the financial
inclusion agenda for this country, in which this account appears to
play a
part. Kevin
Seller: I am Kevin Seller, head of Government
services for the Post Office, so I have been engaged in conversations
with the Treasury so far in terms of the role that I hope the Post
Office will play in developing these accounts and offering them to
citizens.
The
Chairman: We shall open with questions. First, we shall
ask about provision of services, sales and interest. It will help our
witnesses and me as your Chairman if you indicate whether the question
is aimed at a specific person or is open to the whole panel. I shall
ask Mark Hoban to
start.
Q49
Mr.
Mark Hoban (Fareham) (Con): This question is for all of
you. We heard this morning about why the saving gateway product is
attractive to potential savers. There may be demand out there, but will
there be supply? I think that so far only the Post Office has indicated
that it intends to provide a saving gateway account. Can you say, from
your various organisational perspectives, where you see the costs
arising on the gateway accounts and how attractive they are for the
bodies that you represent? Perhaps we can start with Helen and then
work our way along the
panel. Helen
Banks: First, there is a fundamental objective of
providing a savings facility to people on a low income, and the banks
have certainly supported that as part of our overall financial
inclusion agenda. You are talking about the specifics and how the
product might work in terms of cost of provision. It is fair to say
that it will come at a cost. A lot of the work that we have been doing
has been about trying to make it as economically viable a product as
possible. The benefits to the banking members who decided to provide it
would be around reputation, rather than a commercial product earning a
particular return for the
banks. Adrian
Coles: Certainly some building societies will offer
this product, but not all of them. Those who are inclined not to offer
the productof course, we do not know until we have seen the
full set of regulationstend to say that the market will be
small and the costs will be high. We know that the maximum estimated
size of the market is £260 million. That is about 0.6 per cent.
of the flow of new deposits in 2007, yet some
aspectsthe requirement to give statements, the transfer of
accounts between different types of institution during the two-year
period, the requirement to provide information to Her Majestys
Revenue and Customs and so oncould lead to significant costs on
fairly low-balance products, so for many societies, the jury is
out.
I am certain
that some societies are sympathetic to the product and will want to
offer it, but others, in the current environment of low profitability,
low margins, difficulties in the mortgage market and very low interest
rates, may decide to stay out of the
market. Mark
Lyonette: Many of our members would be very keen to
offer the account. We may not have some of the same systems costs as
banks and building societies in terms of development of banking
platforms, but we see the cost of collection as quite significant, in
so far as our members would want to encourage take-up, we would try to
move away from cash collection and make use of the more cost-efficient
ways that we have of collecting money from people on low incomes. We
will look to make have payroll deduction agreements with employers of
people on low wages. Similarly, for people who are paying their benefit
into the credit union, we would look to have deductions from benefit,
because even with our cost structure, which obviously is very different
from that of Adrians and Helens members, we cannot look
to make this work on cash collection. The cost of collection is not
sustainable, in our view.
We also think
that the mechanisms for deducting from peoples wages and
benefits have another advantage, which is that they are incredibly
convenient. One of the things that the credit unions have learned over
the years is that savings are not just about return. Convenience also
encourages saving. It is also aboutthis is particularly
important in current timesperception of safety. To get people
to part with their savings, you need those three things. Convenience is
key, not just the 50p match, so we will look to partner more with
larger employersin fact, with all ranges of employers. We want
to see if we can collect savings in a way that is very easy for
peoplelike falling off a log, is how we like to describe
itand to make it as cheap as possible for the providers and
credit
unions. Alan
Cook: The Post Office has been very clear that we
would be keen to participate in this initiative. As I said in my
introductory remarks, this goes to the heart of the Post
Offices role in terms of financial inclusion. We have the best
part of 4 million customers still collecting benefits in cash from post
offices. We think that 1.5 million of those are probably eligible for a
saving gateway product in their own right. We are actually paying the
benefit in cash over the counter.
I would not,
though, want to trivialise the cost issue. I might lie somewhere
between ABCUL and the banks. I would need to find a partner to provide
the administrative capability and would pay that partner to do the
work. That partner might well belong to one of the other associations
at this table. The economics are there and need to be tackled. The Post
Office believes that it would be a good thing to do, and that we need
to find a way to make it work. We would expect, probably, to take a
significant market share of the accounts, which would of course make it
easier.
Q
50Mr.
Hoban: I want to follow up on a couple of points that have
been made. First, Helen, you talked about some of the things that you
would like to happen to reduce the cost. Could you go into a bit more
detail about what you would like to see in legislation to reduce the
cost to banks in providing the accounts? I guess that that question
applies to all of
you. Helen
Banks: Yes, of course. The Bill has already taken
into account a number of the views that we expressed on the early
proposals. It is important to say that we have been working with the
Treasury for some time on this. We had some issues with the complexity
of matching or maturity payments, for example.
In terms of
where we sit now, our members remain concerned about one or two key
issues. At the top of the list is transferability and the complexity
that it will add to systems developments. The transfer process will
probably have to be a manual workaround, and, of course, those are
always more costly than automated systems. That angle is slightly
complicated by the need to provide the history of an account in order
for the new provider to do the maturity calculations at the correct
time and to include such information in statements and so on, which
would be passed from one provider to another. That is one of our key
concerns about complexity.
Other
questions remain about the regularity of statements and the information
required in them, for example. At the moment, we are talking about a
six-monthly statement, which I think is fairly widely accepted.
However, if prescription of information required in the statement is
particularly onerous, an additional systems build, and therefore more
cost, would result. Anything where we have to develop systems comes at
a cost,
frankly. Adrian
Coles: I agree with all of that, but is there a
requirement for six-monthly statements? Let us suppose that you offer a
passbook account, in which customers have in their hand, any time that
they want to look at it, a statement recording all their payments. Why
then force the savings provider to go to the trouble of posting an
additional statement? Again, that would be too prescriptive. One or two
things can be left to the discretion of the customer and the
institution, without being in the
regulations.
Q
51Mr.
Hoban: Alan, it sounds like you have gone the furthest in
looking at this, and yours is the only body to have expressed an
interest. What share of the market do you think that the Post Office
would need to make the operation economically
viable? Alan
Cook: That is a tricky question to answer, because it
is not yet clear to me how it can be economically viablefull
stop. If we obtain a larger market share, it is easier to produce a
justification for doing it. I can only really look at this in the
context of broader financial inclusion, of which this is a component.
If I ask it to stand up in its own right, what you are hearing from the
other witnesses is that it is quite tough. There is quite a lot of
administration running off very small average balances, which makes it
difficult to make the thing pay.
Q
52Mr.
Hoban: Are we in danger of repeating the mistake made with
Santa products, which were low-cost, simple products that were not
attractive to providers to
retail? Alan
Cook: That is the potential risk. If there is
over-prescription, you will introduce extra costs. We do business in
different ways with our customers, and we should allow the
organisations to play to their strengths. Our strength is face to face,
for example, as Mr. Lyonettes would be, although he
may be working for employers, from what I hear. Mr. Coles
already made the point that there is a tendency to have a passbook, for
instance, for building society accounts and other assets. If we are
very prescriptive, we will force everyone to do things in exactly the
same way, and it will rise to the highest average cost if we are not
careful. The fundamental problem with all financial inclusion
initiatives is that the average amount of money handled will be quite
small, and the cost is not really any less just because it is a small
amount of
money. Mark
Lyonette: Even we are looking, to some extent, for
hidden subsidies, although not Government cash. We have worked a lot
with the social landlord sector, and they are very keen on it. The
Chartered Institute of Housing did a big report on savings with rent, a
point at which people are parting with money anyway; a small amount can
be added if they agree to do so. We may be looking for social landlords
to do some of that collection business for us. They are doing that not
because the Government or the customer will pay them but because they
have an interestpresumably often a strong business
interestin the wider financial inclusion
agenda. There
may be other people who can play a part who are not necessarily making
it stack up on an incremental basis. From our perspective, we probably
have a slightly
different incentive from Adrian and Helens members. We can
mitigate some of the costs because it attracts customers that we would
like to serve. In so far as that substitutes for some of the costs of
acquisition, it is beneficial to
us. Kevin
Seller: I would only add that, as Alan said, our
advantage is that we have a lot of face-to-face contact with those
customers, so I do not think that attracting them will be an issue for
us. Our concern is that we might get an awfully large number of them
and exceed the Treasurys wildest expectations in terms of
take-up.
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©Parliamentary copyright 2009 | Prepared 28 January 2009 |