Memorandum submitted by the Campaign for
Community Banking Services
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.
1.1 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
The principal concerns are the impact of closures
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
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
The article "Closing BanksThe Community
Solution" Consumer Sciences Today Autumn 2000 is a
brief resume of the key points.
Promoting the continued existence of suitable
access to banking services within communities in order to:
sustain local commercial activity;
combat financial and social exclusion;
assist the vulnerable, disabled and
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
4. CURRENT POSITION
4.1 Nearly 5,000 bank branches have been
closed since 1 January 1990 leaving circa 1,000 communitiesrural,
suburban and deprived inner-citywithout any local bank
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
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
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
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):
"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).
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
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
Individual banks have only c25 per
cent market share of this declining footfallin 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
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
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
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.
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
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.
8.1 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
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 customersbusinesses,
clubs, charities, etcby 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
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
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
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
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
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
10.6 More detail is included in an article
for the New Statesman Banking Supplement 20 March 2001.
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.
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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