2Increasing financial inclusion
Basic bank accounts
21.The FCA has published research estimating that 1.3 million UK adults are ‘unbanked’, meaning they do not have a bank account.14 The Committee took evidence to understand whether those that are unbanked experience any preventable barriers to opening a bank account. In written evidence to the Committee, the FCA highlighted potential barriers to consumers having access to a bank account:
- Consumers may have difficulty proving their identity, for example, those with no permanent address or who move often, those who do not have a passport or driving licence or UK paper utility bills in their name.
- A third of unbanked people have had a bank account before and do not want one, for example, because they have got into difficulty with an overdraft.
- There are consumers who may need help to open an account, for example those who are illiterate.15
22.Since September 2016, under the EU Payment Accounts Directive, all UK banks have had an obligation to consider applications for a ‘payment’ account by any EU consumer equally and without discrimination. Where other accounts are unsuitable, including for those currently excluded from mainstream banking, a basic bank account will be provided.16
23.The basic bank account was designed to offer basic functionality and enable consumers to access these services, even if they had a relatively low credit score. In oral evidence to the Committee, Baroness Tyler of Enfield, Chair of the former House of Lords Committee on Financial Exclusion, noted the recommendations from that Committee’s report, stating that more needed to be done by providers to promote basic bank accounts:
The evidence we received showed that some [banks] were probably doing their best or certainly doing something. Others were doing next to nothing. That meant those that were doing something started to feel the cost burden was falling unfairly on them, because clearly it is not a money-making venture. To do it, there needed to be more incentive, either a carrot or a stick, for all banks to do their fair share.17
24.In 2016 the Government designated the nine largest providers of current accounts in the UK18 as legally required to offer basic bank accounts to eligible customers.19 However, Robin Bulloch of Lloyds Bank told the Committee that these accounts were not making money for the banks:
The basic bank account is free. It provides a basic banking provision, but the cost to us is not dissimilar from other products that provide a basic current account provision. […] These are not commercially advantageous products for us to have.20
25.Treasury data shows there were 7,455,960 basic bank accounts open as of 30 June 2018.21 The loss-making nature of basic bank accounts and the nature of cross-subsidisation between different products, was highlighted by Citizens Advice:
Customers of banks with disproportionate numbers of basic bank accounts theoretically cover the costs of those accounts. […] That means the cross-subsidy for loss-making consumers isn’t deliberately, or fairly allocated. For instance, in its strategic review of the personal current account market, the Financial Conduct Authority found that small groups of consumers pay a very high price for current account services. Two groups—heavy overdraft users and those with large non-interest bearing balances—are the most likely to pay over the odds.22
26.Citizens Advice carried out extensive research on access to basic bank accounts and found a number of issues:
- Basic accounts are still not visible enough in all banks, so some people won’t know that they exist. This is compounded by the fact that not all banks allow people to apply for a basic bank account when consumers think they would benefit from one.
- Banks’ processes for determining what account to give someone rely too much on credit checks. People who would benefit from a basic account—people in debt for instance—are sometimes not offered one. In some cases, people with a legal right to a basic account are still unable to access one.
- Applying for a basic account is still too difficult. Branch staff are not always aware of what their bank offers and so give incorrect information which may mean people don’t open a basic account when they need one. Some banks’ requirements for proof of identity are still too inflexible and place unrealistic expectations on consumers.23
27.When the Committee asked the FCA whether customers should be entitled to a basic bank account even if they could be eligible for a normal bank account, it confirmed that there was variation between banks and that the regulator was “taking an active interest in the issue.”24
28.In addition to the issues around awareness and eligibility of basic bank accounts, the Committee received a number of written submissions stating that consumers struggled to open basic bank accounts due to a lack of identification. The Money Advice Service wrote:
Banks still need to verify people’s identity when opening these accounts, presenting continued access difficulties for people who do not have specific forms of identification, such as a passport or a driving licence. There are alternatives which can be used as proof of identity such as a letter from the DWP or HMRC. However, people are often not aware of these other options and banks do not always accept the same forms of identification across the board.25
29.Tom Blomfield, Chief Executive and Founder of Monzo, told the Committee that there were many types of identification that banks were permitted to use, but that banks had been poor at putting this into practice:
Part 2 of the Joint Money Laundering Steering Group’s guidance lists over three pages the different forms of identification that you could choose to accept, if you wish to, and reminds banks of their duty to support financial inclusion. For example, for someone who has come out of prison, it might be the warden of the home where they are staying. For a refugee, it might be that Application Registration Cards can be used for identification. For homeless people, it might be that the management of the shelter they are in can write a letter and they can use that for identification to get a bank account. The problem is that these are not standard documents that go through an automated process, and so we have not done enough yet to support them.26
30.Basic bank accounts should be accessible to all consumers regardless of whether they are eligible for another bank account or not. To that end, the Committee recommends that all basic bank account providers should relax their opening restrictions on these accounts immediately, and recommend the FCA mandate banks to do so.
31.All financial services providers who provide current accounts should act immediately to ensure that staff are trained to direct consumers who are rejected for a traditional current account towards a basic bank account, even if this would be with another provider.
32.The Committee recommends that the FCA requires financial services providers to report how many basic current account openings they have rejected and the reason why. This information should be published bi-annually to increase transparency and oversight.
33.The Committee recommend that the Treasury and the FCA consult on bringing in a standardised list of identification papers that are acceptable as identification for a basic bank account and that financial services providers should accept as many forms of identification as possible, and think creatively about more forms of identification that could be accepted.
The role of consumer education
34.The Committee received evidence that some progress has been made regarding financial services providers offering help to consumers to educate them on how to access services online. In written evidence to the Committee, Barclays Bank discussed the progress it had made with its ‘Digital Eagles’ programme:
We recognise the importance of supporting the transition to digital banking of those who are less digitally savvy. Our nationwide network of Digital Eagles has led the industry on digital empowerment since their formation in 2013. We now have over 18,000 individuals qualified as ‘Digital Eagles’, and thus experts in all-things digital banking. They deliver a wide range of future skills no matter where consumers are on their digital journey, and importantly, also support consumers to stay safe online.27
35.In contrast, Sian Williams, Director of the Financial Health Exchange, Toynbee Halll, told the Committee that some of the digital help schemes are somewhat of a “postcode lottery”:
It is part of being a responsible financial services provider and I would much prefer to see money going from firms to a shared pot so that we do not have a postcode lottery about the fact that you have a great branch of Barclays here but a bad branch of Barclays over there, or some other firm. I would much rather see that learning done well, shared and mapped across the country, because we have huge pockets of deprivation where that is not being provided. If there is no branch, how do you get it?28
36.It is important that consumer education programmes are more organised to ensure a good coverage across all UK regions as well as across different consumer groups. The Committee will continue to examine and scrutinise the Government’s approaches to financial literacy in a wider context.
Self-exclusion spending and lending blocks
37.The Committee received evidence that there is benefit in providing customers with tools to prevent them spending money on specific items. For example, in oral evidence to the Committee, Tom Blomfield described Monzo’s gambling block and the assistance it provides:
We introduced the gambling block because our customers were asking for it. We have a vulnerable customers team, which works with customers of all kinds of vulnerability, and we noticed a growing incidence of people with gambling problems. Our vulnerable customers team itself came up with the proposal and, honestly, it may have taken a week or perhaps 10 days to build it. The cost was four salaries for 10 days. We are not talking millions and millions of pounds here.
We worked with a couple of gambling and debt charities to make sure the mechanic was right. This is the ability for a customer to opt out. […] Often people with various mental health disorders will, late at night, for example, want to re-enable it but then the next day decide they really do not. That cooling-off period is crucial and is the thing that has been really welcomed. As of yesterday, we had 58,000 [about four to five per cent of its customers] people who had enabled the gambling block. That is not to say that 58,000 people necessarily had gambling problems; some simply wanted to turn it off.29
38.Tom Blomfield also told the Committee that Monzo was restricted from helping consumers further owing to a lack of data provided to financial services providers by retailers:
When a transaction comes through the card network, we get very high-level data—things like the total amount, the merchant category code, some location data and that is about it. In blocking alcohol, for example, we would be able to block off-licences, which would be a pretty good coverage. The problem is if you go to a supermarket, for example. We do not want to block your Shreddies. There is a solution. The solution is what is called level-three data. Any retailer has the option to include, in that message, line-item data on what you are buying, so not just that you have bought a flight, but the flight details, or not just £100 at Tesco, but you bought a case of beer and your Shreddies.
Most retailers choose not to include that data. If they were encouraged or even mandated to include that level-three data that would enable us to do things like block the purchase of alcohol for under 18s or self-exclude from alcohol purchases. The retailers do not want to give up this data, because they believe it is commercially sensitive. We believe it is the customer’s data. It has immense utility for things like submitting tax returns or budgeting, so knowing how much you are spending on alcohol versus entertainment or whatever.30
39.Katie Evans, Head of Research and Policy at Money and Mental Health Policy Institute, described to the Committee the benefits of self-exclusion blocks could be for consumers with certain mental health problems:
We know of people who are using cash to manage spending when they are unwell because they cannot turn on clever settings on their cards. At best, I have heard of people literally putting their credit cards in a Tupperware full of water and putting it in the freezer, which is fantastic: how clever for someone to come up with that system for themselves, to try to put in place the friction they need when they are unwell.31
She went on to give examples of when such blocks might be needed:
We are particularly concerned about the steps creditors can take further up the chain to avoid people getting into problem debt. To take an example, say you are in the manic phase of bipolar disorder. Bipolar disorder does not affect a very large number of people; it is one to two per cent of the population, but a clinical symptom of the manic phase of bipolar disorder is drastically increased impulsivity.
We hear stories of people going out and buying five sports cars in a week, all on credit. We know it is technically possible, to put things in place that allow people to protect themselves against that type of spending. We are not, I do not think, seeing progress quickly enough. For example, something we would be really interested in is whether it would be possible to utilise the existing notice of correction scheme around credit referencing to let people put a proactive block in place that says, “I do not want you to lend to me. Please do not lend to me”, or to block themselves from increases in credit card limits, advertising for credit cards, all those mechanisms by which people get into difficulty when they are unwell.32
40.The Committee welcomes initiatives such as Monzo’s voluntary block on gambling transactions, and urges other financial services providers to follow this example and introduce self-exclusionary gambling blocks of their own. In addition, they should offer customers the opportunity to exclude themselves either from borrowing altogether or from spending excessive sums of money in short spaces of time.
41.Although there are obvious concerns about the privacy of consumer data, making more use of level-three transaction data—in order to allow consumers to set up spending blocks on items such as alcohol—should be explored. Allowing financial services providers access to such data—with the informed consent of consumers—could provide significant opportunities for additional consumer self-protection.
42.UK Finance should work with financial services providers to find ways to increase the variety of self-exclusion spending and lending blocks available to consumers.
Delegated authority and power of attorney
43.In the financial year 2018-19, 749,000 Lasting Power of Attorneys were registered with the Office of Public Guardian. This represented a 63 per cent increase in annual registrations since 2016-16, when 459,000 were registered. In total, as of May 2019, there were 3,998,000 Lasting Power of Attorneys registered.3333
44.The Committee received a large amount of evidence on the roles that delegated authority, power of attorney, and carers play in assisting access to financial services for vulnerable consumers. In particular, the Money and Mental Health Policy Institute submitted evidence on the need for greater options to help those that require third party access mechanisms to be enacted:
Carers often struggle to access account information or to communicate with firms on behalf of the person they care for, meaning that they must either spend long periods of time working through systems together—particularly challenging as most people who care for someone with a mental health problem do not live with them—or rely on risky workarounds. Half of carers for people with mental health problems know someone else’s PIN (52 per cent), and one quarter know someone else’s online banking password (23 per cent). Legal tools like Power of Attorney are often seen as inappropriate or disempowering by people with fluctuating mental health problems.
[…] It is understandable that firms might be cautious about engaging with carers without a Power of Attorney, due to concerns about data protection and privacy, but the lack of appropriate third-party access mechanisms risks exposing people who are already struggling with their mental health to financial harm too. We urgently need financial services providers to build processes and settings which allow people to share financial management tasks with a friend or family member in a transparent way, without putting either party at risk.34
Proposed remedies included:
- Online read-only account access for a third party,
- Notifications to a third party—for instance for transactions beyond a certain threshold,
- Ability to delegate limited account tasks—for instance the ability to pay existing payees,
- Dual authorisation of transactions—particularly for people who struggle to control their spending, and
- Carer Cards with limited permissions—as announced by Barclays in 2017.35
45.Age UK also submitted evidence on the merits of a carer card, which would benefit those who need carers to purchase goods and services on their behalf:
In our 2011 report, “The Way We Pay” we recommended that ‘carers cards’ with an audit trail that can show who has spent the money on it and the ability to limit payments should be launched. No such card has yet been launched, although at least one bank is intending to do so and cards with spending blocks for problem gamblers are now available.36
46.The Committee asked Nisha Arora, Director of Consumer and Retail Policy at the FCA, for her views on the role power of attorney could play in assisting consumers. She told the Committee that due to the complexity around the rules, firms and consumers found them confusing, but more work was being done to improve their usage:
There is a lot of confusion, because there are different types. There are lasting powers of attorney, a third-party mandate and then consumers turning to informal coping mechanisms. Yes, they could be great, but they also bear risks around them. Both firms and consumers were finding them quite hard to navigate and understand what the evidential requirements are, seeing inconsistencies in what evidence was needed and how firms would deal with those situations.
Two initiatives have happened. One is that UK Finance has published some principles around third-party access. Those are meant to be implemented fully in March this year, but actually the Lending Standards Board has already initially reviewed that and seen quite good progress. There are still issues around that and people still having to go into a branch to register. We are also working with the UK Regulators Network to try to get some more consistency on this issue between regulators, bearing in mind that the financial services sector might bear greater risks compared to other sectors. That will also help frontline staff really understand these issues. A lasting power of attorney may not be the thing for everyone; there may be other flexible options. It is giving staff the confidence to use those flexible options to meet consumer needs, but then bearing in mind the risks that might come with, say, a family or friend who might be trusted or might not be.37
47.In its written submission the FCA said that it had found that third-party assistance and access to individuals’ finances were not working well, and that the FCA had asked UK Finance to report back on how banks were changing their approach:
Processes and systems did not appear to be optimised for third-party access and that problems with engagement for a Lasting Power of Attorney often resulted in consumers resorting to workarounds to make financial transactions. In June 2017, following commitments form the then British Banking Association’s vulnerability taskforce report, eight of the UK’s biggest high street banks and building societies agreed to implement a new set of third-party access principles. These are designed to help improve the experience of customers and outcomes. We encouraged UK Finance to measure and transparently assess the effectiveness of the principles 12 to 24 months after their publication.38
48.The Committee recommends that the Government and the FCA consult on how the use of power of attorney works in practice with regard to financial services, and whether the current powers that exist are fit for purpose. The wider use of carer cards should be explored and encouraged by the FCA.
49.The Committee expects UK Finance or the FCA to carry out a review and report back on the effectiveness of the FCA’s third-party access principles—committed to by the UK’s high street banks in 2017—by the end of 2019.
14 FCA, The financial lives of consumers across the UK Key findings from the FCA’s Financial Lives Survey 2017, 20 June 2018
18 Barclays, Clydesdale and Yorkshire Bank, Co-operative Bank, HSBC, Lloyds Banking Group (including Halifax and Bank of Scotland brands), Nationwide, Royal Bank of Scotland (including NatWest and Ulster Bank brands), Santander, TSB.
19 HM Treasury, ‘UK compliance with the EU Payment Accounts Directive’, 18 September 2016
21 HM Treasury, Basic bank accounts: July 2017 to June 2018, December 2018
23 Citizens Advice ‘Getting the Basics Right’, February 2017, Page 2
Published: 13 May 2019