Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 280 - 299)



  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.

Mr Plaskitt

  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 Code.

  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 solution.

  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 the marketplace.

Mr Ruffley

  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 for?
  (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 a no?
  (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 Christmas—and I do not have the press release in front of me, but as I recall—the 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.

Mr Cousins

  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 costs—correct me if I give the wrong figures—were £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.

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