A fair account? Don’t bank on it
As a member of the Board of Consumer Focus, earlier this week I was invited to attend an event sponsored by the organisation and blog about it. Here is what I wrote:
Who would have thought that one could persuade some 100 people to gather on a cold December evening to discuss the future of banking with no more incentive that a mini mince pie – but that is exactly what Sarah Brooks and colleagues at Consumer Focus managed to do at the request of the Government-appointed Independent Commission on Banking. It was the fifth and last of a series of IBC meetings with the public and, by the time it was over, it was declared the best by an intrepid individual who had managed to smuggle himself into most of them, with the IBC Secretariat declaring in a follow-up communication: “We thought that the debate went incredibly well and that the format worked better than those we’d tried elsewhere”.
So what were the ingredients for such a success? The chair was Paul Lewis, the presenter of “Money Box” on Radio 4, and he combined immense knowledge of the subject with a lively and interactive, but commanding, style. He was ably supported by an expert panel of five: Martin Taylor, a member of the Commission; Martin Lewis, creator of the website Money Saving Expert; Danielle Walker-Palmour, a director of the Friends Provident Foundation; Mark Lyonette, Chief Executive of the Association of British Credit Unions; and Mike O’Connor, Chief Executive of Consumer Focus.
The format of the event kept things moving and varied. There were three main questions for debate, but also short video clips, voting by handset, and the opportunity to complete a suggestion form. Above all, there was an engaged audience which was not backwards in coming forwards: a range of professionals from the financial services industry including some actual bankers, listeners of the “Money Box” programme, users of the Money Saving Expert web site, and participants in deliberative research commissioned by Consumer Focus – plus a few journalists.
So what were those questions.
- Why don’t consumers vote with their feet when they’re unhappy?
Consumer Focus research showed that, in the last two years, only 7% of current account users had switched and only 17% had considered doing so. Reasons offered for non-switching included apathy, ignorance, inertia, hassle, lack of transparency over charges and rates, lack of competition between institutions, and (for some) poor credit rating. It was pointed out again and again that so-called ‘free’ banking is actually paid for by hidden charges such as the cost of overdrafts and by cross subsidisation by other products and that one simply cannot have price competition between ‘free’ accounts. One speaker asserted: “There are not good and bad banks but good or bad products”. Finally we were reminded that 1.5 million citizens cannot switch accounts because they do not have one in the first place.
- How can we ensure that banks provide ‘public goods’ such as essential banking services?
Mike O’Connor explained that the volume of payday loans has gone up four times in recent years and called for weekly as well as monthly standing orders and made a plea for more banking services at post offices. Danielle Walker-Palmour emphasised that what those on low incomes wanted above all was control of their finances with accounts that provide control over outgoings, better advice on balances, and provision of ‘buffer zones’ . One member of the public, who had professional knowledge of the universal service requirement on the telecoms incumbent BT, made the intriguing suggestion that, if a bank exceeded a certain share of the market, then it should be obliged to accept some social obligations.
- What is the role of smaller financial service providers?
We were advised that, as well as the five big banks and the four big building societies, there are some 30 credit unions providing financial services in the UK and credit unions are particularly strong in parts of the country like Northern Ireland and Glasgow. In many other countries, they have a much bigger share of the market than is the case in Britain. Metrobank – the first new bank in this country for some 150 years – was represented and he explained that to get off the ground involved overcoming regulatory hurdles, accessing sufficient capital, and building a strong IT platform. One member of the public opined that “Small is good” and mentioned efforts by her local council in Essex to provide banking services.
If there was one voice at the event that was loudest (both literally and metaphorically) it was that of Martin Lewis who declared counter-intuitively that “Banking is not a financial issue” by which he meant that it affects every element of our lives. He insisted: “Finance is boring – saving money isn’t boring”. He pleaded for financial education in schools to be compulsory and was supported by a teacher of maths who declared “We need consumers who can make rational decisions”.
So where does the Banking Commission go from here? It was established in June 2010 and put out an issues paper and call for evidence in September 2010 and it plans to issue an options paper in Spring 2011 and a final report in September 2011. Then it’s over to the Government.