The Government’s ambition for the UK to become a nation of current-account holders moved one step closer last week.
In his Budget, Chancellor Gordon Brown invited the banks to team up with the Post Office and offer no-frills accounts to the financially excluded – low-income people without bank accounts.
Unfortunately, no details on how this could be achieved are forthcoming from the Treasury, the Post Office, or the Department of Trade & Industry (DTI) to which it reports. Each claimed it was the other’s responsibility to set the ball rolling.
A Treasury spokesman says: “While we would like to work together with the DTI, the department will need to take the lead.”
Nonetheless, most observers agree the Government is genuinely committed to removing the barriers excluding many people from financial services.
In his report the day before the Budget, Don Cruickshank, who led a competition inquiry into the banking sector, accused the banks of obstructing access to financial services by closing down branches and making excessive charges on cheque processing, cash machine withdrawals and credit and debit card payments.
Cruickshank also accused them of denying millions of people current accounts. Some estimates say up to 4 million UK adults do not have a bank account.
Brown addressed some of Cruickshank’s concerns in his Budget. In addition to inviting banks to offer no-frills accounts, he pledged to open the payment systems to competition.
Virgin Direct marketing manager Gordon Maw says: “Opening the payment systems would benefit the consumer with better prices and it would speed up the process. It still takes three days for a cheque to clear.”
Meanwhile, the emergence of convenience-store banking is increasing access to distribution in sparsely populated areas, which banks have been abandoning for years because they are unprofitable.
For example, Moneybox, a company backed by venture capitalist Ambient, has rolled out cash machines to 400 convenience stores, pubs, restaurants and nightclubs. It has plans to install a further 1,100 by the end of the year. Moneybox makes a profit by charging &£1 for each withdrawal.
It is also planning to expand the offer to enable customers to deposit cheques and cash, transfer money between accounts and pay bills.
Meanwhile, PayPoint, the network of bill payment terminals based in 7,400 shops, can process bill payments made to the retailer in cash or by cheque.
It is negotiating with “major e-tailers” to modify terminals for e-commerce payments.
PayPoint sales and marketing director Tim Watkin-Rees says: “Customers will go to a retail Website, select the product they want and state what they want to pay for it through PayPoint. They will then print off a document detailing the purchase, take it to a PayPoint terminal, pay the retailer in cash and the transaction is complete.”
While observers welcome the impact that companies such as PayPoint and Moneybox are having, they argue that financial exclusion cannot be properly tackled until bank accounts are provided to everybody who wants one.
Campaign for Community Banking chairman Derek French says: “The majority of current accounts are loss-making and it is only through cross-selling customers more profitable products, such as an ISA or a loan, that the banks can begin to make a profit. But many of the ‘unbanked’ would not be eligible for a loan and so there would be no way of recouping the money.”
Abbey National, Alliance & Leicester, Bank of Scotland, Clydesdale, Halifax, Royal Bank of Scotland and Woolwich already offer some kind of basic account, while the big four banks say they have plans to introduce them.
Meanwhile, customers at Lloyds TSB, Abbey National and Barclays can transact their business through the Post Office network.
These no-frills accounts provide a cash card and allow the holder to make direct debits and standing orders. They do not require a credit-scoring test, but they do not offer an overdraft or provide a cheque book.
Martin Salter, MP for Reading West and founder of an all-Parliamentary group examining financial exclusion, which launched earlier this week, says: “While I welcome the introduction of the no-frills accounts, I suspect that the banks are only going through the motions to avoid further bad publicity and appease the Government.”
French agrees: “The no-frills accounts which have been introduced so far have not been heavily promoted. I sense the banks’ hearts are not in it. It’s interesting that the only time Lloyds TSB advertises its link with the Post Office is when it is closing down a branch in that area. Lloyds has to pay the Post Office a fee for every transaction its customers make.”
A recent survey carried out by the University of Bristol for the British Bankers Association revealed the majority of Lloyds TSB customers didn’t know they could bank at 15,500 Post Office branches.
The Government needs to ensure that no-frills accounts are genuinely available to all who desire them. But flesh still needs to be put on the bones of Brown’s statement in the Budget. Simply shifting the responsibility between Government departments will do nothing to improve the lot of the financially excluded.