Select Committee on Treasury Appendices to the Minutes of Evidence


APPENDIX 7

Memorandum submitted by the Campaign for Community Banking Services

SUMMARY

Time is running out

  The temporary halt in the damaging tide of bank branch closures, won by consumer action, has created a window of opportunity, before closures resume, in which to devise and trial a range of alternatives to traditional branded branches which can meet the transactional banking needs of vulnerable individuals and disadvantaged small businesses in marginalized communities.

  There is a real danger that the banking industry is wasting this opportunity as it restricts experimentation to one format only in one type of community in a small "branch sharing" pilot scheme for which the sample selection is potentially flawed. The Competition Commission recommendation for a full feasibility study is welcomed but, of itself, does not go far enough.

  The Government, and Consignia plc, in reconfiguring the post office network and pointing to future banking use by more banks, more individuals and more small businesses are not heeding the genuine concerns of consumer bodies and small business organisations. These relate to overload problems and customer safety threats which would be created in some parts of the network if post offices, by default, assume an unplanned bank substitute role in larger and more commercially active communities deserted, or to be deserted, by banks.

  Lastly, a need is identified for a self-financing vehicle by which the banking industry can fairly and efficiently subsidise a range of social banking needs including the provision of local transactional access, community finance and micro-credit.

  Recommendations are made for action by Government and other bodies.

1.  INTRODUCTION

  1.1  This submission is from the Campaign for Community Banking Services (CCBS), an informal coalition, established in October 1997, of 27 national organisations which share concerns for the problems caused to vulnerable individuals, small businesses and communities as a direct, and indirect, result of the closure of local bank branches.

  1.2  A list of supporting organisations is available on the CCBS website http://home.btclick.com/ccbs/index.htm CCBS is directed by a Steering Group of seven, drawn from the supporting organisations and the Hon Director is Derek French FCIB MCMI who has extensive national and international banking experience.

2.  CONCERNS

  The principal concerns are the impact of closures on:

Access to Financial Services

  The economic cost and inconvenience to small businesses, the elderly, the disabled and others of having to use alternative banking locations/facilities; and

  The social cost of excluding low-income consumers from mainstream financial services: exacerbated by the absence of a community based banking presence.

Sustainability of Communities

  Bank branch closures contribute to commercial decline of communities as better off consumers change their purchasing habits along with the need to travel further afield for banking services, business close, re-generation is rendered more unlikely and start-up finance for local business becomes more difficult to obtain.

The Environment

  Actions taken by consumers to overcome the problems caused directly and indirectly by bank branch closures contribute to environmental damage, for example, through increasing motor vehicle usage.

  The article "Closing Banks—The Community Solution" Consumer Sciences Today Autumn 2000 is a brief resume of the key points.

3.  OBJECTIVE OF THE CAMPAIGN

  Promoting the continued existence of suitable access to banking services within communities in order to:

    —  sustain local commercial activity;

    —  combat financial and social exclusion; and

    —  assist the vulnerable, disabled and elderly.

  Whilst we favour a retention of local bank branches, in the event of the closure of the last/only bank branch in a community becoming inevitable, we propose a range of measures to meet the problems identified including community banks acting as a transaction agent for several banks, development of community credit unions, selective use of sub-post offices on an agency basis.

4.  CURRENT POSITION RE BRANCH CLOSURES

  4.1  Nearly 5,000 bank branches have been closed since 1 January 1990 leaving circa 1,000 communities—rural, suburban and deprived inner-city—without any local bank branches.

  4.2  Since June 2000 there exists an informal moratorium on bank branch closures as a consequence of the huge public and media reaction to Barclays' (not previously the biggest offender) closure of one tenth of its network on 7 April 2000, leaving a further 90 communities bankless.

  4.3  The economic drivers of branch closures:

    —  declining branch footfall as new delivery channels (telephone, ATM, cashback, internet) are preferred by many;

    —  increasing "cherry-picking" competition forcing the traditional branch owning banks to reduce their cost base;

    —  investment required to constantly improve the retail environment and image of remaining branches

  are not expected to cease and the current networks of the Big Four, in England and Wales approx 1,700 each (ignoring temporary duplication of English branches of The Royal Bank of Scotland), are not sustainable at this level.

  4.4  For the foreseeable future there will be a demand for branches from sectors of the population such as the elderly, disabled people, the less affluent and from small businesses but in smaller and less prosperous communities not enough customers of any one bank want to use them to guarantee their survival.

  4.5  Research by MORI for PostComm in 2001 revealed that a quarter of rural residents and those in deprived communities have difficulty in accessing a bank branch. Research for the BBA, published in 2000, shows that of those "distant" from a bank branch 70 per cent of small businesses visit a branch at least weekly; 8 per cent do so every day.

5.  THE OPPORTUNITY

  5.1  The "moratorium" on closures, which could last until 2003-04, or breakdown earlier in the event of serious losses by banks in their international or investment banking activities, presents a unique opportunity.

  5.2  This gap in closure programmes provides a "window" which could be used to devise and trial a range of potentially sustainable alternatives to bank branches which would meet the needs of those customer segments, and transaction types, for which the existing alternative delivery channels are not suitable.

  5.3  Regrettably, the "window of opportunity" is not being utilised constructively by the banking industry which is doing the absolute minimum necessary to respond to public pressure. To quote from an experienced independent banking consultant, David Cavell, writing in the November 2001 issue of Financial Services Distribution Newsletter (enclosed[5]): "Speed is of the essence, let us not come along with the right medicine after the patient has died!"

6.  THE OPTIONS

  6.1  The principal staffed options to the conventional bank branch are:

    —  The shared branch (Community Bank).

    —  The post office.

  6.2  In the independent research "Banking Without Branches" carried out for the BBA and CCBS by Bristol University and published in February 2000, the shared branch/community bank was the top choice of individuals and the overwhelming preference of small businesses.

  6.3  Although respondents to the research survey showed potentially heavy usage of post offices if offered as a banking point, their low first preference rating was significant:

    —  13 per cent for businesses and individuals in the national survey.

    —  6 per cent in the case study areas where the banks had already closed.

  These issues are addressed in Section 9.

7.  SHARED BRANCHES (COMMUNITY BANKS)

  7.1  CCBS defines a community bank (shared branch) as follows:

    Operating within a national framework, a low cost manned retail banking outlet providing front end transactional and information services on behalf of a number of competing banks. The outlet can be full or part-time, directly managed, franchised or mobile, according to local needs.

  Full details available on CCBS website.

  7.2  The business and social case for such a neutral bank branch to serve marginal communities is strong:

    —  The volume of bank customers in any community with a need or preference to use branches is falling but contains a significant hardcore for which other delivery channels not suitable.

    —  Individual banks have only c25 per cent market share of this declining footfall—in many communities insufficient to sustain a presence.

    —  There are major disadvantages in relying on post offices, or the chance that one bank will remain open and offer agency counter facilities, to satisfy these needs.

    —  The format allows for reducing/sharing costs and increasing footfall.

  Only the big banks have the knowledge, expertise, customer base and access to clearing and IT systems to enable experimentation to take place for the neutral multi-bank outlet.

  Full case available on CCBS website.

  7.3  In March 2001 CCBS's proposal for a network of community banks was validated by Professor Barry Howcroft of Loughborough University Banking Centre as operationally and financially feasible.

  7.4  Following an internal study, not available to consumer bodies, the Big Four banks are, during 2002, running a modest pilot scheme in 10 small rural communities where one bank only exists and there is no other bank within a five mile radius, permitting customers of the other three banks to use the branch at no extra cost. CCBS, and constituent consumer bodies including Consumers' Association, CPRE, ACRE and NFWI, have challenged the methodology for selection of the 10 branches. For example, eight have always enjoyed a total, or near total, geographic monopoly, thus severely depleting the potential of branch using customers of other banks. In the case of Lynton, N Devon, a branch using customer has to be very anti Lloyds TSB to choose to bank with the next nearest bank which would involve a daily/weekly return journey of 28 miles.

  7.5  Additionally, unrealistically low deposit and withdrawal limits have been imposed on the pilot branches, ostensibly to prevent money laundering but likely to dissuade potential users from other banks.

  7.6  The pilot scheme does not include any of the many hundreds of communities which have already lost all their banks, it does not address the problems of suburban and inner city deprived communities and it does not test the preferred neutral branch concept nor any of the working partnership proposals such as with credit unions, community hubs, etc.

  7.7  Accordingly, if it is successful the pilot provides no model for other formats or rollout to other types of location. If unsuccessful, the banks would have raison d'être not to experiment further with shared banking. The Competition Commission has since intervened: see Section 8.

  7.8  Examples of the banks' opposition to using the "window of opportunity" can be found in CCBS's two national "test cases":

Houghton Regis, Bedfordshire

  A 17,000 population, relatively deprived, town on the edge of the Luton/Dunstable conurbation which has lost its three banks, the last (NatWest) in 1997.

  Following exceptional, and sustained, campaigning the RBoS Group is to re-open the NatWest branch on 11 June in the former NatWest premises which has remained empty for five years.

  The trial re-opening is for two years but the bank is not using the opportunity to reduce/share costs and increase footfall in an urban situation by embracing one of the shared branch formats.

  In the Town Council survey, 60 per cent preferred a shared branch and 85 per cent said they would use a shared branch; the comparative figures for a NatWest only branch was 34 per cent.

Belford, Northumberland

  A small town but the commercial hub for a major farming area and, in Summer, a range of national tourist attractions

  The only bank was closed by Barclays on 7 April 2000 and it is now a 20/22 mile return journey to the nearest bank.

  Barclays are transferring the premises to a community trust, to remove responsibility for maintenance and gain "brownie points", but are steadfastly refusing to contemplate a branch sharing (community bank) pilot scheme.

8.  COMPETITION COMMISSION

  8.1  Following the Competition Commission's report on SME Banking Services, the Chancellor has directed the banks to investigate the feasibility, costs and associated benefits of a national branch sharing scheme, reporting to the Director General of Fair Trading in 12 months from 14 March.

  8.2  This requirement removes the danger that the banks might conceivably have killed the future for branch sharing purely on a low take-up of their own small, flawed, pilot scheme. However, it still leaves significant gaps potentially unresearched if taken literally and without vision

  (Incidentally, the planned independent review of the pilot scheme statistics by Prof Elaine Kempson does not compensate for the lack of agreement at the outset on the methodology for selection of the pilot branches.)

  8.3  The Commission's recommendation, coming purely from a competition standpoint, focuses on multi-provider agency use of branches where they still exist. It does nothing, of itself, for hundreds of deserving communities which have already lost their banks, nor for emerging/expanding/regenerating communities that have never had a bank.

  8.4  CCBS has approached the OFT, seeking to have input on the shape, content and methodology of the shared banking study. If a wider, and more visionary, approach is adopted to this study it could result in a scheme of benefit to many more communities and disadvantaged consumers.

9.  POST OFFICES

  9.1  The post office network, shortly to lose substantial income as a result of changes to the benefits payment system, is often, erroneously, seen as a ready-made bank substitute.

  9.2  Two large retail banks (plus some small and internet providers) currently have limited agency agreements for use of post officers for personal customers only but they do not market it as popularity would duplicate their costs unnecessarily and lose them product sales opportunities if post office visits replaced bank branch visits because of the greater availability of post office outlets. All banks have to provide post office access to their "basic bank account" customers (a very small market segment) from April 2003.

  9.3  Banks are prevented from negotiating agency agreements with post offices for non-personal customers—businesses, clubs, charities, etc—by an exclusive deal with Alliance & Leicester Girobank which has several years to run but which, due to the likely intervention of external factors, could cease earlier.

  9.4  CCBS maintains that most post offices in the larger and more commercially active bankless communities are unsuitable to meet the customer needs of all categories of bank customers should the post office network be chosen, or by default become, the only alternative counter provision to a diminishing bank branch network. The Hougton Regis and Belford examples (Section 7) are relevant as are the views of local observers in the 10 BBA branch sharing pilot communities that their local post offices could not cope if the bank closed, without substantial investment and/or new premises.

  9.5  Two major concerns are overloading the physical capacity of post offices and creating a magnet for criminal attack on cash carrying business and club/charity customers waiting to pay-in or after withdrawing large amounts of cash. Attacks would be harmful not only to the victims, but also to post office staff and other customers, many of them elderly.

  To date there is no indication that Consignia and/or Government have sufficient funds available to identify and invest in those urban and rural post offices which would assume the role of full bank counter substitutes in order to provide the suitable alternative premises/additional space, extra facilities and security necessary.

  9.6  In the event that the post office route is taken, to the exclusion of shared branches/community banks, it is the opinion of CCBS that consideration should be given to a tier of "super" or "business" post offices which would receive the investment necessary to enable acceptable levels of service to be provided to all categories of banking customer (as well as other post office users) in a safe and secure environment.

  9.7  CCBS's concerns and suggestions repost offices as banking substitutes have been explained to Post Office Ltd, PostComm and Postwatch. We have met with a Home Office Minister re the potential crime threat which is increasing. CCBS is continuing to seek a replacement date to see the DTI Minister responsible following cancellation of an arranged meeting with his predecessor due to the General Election.

10.  SOCIAL BANKING FOUNDATION

  10.1  In all of its activities concerned with ongoing suitable local banking provision, CCBS has identified a need for a supporting source of subsidy which would supplement, in appropriate cases, local authority, EU and charitable trust sources.

  10.2  CCBS proposes a Social Banking Foundation.

  10.3  In essence a Social Banking Foundation would be funded by an annual levy on all holders of banking licences (authorisations by the FSA) related not to profits but to the size of their consumer and small business deposit base. This would bring Internet, telephone and postal banks into the net thus achieving a level playing field rather than Government approaching only the traditional high street banks when a social banking initiative needs funding. The traditional banks are likely to welcome a much fairer distribution of the social responsibility burden and could receive partial relief from the levy to reflect their existing efforts.

  10.4  A Social Banking Foundation would distribute its resource wisely across a range of social banking activities (but flexibly and in partnership with local resources where they exist) including the proposed community bank network, post office facilities, remote ATMs, credit union support, community finance and micro-credit initiatives; possible even debt advice.

  10.5  The existence of a Social Banking Foundation would enable government to exercise a "light touch" control over social banking provision, having ultimate responsibility for the scale of licence levy, whilst at the same time standing apart from day to day intervention. Similarly the banks, having paid the levy, should not be subject to a succession of funding demands.

  10.6  More detail is included in an article for the New Statesman Banking Supplement 20 March 2001.

R.  RECOMMENDATIONS FOR ACTION BY:

R.1  BBA/HM Treasury

  Share interim statistics from current "shared banking" pilot scheme with external stakeholders, thus facilitating amendments to the scheme's operation, and additional marketing if necessary, to improve its value as an indicator of demand.

R.2  BBA/HM Treasury

  Open negotiations with external stakeholders with a view to piloting other shared banking formats and extending existing pilot to urban communities and communities from which banks have already withdrawn.

R.3  OFT

  Include external stakeholders in the process to determine the form, content and methodology of the Competition Commission's recommended feasibility study of shared banking, with the aim of maximising the value of the work to be undertaken for the benefit of bank customers and communities affected by bank branch withdrawal now or in the future.

R.4  DTI/Consignia plc

  Conduct an impact study of the likely effects on sections of the post office network if all the major retail banks achieve agency agreements with the post office network covering their small business and club/charity type customers as well as personal customers; and bank branch closures re-commence. In this context consider a "two-tier" post office network.

R.5  HM Treasury

  Give consideration to establishing a self-financing Social Banking Foundation, funded by a levy on bank licensing, in order to provide subsidy, where appropriate, for a variety of social banking activities.

30 April 2002



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