Written evidence from the Association
of British Credit Unions Limited
1. EXECUTIVE
SUMMARY
1.1 The Association of British Credit Unions
Limited (ABCUL) welcomes the opportunity to provide evidence to
the Scottish Affairs Committee's Inquiry on Postal Services in
Scotland. ABCUL is the main trade association for credit unions
in Scotland, England and Wales. As a co-operative, ABCUL is owned
and democratically controlled by its member credit unions, who
in turn serve around 80% of Scotland's credit union members.
1.2 Credit unions are financial co-operatives
owned and controlled by their members on a "one-member-one-vote"
basis. They offer safe savings products and affordable loans,
with larger credit unions offering an increasing range of other
services including insurances, current accounts, cash ISAs and
mortgages.
1.3 Credit unions operate within a "common
bond" which determines who can join. This can be based on
living or working within the same area, belonging to the same
association (such as a trade union or religious group) or working
for the same employer.
1.4 It is widely recognised that to be sustainable
in the long term, the post office network in Scotland will be
required to provide a wider range of services than at present
to maintain footfall and generate higher value transactions than
those which make up the bulk of post office business at present.
ABCUL believes that there is great potential for expanding the
availability of financial services through the post office and
that this would be best achieved through a partnership with the
credit union sector. We are taking this opportunity to outline
to the Committee how this could be accomplished.
1.5 Internationally, there is a proven model
for credit union development which - following professional development,
strengthened governance and the flexible and proportionate application
of regulatory and legislative frameworks - rests on the development
of centralised shared services to enable credit unions to benefit
from economies of scale whilst retaining their localised nature
and autonomy.
1.6 With such a back-office system in place in
Britain, all credit union services could be made available through
the Post Office network. This would greatly increase the accessibility
and visibility of credit union services whilst providing a new
source of revenue to the Post Office network and boosting its
sustainability.
1.7 The development of the back-office system
and Post Office partnership require a one-off capital investment
of a few million pounds. Given its potential to address several
key areas of Government policy, this represents significant value
for money. The system would increase diversity and competition
in banking and address the present lack of universal financial
services provision, as well as providing a valuable new source
of custom for the Post Office.
2. CREDIT UNIONS
IN SCOTLAND
- BACKGROUND
2.1 British credit unions are legally constituted
under the Credit Unions Act 1979. They are regulated deposit takers
under the Financial Services and Markets Act (2000) with a specialist
regulatory sourcebook in place which sets the prudential framework
within which credit unions operate. Deposits held with a credit
union are guaranteed up to £50,000 (soon to be £85,000)
under the Financial Services Compensation Scheme and complainants
have recourse to the Financial Ombudsman Service.
2.2 The credit union sector in Scotland, England
and Wales has grown rapidly over the past 15 years or so. In the
decade to 2007, savings, loans and assets held by credit unions
had grown four-fold and membership trebled.[19]
As at the end of March 2010, credit unions in Great Britain were
providing financial services to 761,708 adult members and held
almost £600 million in deposits with around £475 million
out on loan to members. An additional 107,077 young people were
saving with credit unions.[20]
2.3 The credit union movement is especially strong
in Scotland. 113 credit unions are based in Scotland, serving
over 250,000 members with over £200 million in savings and
£170 million out on loan. So in Scotland, around 1 in 20
of the population are credit union members, as compared with around
1 in 66 for the whole of Great Britain.
2.4 Credit unions have been especially successful
in the West of Scotland, and in particular in the city of Glasgow.
The 34 credit unions based in Glasgow have a total of 135,000
adult members plus an additional 11,500 "junior savers",
and Glasgow's credit unions have combined assets of £185
million.[21]
Although a small proportion of these members are drawn from outside
the city, it is nonetheless fair to say that around 1 in 5 residents
of Glasgow are credit union members.
2.5 However, there is a great deal of potential
for the continued growth of credit unions in Scotland. In countries
such as the United States, Canada, Ireland and Australia, credit
unions are leading providers of alternative retail banking services,
serving between a quarter and three quarters of the population.
Globally, there are around 49,000 credit unions in 97 countries
serving 184 million members. [22]
2.6 Credit unions provide inclusive services
to the whole of their communities rather than simply the better-off.
In recent years, many credit unions have been supported by the
Government's Financial Inclusion Growth Fund to extend affordable
credit to those without access to fair financial services. However,
to sustainably serve the entire community including those on lower
incomes, it is essential that credit unions are able to offer
the competitive "mainstream" products and services which
will attract members from all income levels.
2.7 The imminent introduction of the Legislative
Reform (Industrial and Provident Societies and Credit Unions)
Order (LRO), having undergone an extended period of review and
consultation begun in 2006, will cement the significant legislative
and regulatory recognition already secured with a modern, proportionate
and flexible framework on a par with the best in the world and
removing significant barriers to growth. It is vital that the
LRO is passed as soon as protocol allows as many credit unions
and potential partners are keen to use the new legislation to
bring benefits to consumers.
2.8 The missing piece in the developmental jigsaw,
based on international best practice, is the development of a
centralised back-office system which would provide the economies
of scale necessary to bring great efficiencies and consistency
of service to the credit union sector, building capacity and resulting
in a step-change in credit union development.
3. FINANCIAL
SERVICES THROUGH
THE POST
OFFICE
3.1 ABCUL believes there is great potential for
the provision of a wider range of financial services through the
Post Office. However, the financial services currently available
at the Post Office, through the Bank of Ireland, do not meet the
needs of people on lower incomes. The Post Office Card Account
(POCA) provides a very basic service to allow for the collection
of benefits, but does not give people the tools to use the account
for many other purposes.
3.2 The minimum loan available through the Post
Office from its link up with the Bank of Ireland is £2000.
Loans of below this level are not generally available from mainstream
providers and people on lower incomes in need of short term, small
sum credit generally have few affordable choices on the high street.
A loan from a home credit provider can cost as much as ten times
more in interest than a credit union loan. High street rent-to-buy
firms also end up as an expensive option for lower income consumers
who are in need of large items for their homes.
3.3 Enabling credit union services to be available
through the Post Office network would ensure that appropriate
and affordable financial services would be accessible for all
users of the Post Office. This would assist the Post Office in
meeting the needs of all vulnerable groups at the same time as
increasing footfall in Post Offices and thereby increasing the
sustainability of the network.
3.4 Many credit unions have close links with
their local Post Office outlets and credit union members - especially
those in rural areas or those who may be excluded from mainstream
banking for a variety of reasons - often use and greatly value
both services. Many credit unions have arrangements in place with
local sub-postmasters to enable credit union members to access
cash at local Post Offices, and there are examples of even closer
co-operation such as in Glasgow, where Pollok Credit Union and
the local Post Office are run together from shared premises in
the busy Silverburn Shopping Centre.
3.5 We believe this existing natural synergy
and the potential for credit unions to fill the gaps in the Post
Office's existing financial services provision makes a convincing
argument for facilitating such a formal partnership. This would
require the establishment of a credit union back-office.
4. A CREDIT UNION
BACK-OFFICE
4.1 Shared back-office systems are commonplace
in the most developed credit union sectors around the world. By
pooling back-office resource, credit unions are able to tap into
otherwise unattainable economies of scale whilst retaining their
local nature.
4.2 Those services which the back-office might
provide include:
4.2.1 A common accounting platform for credit
unions enabling central treasury and liquidity management;
4.2.2 Central loan processing, credit control
and marketing resource;
4.2.3 Human resources, legal and compliance services
provided centrally;
4.2.4 Significant cost reductions in providing
more sophisticated products, including current accounts, pre-paid
debit cards, insurance, ISAs and mortgages;
4.2.5 Potential for centrally managed internet
and telephone banking.
4.3 A back office for the credit union sector
could allow many of the 450 credit unions currently working in
Britain to link up with 11,500 Post Offices through the Post Office
Horizon System. This would allow consumers to:
4.3.1 Walk into any Post Office branch and join
their credit union and/or carry out a wide range of transactions
in real time;
4.3.2 Respond to Post Office advertising and
join a quality credit union locally. The Post Office is a trusted
brand for people on low incomes and would be able to help individuals
comply with off-putting identity regulations for opening a "bank"
account;
4.3.3 Access affordable credit. Where appropriate,
Post Office staff could provide instant, responsible loans. Credit
union staff could pre-approve very small lines of credit (£30
- £400) that were affordable and convenient.
4.4 This would mean a member of any of Scotland's
credit unions using this back-office would be able to perform
real time transactions on their account not only in the 1400 Post
Offices in Scotland, but in any Post Office across the UK.
4.5 In Scotland alone, the number of "branches"
or "collection points" where people could join or make
credit union transactions would increase thirteen-fold overnight.
A greatly scaled-up credit union sector would help meet the Government's
commitment to promote greater competition in financial services
and to support a greater role for mutuals as part of a diverse
sector.
4.6 Making small sum affordable credit accessible
through the visible and trusted Post Office network has the exciting
potential to transform the financial services market for low income
people. It would challenge the high cost credit market which currently
takes hundreds of millions of pounds in interest from those on
lower incomes.
4.7 A collaboration with the Post Office, too,
would make inclusive, ethical financial services available through
the network which is already the leading provider of financial
services to those most in need of access to fair financial support
through the POCA. Pensioners, benefits claimants and small businesses
are the main users of the Post Office's services, and credit unions
have a strong role to play in serving these groups.
4.8 Each transaction carried out by the Post
Office would produce a transaction fee, creating a new revenue
stream for the network in addition to the increased incidental
sales caused by a general increase in footfall.
5. CONCLUSION
5.1 Expanding the range of financial services
available through the Post Office has an important role to play
in securing the sustainability of the network. For some time now,
ABCUL has been talking to Post Office Ltd about the possibility
of credit union services becoming available through the Post Office
network on a much larger scale than currently happens.
5.2 A back office for the credit union sector
would allow this to happen. As well as meeting Government aims
of increasing diversity in financial services, it would increase
footfall in Post Offices and greatly increase the availability
of affordable credit.
19 November 2010
19 See P. A. Jones, Breaking
Through to the Future, Liverpool John Moores University, 2008:
http://s.coop/breakingthroughtothefuture Back
20
Figures from unaudited quarterly returns provided to the Financial
Services Authority Back
21
Figures from Glasgow City Council Back
22
Figures taken from the World Council of Credit Unions' Statistical
Report, 2009. See: http://www.woccu.org/publications/statreport
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