Examination of Witnesses (Questions 380
TUESDAY 30 JANUARY 2001
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.
382. As regards the Universal Bank Serviceand
I will start with Mr Goodwinyour 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 supportlending is not an
appropriate wordwe 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
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
(Mr Crosby) Indeed, yes.
391. So what do you say about the idea of the
(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
(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.