Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 380 - 399)



  380. Do you think that the Competition Commission should be very hard on the major banks in this area?
  (Mr Crosby) I think there is clearly a case for questioning whether the barriers to entry in this sector are too high.

  381. Would Mr Head and Mr Williams like to comment?
  (Mr Williams) Smile is not involved in business banking at all. The Co-operative bank does have business banking. We find it a highly competitive market, we compete in it, we have about 1 per cent of the market through a great deal of hard work but we find it very competitive.

Mr Plaskitt

  382. As regards the Universal Bank Service—and I will start with Mr Goodwin—your company signed up to participate in this but do you think it is a good idea?
  (Mr Goodwin) There is still much to happen with Universal Bank; you go from the concept at the moment through to the reality. I think the Universal Bank that is now in prospect is about electronic payment of benefits and it is about keeping post offices open to enable people to draw their benefits through that channel and we would wish to see that happen and wish to play a part in that. I think that, in the earlier phases of Universal Bank, it was positioned as making a major contribution towards the eradication of financial exclusion but we had some difficulty in seeing that there had been any progress in that regard. On the agendas of electronic payment of benefits and of keeping open the post offices, we have supported that.

  383. Presumably you can turn to your shareholders and say, "We are going into this because it is a commercially sound thing for our company to do."
  (Mr Goodwin) We are supporting the Government; we will not be shareholders or participants in it in that sense, so we are not a joint venture partner or anything with Universal Bank. We are lending financial support—lending is not an appropriate word—we are giving financial support.

  384. But it is not against your company's interests to be involved.
  (Mr Goodwin) Not at all.

  385. So why did one of your directors describe it as a dumb idea?
  (Mr Goodwin) I am not sure which director that was or in what context that was. I think that, in terms of Universal Bank, there have been a number of iterations of it that bring us to the point we are at just now. I think there were versions of Universal Bank which were in trying to tackle financial exclusion as a sort of adjunct. It may well have been some of those interim proposals that have been referred to. It is difficult for me to comment.

  386. You would not describe Universal Bank as a dumb idea.
  (Mr Goodwin) Not as presently in prospect.

  387. You yourself said that there were better ways of achieving its objectives through other means; do you still stand by that statement?
  (Mr Goodwin) Yes, I do. What was in my mind about it was that I think there may have been some suggestion at some point in other people's minds as well that, if you actually had paid benefits through PAT14 accounts, which now all the major banks and so on offer, then you would enable people who are getting benefits to have access to an account which enables their behaviour to be behaviourally scored which enables them to build up a credit rating. Universal Bank will not allow individuals to build up credit ratings or gain access to the financial system in that way. I felt that it would have been an opportunity to link them into PAT14 accounts as the physical mechanism through which payments would be made. The Universal Bank is going to come up with its own payment mechanism of a streamlined form, so I actually felt that, if we came down that route, we would have made inroads into the financial exclusion issue.

  388. One of the ideas behind planning this stream-lining was that our research shows that a number of people are nervous about moving into credit and are not looking for that facility as part of the basic banking service.
  (Mr Goodwin) There will be no compulsion for people to go into credit but research shows that there are also a number of people who would quite like access to credit and feel themselves to be denied it. That is one of the fundamental premises of financial exclusion, as I am sure you know.

  389. You would be more interested in people who are interested in credit?
  (Mr Goodwin) No, we would be quite interested in lending to people. We are in business to lend money. That was why I personally thought that this would be an ideal opportunity to start introducing people into PAT14 accounts, so that it gave them the option. At the end of the day, if someone chooses not to borrow money or not to deposit in a bank, I would not consider them to be financially excluded if they have the option to do it. I thought that, by using PAT14 accounts, that would deliver the Universal Bank opportunity to enable people to build up credit scores to give them that option. Whether they chose to use it or not is entirely up to them.

  390. Mr Crosby, Halifax are supporting this as well.
  (Mr Crosby) Indeed, yes.

  391. So what do you say about the idea of the Universal Bank?
  (Mr Crosby) We support it because we think it is a realistic way of fighting against social exclusion. The debates have been going on but we think that the model that has come out is probably the best of those that have been discussed. It has a real chance of achieving a significant amount.

  392. And, from your company's point of view, it is also commercially sound to go in and support it?
  (Mr Crosby) Yes. It is early days and nobody has real financial details but, in practical terms, it is a sensible proposition. It is a sensible way of us fulfilling some social responsibility.

  393. When the agreement was reached last December, Stephen Byers said that you all had constructive negotiations. Do you think they were constructive?
  (Mr Crosby) Yes, absolutely.

  394. What did you get out of the negotiations?
  (Mr Crosby) What did we get out of them?

  395. You presumably brought something to those, you negotiated about something, it is not just take it or leave it.
  (Mr Crosby) Banks as a group brought to it their knowledge of the banking industry and I think we all have the same shared objectives and that was the process of constructive debate that was in a process of improvement to iteration.

  396. What I am getting at is, did the idea change from when you entered negotiations to when you finally signed up? Did the concept or the design change and, if so, which changes would you say came about as a result of things you pushed forward in those negotiations?
  (Mr Crosby) I do not think I would identify specifically with any particular change. I think we hold the view that where we ended up was the most practical proposition, but I think that was the collective view of all those involved.

  397. Is that your view, Mr Goodwin?
  (Mr Goodwin) Yes. The proposition did change. It is always difficult in negotiations to know who precisely caused the change to come about but there were quite extensive discussions from start to finish in the process ranging from probably September time through to December. The proposition was that Universal might change during that time.

  398. Can you give us one example of some aspect of the design in this which changed as a result of those negotiations.

  (Mr Goodwin) Yes would be the short answer. I think there is always a danger in replaying negotiations that took place as between two parties but, with that caveat, the original proposal for Universal Bank had involved full provision of services to a post office bank that would be jointly owned by the clearing banks and the other participants in the scheme. We now end up with a version that would not be jointly owned and operates a particular type of electronic account which does not have some of the features on it because to have some of the other features or some of the other PAT14 features on it would have necessitated the Universal Bank having a far greater range and scope of systems functionality than in fact the final version has.

  399. You also have basic banking accounts of your own. To what extent do you see the basic bank account services you are providing as being in competition with the Universal Bank?
  (Mr Goodwin) I do not think it is in competition. It overlaps. I think someone who had a basic bank account would choose to have their benefits paid into the basic bank account, which would cut out the Universal Bank. They may or may not cut it out. It would seem to me slightly illogical to have a basic bank account and not have your benefits paid directly into it, albeit there is no requirement for people to have their benefits paid into it. The Post Office's and the DTI's research suggested there were quite a lot of people who would nevertheless prefer just to deal with the Post Office and use a simple Universal Bank mechanism to go in and draw their entire benefit out in cash.

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