A review of Basic Bank Account features,

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1 A review of Basic Bank Account features, 2003 A Toynbee Hall report By Zenobia Talati and Colin Kinloch July Overview This report examines whether Basic Bank Account (BBA) services and features have changed over the five year period between 2003 and. The government introduced its shared goal to reduce the number of people who were unbanked in 2004 and banks and building societies claim they have improved their BBA offerings in order to facilitate wider access. However, the data in this report shows that this is not entirely the case and that more can be done. Key findings The accessibility of the BBA has improved slightly during this period. People can now open an account at a younger age and providers continue not to charge customers to open a basic account. Reasons to decline opening a BBA for someone have remained largely unchanged. There has been a general increase in the number of providers offering debit cards and free buffer zones during this period. More providers are charging customers for refused Direct Debits and charges have increased slightly during this period. There is a great deal of inconsistency between services offered by each different bank or building society as well as within the same bank or building society over this period making it difficult to predict trends. It would appear that banks and building societies have been driven by internal drivers rather than market or policy forces. When trying to identify an overall pattern many of the changes providers made during this period appear ad hoc, insubstantial or erratic. 1

2 It is difficult to determine from this evidence that banks and building societies are prioritising customer needs and requirements when making changes to their services however it is apparent that some core features are still not offered by certain providers. Data from the Financial Services Authority The Financial Services Authority (FSA) publishes consumer information guides detailing the different BBA services that all banks and building societies offer their customers. The FSA uses data from the British Bankers Association to monitor the different BBA features and it publishes updated information online and in its printed guides each time there is a change in those features. Between 2003 and the FSA published 8 different overview tables of BBA services and the data from these tables has been used in this report. The format of the FSA tables has hardly changed since The 2003 FSA table contained three extra pieces of information that were removed in the subsequent tables. These were i) a column for Automated Credit Transfer (ACT) payments, which was presumably subsequently removed because all providers offered this service, ii) a column for Cash withdrawals available at the Post Office which was presumably also removed because all providers offered this service and iii) a column for Cheque book, which was presumably removed because no providers offered their customers this service. In August 2006 a separate column for charge for unpaid standing order was added. Before this date only charges for unpaid direct debit were listed. Since August 2006, the column for Debit card (Solo or Electron) was also expanded to include Maestro. However, the FSA do not specify what specific type of debit card each provider offers. The FSA table is a helpful resource however there are other features of BBAs that could usefully be captured in it. These would include whether or not counter access is permitted, the type of debit card offered with an account and whether deposits are possible at a Post Office. These are all factors that vary by account. Providers Between 2003 and the same 17 providers have been offering BBAs. There were 18 providers in the 2003 survey because data relating to the Post Office s card account was also included. 2

3 The information in this report tracks changes over time for all the providers that have offered BBAs as well as focussing on the 11 major high street providers, which account for the vast majority of the retail banking market. Below is a list of all 17 banks and building societies that offer a BBA (with the major providers in bold): Abbey Alliance & Leicester Bank of Barclays Co-operative Bank Halifax HSBC Lloyds TSB Nationwide Building Society NatWest The Royal Bank of Bank of Ireland Clydesdale First Trust Bank Northern Bank Ulster Bank Yorkshire Bank Snapshot Comparison: 2003 and The table below shows a snapshot comparison of four key BBA features for the 11 major banks and building societies using the first and latest datasets from the FSA. When discussing key features it is important to recognise that each person has different needs and requirements and there can be no one size fits all policy that all providers should follow. For example, while for many people a free buffer zone 1 could be a distinct advantage, others may feel it would be detrimental for them to have this feature because they want to ensure that they cannot overdraw their account. However, there are many services such as a debit card, Direct Debit facilities and Standing Order facilities that are clearly beneficial for people and banks and building societies should offer customers clear choices and support to meet their individual needs and enable them to feel financially empowered. 1 A small (maximum 10), free temporary overdraft that allows a customer to withdraw money from a cash machine even if their account is less than 10 in credit. 3

4 Comparison of BBA features for the 11 major providers in 2003 and Free buffer zone Direct Debit and Standing Order Charge for unpaid Direct Debit Abbey 2003 Yes Yes 32 No No Yes 5-35 (check No with bank) Alliance & Leicester 2003 No Yes No No DD Only 25 No Bank of 2003 No Yes 30 No Yes Yes 15 Yes Barclays 2003 No DD Only 30 max per account per day No Yes 15 No Co-operative Bank 2003 No Yes No Yes No Yes 19.50* Yes Halifax 2003 No Yes 30 No Yes Yes 15 Yes HSBC 2003 Yes Yes No No Yes Yes No* No Lloyds TSB 2003 Yes Yes No No Yes Yes 20 (max Yes 3/day) Nationwide Building Society 2003 No Yes 25 No No Yes 30 No NatWest 2003 No Yes 30 Yes No Yes 38** Yes The Royal Bank of 2003 No Yes 30 No No Yes 38** Yes Debit card (Solo, Electron or Maestro) No 4

5 * Account may be closed if DD refused three times **Bank may cancel SO/DD if you do not have enough money in your account to pay them on more than one occasion In four of the 11 major providers were offering a free buffer zone compared to three in Lloyds and HSBC offered free buffer zones in both periods and Halifax and Bank of offered a free buffer zone in but not in Abbey is the only provider to have offered a free buffer zone in 2003 but not in. In 10 of the 11 major providers offered Direct Debits and Standing Orders while Alliance & Leicester offered Direct Debit only, although it offered both services in This is the same number as in 2003 but with Barclays taking the place of Alliance and Leicester. In 2003 three providers did not charge for unpaid Direct Debits (Cooperative bank, HSBC and Lloyds). In, HSBC was the only provider that did not charge for unpaid Direct Debits but it could close the account if a direct debit was refused three times. Of the remaining 10 banks, five had increased their charges for unpaid Direct Debits since 2003, four had decreased charges and one (Abbey) has a variable charging rate of between 5-35 for unpaid Direct Debits compared to a fixed rate of 32 in At, six out of the 11 main providers were offering their customers a debit card, compared to just two in 2003 (Co-operative bank and NatWest). The type of debit card (Solo, Electron or Maestro) the providers offered was not specified. Access The accessibility of a BBA has improved slightly during this period. People can now open an account at a younger age and providers continue not to charge customers to open the account. Reasons to decline opening a BBA for someone have remained largely unchanged. Age In 2003, 13 out of the 18 banks and building societies surveyed were offering BBAs to 16-year-olds. Four of the banks and building societies offered the service to 18 year-olds, with Lloyds TSB offering a similar service to 16-yearolds as it did to 18-year-olds. Additionally the Post Office had no minimum age requirement to open an account. In, 13 out of the 17 banks surveyed offered BBAs to 16-year-olds while one (Northern Bank) has had an account open to 14-year-olds since Out of the remaining three banks surveyed in, two had similar accounts for 5

6 16-17 year olds as they offered to 18-year-olds. HSBC had no account available for people under the age of 18. Minimum amount required to open an account In 2003, 17 of the 18 banks and building societies required no minimum amount to open a BBA and the remaining one (Nationwide Building Society) had a 1 minimum amount to open an account. This has remained unchanged to. Restrictions on opening an account All providers state reasons why they are able to decline customers from opening BBAs. The three reasons stated are i) undischarged bankruptcy, ii) record of fraud and iii) record of bad debt. Some providers state all three reasons while others state one or two of them. There has been little change to these restrictions during the five years. Usage There has been a general increase in the number of providers offering debit cards and free buffer zones during this period More providers are charging customers for refused Direct Debits and charges have increased slightly during this period It would appear that banks and building societies have been driven by internal drivers rather than market or policy forces. When trying to identify an overall pattern many of the changes providers made during this period appear ad hoc, insubstantial or erratic. There is a great deal of inconsistency between services offered by each different bank or building society as well as within the same bank or building society over this period making it difficult to predict or even identify trends It is difficult to determine from this evidence that banks and building societies are prioritising customer needs and requirements when making changes to their services however it is apparent that some core features are still not offered by certain providers. 6

7 Free buffer zone Just over one third of banks and building societies provided a free 10 buffer zone on cash withdrawals, Direct Debits and Standing Orders according to the latest data. Several banks and building societies have frequently switched between offering a free buffer zone and not offering it over the five years but as a general trend the number offering the service is increasing. August 2006 saw the fewest number of banks and building societies offering a free buffer zone with only two banks (First Trust Bank and HSBC) offering the service. The number of banks and building societies offering a free buffer zone was at its highest in the uary and surveys. In both these periods six providers offered the service (Bank of, First Trust Bank, Halifax, HSBC, Lloyds TSB and Northern Bank), while 11 banks and building societies did not. 7 Number of providers offering a free buffer zone Number of Banks & Building Societies HSBC is the only major high street provider to have continually offered its customers a free buffer zone during all the periods surveyed. Five of the 11 major providers (Alliance & Leicester, Co-operative Bank, Nationwide, NatWest and The Royal Bank of ) have never offered their customers a free 7

8 buffer zone during this period. The remaining five providers have switched their policy on a seemingly random basis. 11 major providers Free Buffer Zone Offered 2003 Oct 2005 Aug 2006 Apr Jul Abbey Yes No No No No No No No Alliance & No No No No No No No No Leicester Bank of No No No No No No Yes Yes Barclays No No No Yes Yes Yes No No Cooperative No No No No No No No No Bank Halifax No No No No No No Yes Yes HSBC Yes Yes Yes Yes Yes Yes Yes Yes Lloyds Yes Yes No Yes Yes Yes Yes Yes TSB Nationwide No No No No No No No No Building Society NatWest No No No No No No No No The Royal No No No No No No No No Bank of Total Offering Free Buffer Zone Direct Debit and Standing Order services Most banks and building societies have always offered their BBA customers both Direct Debit and Standing Order facilities. According to the data, Alliance & Leicester and First Trust Bank were the only two providers not to offer Standing Orders while the remaining fifteen providers offered their customers both Direct Debit and Standing Order facilities. 8

9 Number of providers offering Direct Debit and Standing Order facilities Number of Banks & Building Societies Both DD only Date With the exception of Alliance & Leicester, each of the 11 major providers, offer their customers both Direct Debit and Standing Order facilities. Alliance & Leicester offered both Direct Debit and Standing Order facilities in 2003, but stopped offering Standing Orders in October Barclays began providing Standing Order services in uary. The remaining nine providers have offered both direct debit and standing orders throughout the five years. 11 major providers Direct Debit and Standing Order offered 2003 Oct 2005 Aug 2006 Apr Jul Abbey Yes Yes Yes Yes Yes Yes Yes Yes Alliance & Leicester Yes DD Only DD Only DD Only DD Only DD Only DD Only DD Only Bank of Yes Yes Yes Yes Yes Yes Yes Yes Barclays DD DD DD Yes Yes Yes Yes Yes Only Only Only Cooperative Yes Yes Yes Yes Yes Yes Yes Yes 9

10 Bank Halifax Yes Yes Yes Yes Yes Yes Yes Yes HSBC Yes Yes Yes Yes Yes Yes Yes Yes Lloyds Yes Yes Yes Yes Yes Yes Yes Yes TSB Nationwide Yes Yes Yes Yes Yes Yes Yes Yes Building Society NatWest Yes Yes Yes Yes Yes Yes Yes Yes The Royal Yes Yes Yes Yes Yes Yes Yes Yes Bank of Total Offering DD & SO Unpaid Direct Debit and Standing Order charges Banks and building societies have continually and erratically switched their policy on charges for unpaid Direct Debits and Standing Orders. The average amount providers charge for unpaid direct debits has now begun to decrease, after an initial period of increase. The number of providers who charge for refused Direct Debits has remained very high over the five years and has actually increased slightly over this period. In 2003 three banks and building societies did not charge for unpaid Direct Debit and Standing Orders (Co-operative Bank, HSBC, Lloyds TSB), which was the highest number over the five years. In August 2006 just one bank (HSBC) did not charge and at two banks (HSBC and Northern Bank) did not charge. HSBC is the only provider that has never charged its customers for unpaid Direct Debits or Standing Orders but since August 2006 it has retained the right to close the account if a Direct Debit is refused on three occasions. NB. The graph and table below refer to charges for unpaid Direct Debits only. Until August 2006, the FSA did not publish data for unpaid Standing Orders. However, in general where a Standing Order is offered, the charge when unpaid is the same as for an unpaid Direct Debit. 10

11 Number of providers charging for unpaid Direct Debits 18 Number of Banks & Building Societies Date According to data relating to the 11 major banks and building societies, the average charge for unpaid direct debits has increased since In the average charge for unpaid direct debits was 22.77, compared to in Between August 2006 and July the average charge for unpaid direct debits was at its peak at major providers Unpaid DD Charges 2003 Oct 2005 Aug 2006 Apr Jul Abbey (check with bank) Alliance & Leicester Bank of Barclays

12 Cooperative Bank max per account per day No * 19.50* 19.50* 19.50* 19.50* 19.50* Halifax HSBC No No No* No* No* No* No* No* Lloyds No No TSB (max 3 per Nationwide Building Society 20 (max 3 per day) day) NatWest ** 38** The Royal Bank of ** 38** Average DD Charge*** *The account may be closed if DD is refused three times ** Bank may cancel SOs/DDs if you do not have enough money to pay them on more than one occasion *** Average DD charge is a mean estimate based on one unpaid direct debit charged at the maximum amount Debit card (Solo, Electron or Maestro) facility Having access to a debit card is an important feature of a BBA given the resultant benefits in terms of financial inclusion but many banks and building societies still do not offer the service to their customers. Over the five years there has however been a general increase in the number of providers offering the service and it looks set to rise. The FSA does not specify which type of debit card (Solo, Electron or Maestro) but from looking at the providers own material only two providers (Yorkshire Bank and Clydesdale) offer the more widely accepted Maestro card. In 2003, just two providers (Co-operative Bank and NatWest) offered customers a debit card but this has gradually increased since October 2005 and by, nine providers offered the service. 12

13 Number of providers offering a debit card 10 Number of Banks & Building Societies Date A number of the 11 major providers appear to have changed their internal policy on offering customers a debit card since NatWest and the Cooperative Bank are the only providers that have consistently offered a debit card during this period while four providers (Abbey, Alliance & Leicester, Barclays, and Nationwide) have never offered a debit card during this period. 11 major providers Debit Card Offered 2003 Oct 2005 Aug 2006 Apr Jul Abbey No No No No No No No No Alliance & No No No No No No No No Leicester Bank of No No No Yes Yes Yes Yes Yes Barclays No No No No No No No No Co- Yes Yes Yes Yes Yes Yes Yes Yes 13

14 operative Bank Halifax No No No Yes Yes Yes Yes Yes HSBC No No No No No No No No Lloyds No No No No No No No Yes TSB Nationwide No No No No No No No No Building Society NatWest Yes Yes Yes Yes Yes Yes Yes Yes The Royal No No No No No No Yes Yes Bank of Total Debit Card Offered Conclusion There is no one size fits all policy for BBAs that providers should follow but they can do more to offer customers clear choices and support to meet their individual needs and enable them to feel financially empowered. This is particularly important given that the typical BBA customer will tend to have lower levels of financial capability and as such be less likely to shop around. The data in this report shows that: More major providers are charging customers for refused Direct Debits and their charges for refusal have increased slightly during this period. This disproportionately affects those on lower incomes. The number of providers offering a widely accepted debit card remains low with a Maestro card only being offered by two of the 17 providers. This perpetuates a form of financial exclusion within a wider context of increasing financial inclusion. There is a great deal of inconsistency between providers in the features they offer and when this is considered alongside a reduced tendency to shop around amongst the customer base it would appear that the potential benefits of a BBA will be unevenly spread. However, providers should be commended for some positive trends over the five years: 14

15 Customers can open a BBA at a younger age The number of banks and building societies offering free buffer zones is increasing, although the majority still do not offer this service The number of banks and building societies offering debit cards is increasing Thanks We would like to thank the FSA for providing previous versions of their BBA guide covering the time period of this report. An up-to-date copy of their guide can be found at the following location: 15