The Limits of Affinity

According to the Guinness Book of Records it is the most successful charity affinity card in the world. More than 8m has been raised for charity in the nine years since the Halifax Visa Charity Card was launched with three charity partners.

But now Mencap, one of the three charities, is preparing to withdraw (MW August 7). The charity is accusing the Halifax of discrimination against the 1 million-plus people it represents. The argument revolves around the Halifax’s refusal to compensate people with learning difficulties, who were denied windfall shares because their accounts were held in trust when the bank floated earlier this year.

The dispute comes to a head this Friday when, after 18 months of stalemate, the two meet to thrash out a deal. But it is difficult to see where the compromise will come from. The Halifax says it will not compensate those who have missed out, but the charity’s trustees, who are understood to have been pushing the charity to act, will not accept the Halifax position.

If Mencap pulls out of the card deal it will bring pressure on the other charities involved in the scheme, the Imperial Cancer Research Fund (the most popular of the cards) and the British Heart Foundation, to resign from the scheme as well. Neither would comment on the situation between Halifax and Mencap, or their likely response if Mencap pulls out.

In the short term Mencap faces an annual income loss of 250,000. But there’s much more to this row than that. It represents a watershed in the rapidly growing area of cause-related marketing.

The Halifax is a company which, for nine years, has financially benefited from its association with Mencap. There is plenty of evidence to show that people spend more money through affinity cards than traditional credit cards. Yet in this case they have discriminated against the very Mencap members the scheme was intended to help. And whereas other financial service providers, including the Alliance & Leicester (A&L) and Northern Rock (due to float in October), are considering charity donations to cover compensation payments, the Halifax is refusing to even consider it.

Paul Aagaard, who specialises in cause-related marketing and runs Passion Communications, says the Mencap/Halifax situation illustrates the danger of entering into the wrong partnership.

“This is a very bad example of a partnership between the voluntary sector and the corporate world. It is extremely important that the right partnership is formed because if it isn’t, you eventually end up with a situation like this,” he says. “Charities should not prostitute themselves for money.” Aagaard adds that Mencap “should sever links with the Halifax; what is happening is contrary to its mission statement”.

The dispute comes just one month after the National Childbirth Trust – a charity dedicated to promoting breast-feeding – accepted funding from Sainsbury’s, which markets an own-label powdered breast milk substitute. The decision to enter into the 40,000 sponsorship deal cost the organisation over 40 of its members.

In the case of the Halifax, although a wide variety of people whose accounts were held in trust were excluded from share distribution, including those whose accounts were held by solicitors, club secretaries and those aged under-18, the biggest group affected was disabled people.

The situation has finally come to a head following 18 months of lobbying by Mencap, alongside the National Disability Council (NDC), to persuade the Halifax to set up a compensation fund to pay excluded customers a sum equal to the windfall payment.

The Halifax is standing by its refusal to compensate, and did not raise the issue of a compensation fund to voting members at the onset of the conversion process in November 1994. Its stance rather suggests the Halifax values the members of its long-standing charity partner less than the attraction the Mencap partnership has for potential banking customers.

A charity association is a clear customer magnet. Research by partnership marketing consultancy Affinity Solutions highlights the profitability of affinity cards.

It says frequency of use, average profitability and the average number of new monthly purchases are all higher for affinity cards than for traditional credit cards. Manager of partnership development Jonathan Moakes says: “Affinity cards are attractive to banks because they provide ready-made groups of people… who will be more loyal by virtue of the affinity arrangement.”

Halifax spokeswoman Alison Kellington says a compensation fund proposal could have “ground the whole conversion process to a halt… which our members would not have been too happy about”. This suggests that members would not have voted for such a fund. But the people who would presumably not have minded the delay – those whose accounts were held in trust – were not allowed to vote.

The law that states building societies which float must pay shares to all accounts held by a trustee – the Building Societies (Distributions) Act 1997 – did not come into effect until after the major building societies, namely the Halifax, the A&L and the Woolwich, had already floated.

In this case, therefore, there is no legal requirement for the bank to compensate.

According to the Building Societies Association (BSA), who gets a share is entirely at the discretion of the converting society. BSA spokeswoman Pam O’Keeffe says: “Although there was nothing stopping the Halifax from putting a compensation fund suggestion to members at the onset of the conversion process, there was nothing forcing them to either.”

Mencap spokesman Billy McKenna adds that to set up a fund now would be at the Halifax’s discretion. “It’s a bank and it can do what it wants with its money,” he insists. O’Keeffe agrees it would be possible for the Halifax to compensate those it has excluded. The A&L – which the NDC and Mencap has also been lobbying – is considering a contribution to a disability charity which would be able to distribute funds among members who missed out on windfall shares.

The Mencap/Halifax relationship is just one example of the growing affinity cards sector. Normally in such cases the bank or building society pays a lump sum of 5 or 10 when the card is issued, and a further 20p or 25p for every 100 spent to the designated charity.

To date, about 30m has been raised for good causes through affinity cards, the recipients ranging from major charities, like the NSPCC, Oxfam and the RSPCA, to arts organisations, trade unions and football clubs. Midland Bank, the Bank of Scotland and the Co-operative Bank have all launched such cards.

The cerebral palsy charity Scope benefits from the Bank of Scotland Scope Mastercard, and Norwich Union supports the Royal Association for Disability & Rehabilitation (Radar).

To charities, affinity cards appear to be a solution to falling contributions. Yet, for Mencap, which has received 2m to date from the Halifax, the partnership represents a small percentage of its total income.

Of Mencap’s 84m income, about 78m comes from trading fees and contracts, such as local authority payments for services. This compares with 5m from voluntary contributions, according to the Charity Aid Foundation’s 1996 figures. The remaining 1m comes from grants and investments.

However, it could be asked why Mencap is involved with such a scheme in the first place, as for several years, the Halifax, like all banks, has been within its legal rights to deny people with severe learning disabilities the right to open their own accounts.

It is at the discretion of individual branch managers whether an applicant can manage an account efficiently, based on his or her ability to communicate instructions to cashiers and produce an identifiable signature. Some branches do, however, allow people to use a fingerprint instead of a signature.

McKenna says: “We get involved with corporate sponsors like anyone else. It’s standard cause-related marketing. The Halifax is no different to any other business.”

At the moment Mencap is the affiliated charity of high street retailer Dixons and supermarket chain Tesco.

McKenna feels discrimination has not been a real issue until now, as some people have disabilities so severe that they are unable to manage an account. “Some people with learning disabilities are able to open accounts and some are not. Often building societies have no choice,” he says.

McKenna says the future of Mencap’s relationship with the Halifax depends on the degree of compromise reached this Friday. “We are going into it open-minded. We are hoping to get something positive out of the meeting, other wise we wouldn’t bother attending.”

The Halifax has made it perfectly clear that it will not change its stance because of pressure from Mencap. The charity must decide whether to retain or terminate its relationship with the Halifax in the face of a refusal.

But the outcome of Friday’s meeting will reverberate far beyond the two protagonists.

There has been concern in the voluntary sector for some time that cash-strapped charities are having to make too many compromises to secure corporate deals, in the process ignoring their members. Mencap is in a stronger position than most. It can afford to walk away from the Halifax, whose intransigence has surprised many.

If Mencap pulls out in the face of the Halifax’s continuing refusal to compensate, it will indicate that charities are maintaining some control. But if it continues to endorse the card without any concession from the bank its members may feel betrayed.