Examination of Witnesses (Questions 280
TUESDAY 16 JANUARY 2001
280. But you see the danger. If they are told
on their statement that they have to allow seven days for the
money to be received and their statement to be cleared and the
statement is not posted until four days after the statement date,
they might have very little time to organise their affairs to
do that and you would benefit.
(Mr Hawkins) Speaking for myself, and I wonder about
members of the Committee, have you ever had a problem? I certainly
have not. I have plenty of time in which to send the cheque off
and have it repaid. If the Consumers' Association think there
is a widespread problem here, let us have details of it so we
can look at it. I certainly have not experienced it myself and
I am a card holder like, I hope, the members of the Committee.
281. You heard in the previous evidence session
witnesses say that what consumers wanted above all was product
price transparency. Would you accept that within the banking system
at the moment we do not have it?
(Mr Sweeney) Yes, I would. I think that transparency
is the key to effective markets, I have no doubt of that at all;
transparency with the ability to shift, which we touched on earlier.
One of the side effects of competition in the marketplace is a
variety of product offerings. Those product offerings can sometimes
be confusing to the consumer. The FSA are doing a lot of work
on transparency and product comparison. We certainly support that.
Getting the balance right between an effective industry thrusting
out new products and a well-informed consumer audience with the
right information is actually quite difficult, but it is my personal
view that there is more to be done on transparency.
282. In your view there is no reason why the
banking sector should not eventually achieve product pricing transparency.
(Mr Sweeney) No, I cannot think of any reason and
by and large it is to the industry's benefit. I think that there
is a slightly different angle on that which I might just touch
on which is the question of whether product pricing should always
be related to cost. There are very, very few markets in which
products are priced purely on the basis of cost. They are based
on all sorts of other marketing information and marketing strategies
and I would not want to get to the position where prices were
tied to some artificial definition of cost because we do need
variety and flexibility in the market. However, the axiom that
the customer must be able to compare products and must be clear
that they are getting good value for money is fundamental to the
operation of any market; it is certainly fundamental to the Banking
283. How much longer do you think until we get
to that point where customers can do exactly that?
(Mr Sweeney) I hope we will get to it quite quickly.
There is work to be done in the industry. The FSA is leading the
way and have actually started with insurance products. Everybody
is pointing in the same direction. Banking is a very complex market
with a lot of different products, a lot of different players.
The worst thing one can do is go for the very simple, easy-fix
284. Will consumers see a significant improvement
in one year, two years, three years?
(Mr Sweeney) Consumers see significant improvements
almost on a daily basis, driven in part by competition within
285. A question for you Mr Sweeney, given that
you represent the retail banks. Can you tell me why negotiations
on the Universal Bank are dragging on so much? Is it not because
the retail banks just do not see any profit in this enterprise
of the Universal Bank?
(Mr Sweeney) I do not think they are dragging on.
The Government announced just before Christmas that six of the
major banks had agreed to make a contribution towards the funding
of the Universal Bank and those same six had also agreed to make
their basic bank accounts at post offices. Where we are at the
moment is that the members have asked the British Bankers' Association
to intermediate on the memorandum of understanding with the Government
and we shall do that. We are waiting for the Government to come
up with a draft MOU. Once that is in our hands we shall move forward
quite quickly. I am not sure that it is dragging on.
286. Looking at the Thirteenth Report of the
Trade and Industry Committee on the Post Office Universal Bank,
they say that the BBA has produced figures suggesting it may cost
£80 to open a simple account and £70 a year to run it
and that the average daily balance needed to cover even the annual
costs would be around £1,300; that is £1,300 average
daily balance. What proportion of those whom you forecast might
want such a Universal Bank account would have an average daily
balance of £1,300?
(Mr Sweeney) Virtually none I should have thought.
287. Right. That is what I thought. Certainly
in my constituency of Bury St Edmunds, a rural area, they would
agree with you. Given that, how is this Universal Bank going to
be funded? The recurring annual figure of around £150 million
mentioned by the Post Office is judged by the Trade and Industry
Committee as being on the low side. How is it going to be paid
(Mr Sweeney) That is a matter for the Post Office
and for DTI, not for the British Bankers' Association or the banks.
288. It is not for the retail banks.
(Mr Sweeney) No. There are two elements to the Universal
Banking proposal and it has transmogrified over the period from
the Universal Bank to Universal Banking. Those two elements to
it are the provision of basic bank accounts, which is a matter
for individual banks based on the recommendations of the Policy
Action Task Force number 14. Those will be at the cost of the
bank. The second element to it is the Clear account which is to
be offered by the Post Office and that will be funded in effect
by the Post Office. Individual banks have agreed to make a contribution
to helping fund those for a period of time, but ultimately the
responsibility for the costing of that and for the profitability
of that and for the pricing of that will rest with the Post Office
and the DTI.
289. Just so I am absolutely clear about this,
I am looking at paragraph 44 of the Thirteenth Report of the Trade
and Industry Committee where they talk about the £150 million
annually recurring figure. I quote. "The Minister suggested
that the Government might meet some of these costs on a seedcorn
basis, but that it was not for the Government to pay for the social
obligations of banks." You disagree with that, do you?
(Mr Sweeney) In terms of banks' responsibilities,
banks by and large, the large players, recognise that as the owners
of the commanding heights of the payment systems of the financial
infrastructure they do have a responsibility to play a part in
resolving some of the social and financial exclusion problems
of the country. Most banks believe that the most effective way
they can do that is by the provision of the basic bank account.
However, after discussions with the Government a number of them
have also agreed to contribute to the funding of the Post Office
Clear accounts. That is really the answer I give you. As to whether
or not the Government intend to pick up a proportion of that cost
and what their financial relationships are with the Post Office,
is opaque to me and a matter for the Minister and the DTI and
not a matter for the British Bankers' Association.
290. It is a matter for the retail banks, is
it not? I quote from the report again. "The banks",
meaning the retail banks, "may feel ... that they are under
no obligation to pay the running costs of a system primarily designed
to convey social security benefits in cash through post offices".
So you would agree with that, that the people you represent, the
retail banks you represent, do not feel they are under an obligation
to pay the running costs of a system primarily designed to convey
social security benefits in cash.
(Mr Sweeney) All I can do is repeat the state of play.
291. No, an answer to my question would be nice.
The people you represent, the retail banks, do not feel under
an obligation to pay the running costs. Is that a yes, or is it
(Mr Sweeney) The facts of the matter are that a group
of banks have agreed to contribute a proportion of the operating
costs of the Clear account. So the answer to your question is
that clearly they must think it is right for them to do so. As
to why they have decided to offer that contribution, that is a
matter for the individual banks, it is not a matter for me. It
was not a BBA-sponsored agreement. As a matter of fact, banks
are doing it to some extent.
292. Do you think on either element of the Universal
Banking Service project it is the case from where you sit that
the Government think the retail banks are making a full enough
contribution now, given the state of play of negotiations? Or
do you think Ministers expect retail banks to make a bigger contribution?
(Mr Sweeney) When the Government made its announcement
before Christmasand I do not have the press release in
front of me, but as I recallthe Secretary of State for
Trade and Industry welcomed the contribution of the banks and
welcomed the banks' constructive engagement in the discussion,
from which I take it that he was content with the arrangements
which had been agreed. That is a question for him, not for me.
293. Do you know when there will be a final
announcement on this?
(Mr Sweeney) No. There are two things happening at
the moment. One is that the six banks who have agreed have asked
us to facilitate the negotiation of the memorandum of understanding
and we shall do that as soon as we have a draft. In the meantime
the DTI are entering into bilateral discussions with a number
of other players in the marketplace to see whether they are prepared
also to contribute to this project. When those two have been completed,
I guess there will be a public announcement. That will be very
much in the hands of the Minister.
294. We have had some evidence to the Committee
from Abbey National and it relates to a study they have been making
of their own experiences within the last few months. Their information
is very up to date. They tell us that the final date which these
figures relate to was in fact 22 December; very up to date. It
relates to this point about exchange of information in switching
accounts. I perhaps ought to make clear that I have no financial
relationship with the Abbey National myself, so in that sense
I owe them no obligation other than the evidence they have given
to the Committee. The evidence they have given to the Committee
is very up to date and is that two of the major clearing banks
were absolutely outside the ten-day agreement for exchange of
information. For NatWest the average number of days was 24; for
Lloyds TSB the average number of days was 18. We are talking about
the four-month period up to Christmas. It is good information,
it is recent and it comes from within the banking system. Do you
regard that performance, 24 days rather than ten in the case of
NatWest, 18 days rather than ten in the case of Lloyds TSB, as
being absolutely lamentable?
(Mr Sweeney) Let me answer in terms of the Banking
Code. The Banking Code requires banks to cooperate in the facilitation
of transfer and the Banking Code also requires banks to act reasonably
and fairly in relation to their customers. The way the Banking
Code Standards Board who police the Banking Code would judge that,
it seems to me, is probably in terms of the time limits set for
transfers within the pilot scheme which was outlined earlier.
If the time being taken is not consistent with the expectations
under that bank project, then that would be a poor performance
and something which the Banking Code Standards Board would want
to look at. The Banking Code Standards Board would want to look
at it by entering into discussion with the individual banks who
understand the situation fully.
295. I just want to check on something which
you told the Committee earlier which I thought was very significant.
That was that transmission costscorrect me if I give the
wrong figureswere £4.5 billion.
(Mr Tyson-Davies) Yes, that is the total cost of running
the payment clearings and cash handling in this country.
296. Your costs in the payment clearing system
between the banks were 1.3 per cent of that.
(Mr Tyson-Davies) Yes.
297. If that is right, we are looking for the
other 98.7 per cent, are we not?
(Mr Tyson-Davies) Yes, and you will find it mostly
in the staff employed in thousands of bank branches around this
country and building society branches; it includes the whole lot.
It is still a people-intensive industry and a lot of those people
are involved in cash handling, in preparing cheques for money
transmission, all the rest of it. Yes.
298. The suggestion is that this is people costs,
but in fact the information which Mr Tyson-Davies himself has
given the Committee points in a different direction. The APACS
information, from Mr Tyson-Davies' information, which the Committee
has, is that the most rapidly rising stream of transactions is
non cash and increasingly automatic, not people based; it is rising
by about six per cent a year. It is projected to rise at an even
faster rate over the next ten years. Under those circumstances
how is anyone to know what the quality of performance is? Over
98 per cent of the costs are within the banks themselves. How
is anyone ever to find out how these costs arise, whether they
are good value for money or not?
(Mr Hawkins) In the credit card world we are talking
about an extremely efficient product in a highly competitive environment.
In the UK for example there are some 56 providers of credit cards
which offer around 1,200 to 1,300 different products; there is
intensive competition. There is intensive competition on price
and on service, on quality of delivery. At the same time, there
is a great deal of transparency, both statutorily induced and
indeed voluntarily induced. I think that people do get very good
value for money. The APACS clearing costs are probably not exactly
applicable to the credit card clearing systems which are much
more centralised and are less people intensive. It is certainly
a highly, highly competitive market.
299. It is competitive in terms of face product,
but how does anyone know where the costs are and whether those
costs are legitimate? How is anyone ever to find that out? When
you were asked a question about cheque clearing you asked us to
produce the evidence. How is anyone ever to produce the evidence
when we have this enormous volume of transactions, non cash, rising
very rapidly, when we have well over £4 billion of the costs
tied up in it and it is all taking place within big financial
institutions? How is anyone ever to find out? It is all very well
to talk about transparency, but how is it ever going to be transparent?
(Mr Hawkins) Speaking for the credit card side, people
have a great deal of information about the annual rates they pay,
any charges they pay, particularly annual fees they pay. The market
is such an intensely competitive market that people can shop around,
and by the way they do shop around. When it comes to moving accounts
on the credit card side there is a great deal of activity there.
It is of course much easier to do so than it is in the current
account world, less complex, and it happens a great deal, especially
if more and more competitors pile into the market.