Pwyllgor yr Economi, Seilwaith a Sgiliau - Y Bumed Senedd

Economy, Infrastructure and Skills Committee - Fifth Senedd

27/06/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Bethan Sayed
Hefin David
Joyce Watson
Russell George Cadeirydd y Pwyllgor
Committee Chair
Vikki Howells

Y rhai eraill a oedd yn bresennol

Others in Attendance

Chris Hemsley Cyd-Reolwr Gyfarwyddwr, Rheoleiddiwr y System Taliadau
Joint Managing Director, Payments System Regulator
David Pickering Prif Weithredwr, Bwrdd Safonau Benthyca
Chief Executive, Lending Standards Board
Derek Walker Prif Weithredwr, Canolfan Cydweithredol Cymru
Chief Executive, Wales Co-operative Centre
Dr Valerie Billingham Rheolwr Polisi ac Ymgyrchoedd, Age Cymru
Policy and Campaigns Manager, Age Cymru
James Moore Cadeirydd, Cymdeithas Banc Cynilion Cymunedol
Chairman, Community Savings Bank Association
Lee Phillips Rheolwr Cymru, Y Gwasanaeth Arian a Phensiynau
Wales Manager, Money and Pensions Service
Mark Hooper Aelod o'r Bwrdd, Banc Cambria
Board Member, Banc Cambria
Valentine Mulholland Uwch Reolwr Polisi, Y Gwasanaeth Arian a Phensiynau
Senior Policy Manager, Money and Pensions Service

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Amy Knox Dirprwy Glerc
Deputy Clerk
Ben Stokes Ymchwilydd
Researcher
Lara Date Ail Glerc
Second Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 09:36.

The meeting began at 09:36.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Croeso, bawb, i'r Pwyllgor Economi, Seilwaith a Sgiliau.

Welcome, everyone, to the Economy, Infrastructure and Skills Committee.

I'd like to welcome Members to committee this morning. I move to item 1. We have apologies from Oscar Asghar, and I'm aware that Hefin David has to leave after the first session this morning.

2. Papurau i'w nodi
2. Papers to note

Item 2—we've got two papers to note: a paper from the Minister for Economy and Transport in regard to electric vehicle charging in Wales, and another one from the Minister in regard to community banking. Are Members happy to note those two papers? Great.

If there are any declarations, please also do say so now.

3. Mynediad at Fancio: Bancio Cymunedol
3. Access to Banking: Community Banking

In that case, we move to item 3, and this is in regard to our inquiry on access to banking, and that's been a very interesting inquiry and piece of work for us. We've got two witnesses to give further evidence to our work this morning. Perhaps I could ask you to introduce yourselves for the public record.

My name's Mark Hooper. I'm a director of the entity that's trying to set up a community co-operative bank in Wales.

My name is James Moore. I'm the chairman of the Community Savings Bank Association, which is working with Mark to make that a reality.

Lovely. Thank you for being with us and thank you for your written evidence in advance of this meeting also. Can I ask Mark Hooper first of all—? Perhaps if you could just open up by telling us about Banc Cambria: tell us about your journey to get to that point where you've developed plans for a community bank in Wales.

Sure. So, this has been a process that's been ongoing for some time. There was a Public Bank Wales Action Group that's been working for the last two to three years on setting up what they described as a public bank. They would have been speaking to various people to understand the issues that are being caused by the flight of high-street banks from our communities. So, this is something, I think, that was identified some time ago. There are some models—they particularly looked at the North Dakota public bank model as something that could potentially work in Wales and they came across a point whereby it was trying to find something that would actually work, that could be deliverable. At that point, the royal society of arts, alongside the CSBA, had been developing a model of a co-operatively owned bank, which felt like something that actually had a process to deliver not just a concept, but something that could actually happen, and that could happen within a timescale that could have an impact as well. So, that's where we are.

We set up a mutual at the start of the year, which has brought together the people who are interested in trying to create this bank, and they come from multiple backgrounds, so you've got people with a finance/banking background, you've got co-operators and you've got people who actually just recognise that their communities need something that's an alternative to the banks that once were there. So, that's where we are today.

We are at the start of a journey, so a lot of the questions that we'll be talking about here are plans rather than, you know—and the best laid plans and things are always things that will likely change when we get into the thick of actually making this thing a reality, but we're at the start. We're very ambitious, in terms of wanting to move this quickly. We have a process that we know we need to go to, to get to a bank. And then it's about getting a banking licence, getting the right people involved, and making sure that we're in the places that really need us. This is a place-based approach, so we're as interested in making sure that there are banks in communities with high footfall as those that are actually in places where they need a bank—so, you know, rural communities are at the heart of what we're trying to do.

09:40

There are lots of questions that come from what you said, but other Members will dig into those areas later on. But am I right in thinking that this group that was set up originally, you were part of that group as well, and then, from that group, Banc Cambria is the body that is formed from that group—is that right?

Yes. So, the entity is Cambria Cyd—I can't say it. Cambria Mutual is the entity that's been set up to—that's the project company to set up the bank.

And that comes from people who are in the public bank group and others who've been in consultation to try and make this. So, this is a wider group now than just the public bank group.

So, that's the project, and Banc Cambria is the name of what you want to take forward.

And what's your relationship with the Welsh Government?

So, Welsh Government, I think, are supportive of this, particularly in terms of—so, Mark Drakeford put into his manifesto wanting to establish a community bank. The relationship is that we're having conversations with them now as to how we can work together. But, ultimately, this is a co-operative—a one member, one vote project. So, the bank will be owned as much by Welsh Government as perhaps a shareholder, as it would be you or the shopkeeper in Ystradowen. It is actually—. This is being set up on a democratic, mutual basis. So, the reality of what will happen is something that isn't going to be owned or controlled by Welsh Government or anyone, in particular—it will be equal control across the piece.

So, it sounds like it's kind of decided. Because this is the first we've been aware of this as a committee. We're also aware that the First Minister has plans for a community bank. And it almost seems like he's got his plan for a community bank, and you're also developing a community bank. But you're telling me it's one.

So, we're working together; I think they will end up as the same thing.

Okay. So, the Welsh Government is working with yourselves to deliver what they want to achieve. That's the way you understand it.

So, I think the model that we're working towards could be the delivery mechanism for delivery of a community bank. So, a co-operatively owned bank we think is the right way.

Thank you. That's helpful. James Moore, thank you also for being with us. And I wonder if you could set out the approach in developing the model that Banc Cambria is using.

Certainly. My background in business has been largely outside of the UK. If you go to, particularly, continental Europe, you will find mutual banks are a normal part of the plumbing and wiring of the financial system, and businesses use them extensively. When I came back to the UK, I realised that it wasn't here. And, until 2014, it wasn't technically possible to have a mutually owned bank in the UK. And two things happened: the law was changed, and the Bank of England set up a unit to help people open new banks. And we used that opportunity to create a mutual local banking business. And to make sure that it works, we actually built one—in a warehouse in Bicester. And I think that what we've been looking for is partners in the different nations and regions of the UK to use that framework to build something for themselves. And that's why we're working with Mark and that project.

Just to clarify, and excuse my ignorance, but isn't a building society a mutually owned bank—and we've already got those?

A building society isn't a bank. A building society is limited in that the majority of its lending has to be for residential property, and it can't do much for businesses. So, there are different types of licence, and only a bank can do everything. So, a building society can do a subset of what a bank can do.

Thank you, Chair. I've got some questions to try and dig into and find out more about the scale of ambition you've got for Banc Cambria. So, to start off with, what number of bank branches are you looking to establish and by when?

09:45

So, we're in the development stage at the moment—so, we're in the planning stage. We’ve done some initial work alongside James, and the scale of this—branches could easily top 50 branches across Wales. The timescale for that could be anywhere between the next five, six, seven years or so. We think that we can turn this from being when it’s in the scale-up process to being profitable within five years. So, that's the sort of—. We’re looking at about 50 branches over five years. There’ll be a mix of types of branches. So, some of them will feel a bit more like the branches that we’re used to. So, there’ll be—a number of people will be working in those branches. Some of them will have fewer people and some of them may be, effectively, the nuts and bolts of the machinery—effectively, a glorified ATM delivering the services, but with a person at the other end of the screen, so you’ll be able to have real conversations.

So, it’ll be a mix of types of branches. They will be—. Part of the ambition is to make sure that this is a pan-Wales project. This isn’t something that would just be in cities and big towns. This is about rural communities; this is about having a bank that talks as much to the Welsh-speaking communities as it does to elsewhere. So, the scale and ambition is across Wales. I think we’re fortunate that this is a Welsh bank—the other parts of the UK have been split up into 19 different regions—where we’ve got an identity that we can work with quite closely here as well.

And what range of services will you be looking to offer?

So, there’s a limit to services, which I think is quite important. So, the critical thing is that we’ll be offering a current account, which is what people need for their everyday—you know, it takes your salary in, pays your costs out by direct debit and things. So, that’s the central part of it. We’ll be offering that to three audiences, effectively: so, retail customers, businesses, and then there’s this in-between bit—people who actually run businesses from their retail accounts, which most normal banks actually struggle with wanting to support. We’re really keen to support those people. So, it’ll be that sort of audience, and the other thing is we’ll be offering loans, and we hope to be moving into mortgages as well. But some of the things that we see as important are the things we won’t be doing. So, we won’t be operating credit cards; we won’t be offering mortgages for second homes and for holiday lets, because some of these things have a negative impact on our society, and we want to make sure that we do the things that work. Because we don’t have to chase the high-value items; we can chase the things that make a difference.

Thank you. In terms of location, you've talked already about the service you'd like to offer in rural communities. Looking outside that to urban communities, what sort of decision-making process would you look at as to where you would choose within those urban communities?

So, I think one of the things that—. So, the business model, as it’s set at the moment—. So, this is being developed—. So, the CSBA have done some work and said, ‘Well, this is broadly the financial model we want to look at.’ And one of the key costs in that are the costs of property. I think one of the opportunities that we have with this is to find partners to work alongside, to be able to establish ourselves in places where people are. So, for example, you could take hospitals—hospitals have space, they’re publicly owned, so we could have a conversation about how this is a publicly valuable asset to go into hospitals, where people are.

Farmers marts are another one, and, particularly, you’d want to man them when there's a market on, on those days. Other places could be community centres, leisure centres, and some of them could be our own stand-alone operations, where we take a lease on a property in the same way as an ordinary bank might do. I do think there are opportunities for us to have conversations with the banks that are leaving as well, because we all know that there's a bunch of properties out there that are empty, have been empty for a long period of time, which are owned by those banks, which we could go in and make good use of, providing we have those conversations.

Businesses in my constituency are very concerned about the smaller towns where the last bank has been lost and particularly the impact that that has on the health of the high street, moving forwards. So, I know that a question they'd like me to put to you is: would you specifically look at those communities that have lost their last bank and think about setting up a branch there?

Thank you. Also, you referred earlier to the idea of automated branches. Could you give us a bit more information about the intended mix of the staffed branches and the automated branches?

09:50

Of the 50 that's we've—please take that as a real 'finger in the air' at the moment. We need to do some real work to understand where these branches would be, and there are some gaps, even, in that analysis so far that say, 'Actually, we really need a branch in this place.' But out of the 50 branches, we would suggest about 12 of them would be more equivalent to what you would see as a normal branch, as they currently work. The others would be branches where there would be fewer people necessarily, but that doesn't mean they won't have people in there. They're like peripatetic visitors, so there'll be bank directors who will be there on certain times and others will have a smaller branch network. So, you're talking about 38 that will have fewer people in and 12 that would be increasingly manned.

I think there's an opportunity for us to increase that as well by delivering a product that is more automated into other places—it would be in the car park of a supermarket and things like that. So, I think there are further opportunities as we go down the line. I'm sure the question will come up later about the financial viability of these things. What's critical to us is that we deliver a service and an offering that matches our financial capability, so it can make a return for the organisation but that it also matches the needs of that community. 

And outside of those automated branches, a network of ATMs.

ATMs are important. All of our branches will have ATMs. They will all be free-to-use ATMs. They will be an important revenue earner for us in terms of people being able to use them. I've seen other evidence that talks about why ATMs are coming out of communities and that they're expensive to operate. Part of what we offer is a way of being able to recycle that money so that shopkeepers will be able to put cash into our machines, which then gets recycled, which doesn't happen with ATMs at the moment. 

Thanks, both, for coming in and for your papers. I want to understand how you would fare if there was an alternative decision by the big banks to do what you're doing and therefore they would be perhaps in direct competition with you. There's no evidence to suggest that at the moment, but life moves on and business models change.

I think that's a really important question. My take on it is that the big banks—the ones we used to call 'high-street banks' but aren't really in our high streets anymore—have no interest in the people who we're trying to serve. They make much more money on high-value transactions; they'd rather work with people like Welsh Government than they would small microbusiesses and retail customers that we would like to support. I think that that is something that we need to be aware of and plan for, but, ultimately, they've taken a decision. Their flight from communities is an ongoing process. All of the banks have bank branches that they want to close this year and next year. They've been doing it for the last five years. This isn't something that is ending anytime soon. So, I think we're fitting a need that's there. It was there three years ago, so we're trying to fit the need that's there. 

Hefin David.

Nobody, at the moment. We will need capital to be able to establish this bank, and we will be talking to a number of people, which could include Welsh Government, and could include local authorities, to invest in the bank. I think 'bankrolling' is an interesting term as well, given it's a bank, but I think this is about—. The model that we have can make money. These things all take time to be able to develop, so we're talking about a five-year scale-up period. After that, it should be able to provide a return to investors who are coming in. I think it becomes an attractive investment for a number of organisations—public, private and third sector—who hold cash or assets in things that are increasingly difficult to see money out of.

And the final thing is that, actually, individuals will own this. Ultimately, a bank, and our bank, will rely on its deposits to grow. If we had the 50 branches and we were at maturity, we would be holding about £0.5 billion in deposits, all being well. So, we've actually got a system of—that cash is what will make it happen. 

09:55

You're either going to need a very small number of very rich people, or a very large number of people on average incomes. We've been given the kind of figures, from Preston, for example, who are doing the same thing. They're going to need £300,000 to complete due diligence, £3 million to complete the banking licence application, and then £20 million start-up capital. Is that the kind of money you're talking about?

To get to a licence, we think it's going to cost about £600,000. And that gets you to a point where you get a licence with restrictions. The period from moving from a licence with restrictions to actually having a full licence—we'd need to probably raise about £8 million, I think, in total, some of which will be sitting just squarely with the Bank of England. And then the final tier 1 capital takes you up to about £20 million. So, in total, we're talking about just over £20 million to be able to get this thing.

So, to realistically do it, you're going to need £10 from every person living in Wales. 

That's probably not the way that we'd go about doing it. We think that there are others who can come in and provide some of that capital. But if we had every customer in Wales doing this, then this works well.

You did mention high-value investors as well. They're not a group that we're actually actively courting at the moment. They may well be people we talk to. I think there's an opportunity for us to do things that show that, actually, in Wales, we can create something of value without making people who've already got lots of wealth even richer. So, I think this is about making sure that we can give that value, which we think we can create, back to the investors—whether they be public, private small investors or local authorities or whoever.

Just to take the public to one side for a second. Why would a private investor invest in a model that commercial banks are abandoning because it doesn't make a profit?

I believe it does make a profit for them, it just doesn't make sufficient profit. So, we think that bank branches—. This is James's work more than ours, but our work would suggest that bank branches can be profitable, they're just not at the same level of rate of return that the big branches can get. And they're not as easy. Ultimately, it takes more time and effort to be able to deal with a small customer who's got an income—. For the types of people who are finding it difficult to access finance in the small business community, they're carrying balances of about £30,000, £35,000 a year. It's really difficult for them, when they do need finance, to be able to utilise that. So, they go through the computer and the computer says 'no'. We'll have people who will know those—. The skills to know those people are still out there, so those will still be able to help them to gain access to the services that they need.

That's assuming that you get past this five-year period you identified—the start-up process. Is it really attractive for a private investor to sink costs into something that may be making a profit after five years?

That's how investment works. This is a start-up. We have a plan that we think can turn a profit. We recognise that to get to that plan we need—. I think Matthew talked about 60,000 customers when he gave evidence. We think, in Wales, it's probably somewhat south of that. So, somewhere between 40,000 and 50,000 customers over five years. And that then starts to turn a profit. 

But that's to increase the amount from £10 per member of the population to something quite significantly higher.

But it makes a profit. So, it's not £10—their balances will be whatever their average bank balance will be. So, they won't just be putting the £10 in there—it will be their bank balance in there that will be utilised.

Okay. Bear in mind I'm asking these questions—. I think your idea carries a lot of merit. I just want to get to the bottom of the financial aspects of it.

With regard to public finance, you mentioned local authorities might be interested, Government might be interested, but the First Minister said, in answer to the Chair just two weeks ago, that it does not involve large sums of public money as a subsidy. And, as I understand it, it's not going to be much that you're going to get from Government, and I would be surprised if local authorities, by the same token, would be willing to invest much. 

10:00

I don't think there's any subsidy, so I think the terminology about this is as an investment, so this is about them, whoever they might be, investing for a return, and we wouldn't expect them to invest for anything other than a return. So, this isn't about being after free money to make this thing viable. I think the broad brush of investors, which could include a number of organisations that are sitting with a bank balance, would find this an interesting proposition. And it's a proposition that is competing with other things that public authorities are investing in at the moment, which could include things like retail parks and things like that. We've seen other investment opportunities, I think this is much more compelling. On top of that, not only is it a financial return, it has a social return as well. So, I think, whereas other things can talk about, 'We can deliver an x per cent financial return', we can do that and say about our work in communities that, on a political level, a lot of these local authority leaders recognise as communities that are in need of what we're offering.

But isn't that similar to the argument that was put by the people behind the Circuit of Wales? It's a similar proposition.

Not at all. I think they're completely different propositions. I think that—

Well, you're asking for investment—'You'll get your money back from massive returns from what we're trying to do'. It's taking a chance on something.

We're not talking about massive returns, we're talking about good returns. The key reason that our branches will be able to make a return is that our bank accounts are chargeable bank accounts. So, we know where the revenue that funds this comes from. So, people who are running personal accounts will be paying £5 a month for this account, people who will be running business accounts will be paying £10 a month for the account. Based on the number of customers that we'd have that we think are going through these branches, there's a margin to be made on those customers, which, as it scales, would then be deliverable.

And by that token, any investment that you ask anyone to make is, by definition, a risk. There is risk associated. So, you are asking for public money to be put towards something that contains something of a risk, and we probably could dispute the extent to which it's a risk. That is certainly the case.

Without a doubt, this is a risk. There are a couple of things that we are doing to mitigate that risk, and part of it is about working with a model that's already being developed and being developed elsewhere across the UK. So, I think that mitigates some of the risk. Also, the delivery of the service contracts, we already have people who the Community Savings Bank Association can introduce us to to deliver certain parts of the contract at a certain price. So, we're managing some of the things quite effectively. But I think, when it comes to public money, we need to make sure that we deliver to certain targets at certain timescales to warrant the next stage of the investment, and at each one of those, we'll know whether or not the market is sufficient. I think we'll understand what the challenges of achieving—we'll go on to, I'm sure, the challenges of achieving a banking licence and the timescales that will take. We'll get closer to understanding that. We've got three other banks that are already in touch with the Prudential Regulation Authority, who said, 'We want to have one of these banks.' So, they're in process and we're learning quite a lot from how they're finding that process that will be able to—I'm not suggesting they make mistakes—make those things quite quicker. And people like Preston, so Matthew's model—they're behind us in that process, so they'll learn from us. We're speaking to them, and the north-east the same.

I wasn't asking you to stop, I just wanted to indicate to the Chair that I have one more question. With regard to the information you provide to the Welsh Government, particularly the business plan and your profitability and cost forecasts for the five years that you've identified, there's going to be a degree of detail in there. Is it in the public interest to release that detail and make it available, for example, to this committee?

I think there's some stuff that's commercially sensitive to be able to just release on that. I think banks are obscure organisations that are very difficult to understand. One of the things that we're quite keen to do is to make sure that what we do is transparent throughout. So, we will do everything we can to release the information, not just to this committee, but beyond that. If we want to create a sense of trust within the people who we want to buy into this concept—

10:05

So, when are you going to do that? Because I know you've already expressed an interest in Welsh Government—

So, there are two things that are important. One is that the model that we have at the moment is the model that's being developed by the CSBA. Part of the next stage of the job of the team that I'm working with is to develop our own regulatory business plan that will go to the PRA. That'll take the best part of 18 months or so to work through. So, at the moment, the business plan—we talked about 50 branches. As I suggested, that's a starting point. We'll narrow down exactly what that may look like over the next 17 months in terms of a plan. So, at every stage of that, we'll be open and transparent. I don't think there's any benefit at the moment to necessarily talk through the plan as it stands now; I think there's every benefit in talking through the plan as it starts to draw itself out. Ultimately, the investment from whoever—whether it be Welsh Government or whoever it might be—will be—. If there's public money involved, then I think the wider public interest would say that, actually, this is something that we can talk about more broadly—

Well, there's loads. There's a lot of work to be done. There's—

Work to be done, but there's not much data to give us today.

Can I make a suggestion? What we've done is we've created what we call the 'bank in a box', and it's got two elements to it. There's all that you need to apply for a banking licence, which is a long, detailed process, and that's about 800 pages of documentation, and we actually built one of these things in a warehouse in Bicester. You would be welcome to come and see both. So if you want to answer some of your questions, seeing how these things work might be the easiest way to do that. I'm perfectly happy from our side to answer all your questions and show you the detail of what's there at that stage.

Thank you for that offer. We can consider that. We've got quite a tight schedule in the autumn term, but I appreciate the offer. Thank you very much. Do you have any further questions, Hefin? No? Can I just check, as well, with you, Mark: in terms of financial support from the Welsh Government, how much seed funding are you going to be requiring from Welsh Government to support your model?

The contributors to that seed funding, we don't know. We're in conversation with Welsh Government; we hope they're one of them. We think the seed funding is about £600,000. That includes the licence application fee, preparing the business plan, doing the work around where the markets would be and, most importantly, providing—. James mentioned the regulatory business plan. So, the one thing that is critical to this is that the PRA and the Bank of England actually recognise that this is a business that could work. So, one of their key challenges isn't—. It's making sure we've got the right people, it's making sure we've got the right processes, the right attitude to risk et cetera et cetera, but also that we have a business that could work, so we can make the margins to be able to pay the investors et cetera et cetera.

So, the total amount of seed funding you said was—

So, £600,000 is the seed fund.

Okay, but that could be divided between a number of organisations and investors or supporters, and you are hoping that Welsh Government will be one of those contributors.

We're talking to a number of people, including Welsh Government.

Okay. And what's Welsh Government's response? What's their—?

The Welsh Government are supportive. I think they see this as an opportunity. I think they see this as something that they would like to support, providing we can manage, as Hefin challenged, the risk of each step. I wouldn't expect £600,000 to land in our lap one day 1. I think there's a process that we need to do to prove that there's a market and there's an accurate timescale as to what we will achieve and when. I think that's part and parcel of it.

And the final—. The big money, when it comes to needing £20 million to capitalise it, most of that should be at the point where—or the vast majority of it—we've actually got the PRA willing to give us a licence with restrictions. So, the risk profile of this actually decreases the closer we get to having a banking licence. The tough gig, then, is to go out there and get customers to join this bank. That's the challenge.

You may have answered this in response to Hefin, but in terms of capital funding, will you be requiring the Welsh Government to support you on capital funding for the project? 

10:10

I think there'll be a number of sources that we'll be looking at for capital funding. There are many organisations in Wales that hold either cash balances or investments in other things that we would be interested to talk to, and have started those conversations. Some will have a bigger risk appetite than others, but I think the vast majority of them will be at the back end of this, which is when I said the risk profile will have changed significantly. 

If you take the other banks in other areas that have raised investment, they have a number of local authorities that have invested in them, they have a number of other public bodies, and they have some—and some have more than others—high-net-worth investors who've invested in this. So, there are proven investors elsewhere in terms of the model. I think we have an audience that we'd like to talk to to invest in what we're trying to do who have the interests of Wales at heart. 

Okay. Thank you. I'll come to Bethan for the next set of questions, and then I'll come to Joyce. Bethan Sayed. 

Diolch. Dwi jest eisiau gofyn ynglŷn â—. Fe wnes i golli diwedd y cwestiwn ynglŷn â'r building societies, ond roeddwn i eisiau gofyn ynglŷn ag agwedd ffederasiwn y meistri post—eu bod nhw'n credu y dylai mwy o waith fynd mewn i'w helpu nhw i greu potensial yn hytrach nag, efallai, creu system newydd fel hyn. Felly, beth yw'ch barn chi am hynny?

Thanks. I just wanted to ask about—. I missed the end of the question about the building societies, but I wanted to ask about the attitude of the National Federation of Subpostmasters—that they believed that more work needed to go into helping them develop their potential rather than creating a new system such as this. So, could you tell us what your view is on that?

Did you get that?

I've got it. I can hear it now. 

Dwi jest yn gofyn ynglŷn ag agwedd y meistri post. Roedden nhw'n dweud mai'r system mwyaf effeithiol fyddai ehangu potensial rhwydwaith y swyddfeydd post. Allwch chi esbonio pam fyddech chi, efallai, yn anghytuno neu gytuno gyda hynny? Dwi'n cymryd y byddech chi'n anghytuno. 

I just wanted to ask about the approach of the sub-postmasters, who stated that the most effective system would be to expand the potential of the network of post offices. So, could you explain whether you would disagree or agree with that? I take it that you would disagree. 

Yes, we would disagree. I think if you look at the type of services and the type of customers these banks are targeting, it's something very different. I also read in the sub-postmasters' written submission that they were getting paid £2 an hour for providing banking services, and what we have in our model is something much better than that. But I think it's a different thing. The sub-postmasters are putting money into an Irish bank that can be used anywhere. What we want to do is create a bank where those deposits are used within Wales. With all respect to the sub-postmasters, I don't think standing in a queue for people returning their Amazon packages is the place you'd want to be discussing your financial needs. I think it's a different environment. It's something where many of those sub-postmasters could be the hosts of some of these automated branches, and that would be very sensible co-operation—the customers are there—but I think it's something quite complementary and quite different. 

Ac wedyn, jest o ran yr undebau credyd, mae'r Cambrian Credit Union wedi dweud eu bod nhw'n meddwl y byddai hyn yn cael rhyw fath o effaith anfwriadol a thynnu aelodau oddi wrthyn nhw. Yn sicr, dwi'n gweithio gyda—wel, does dim diddordeb gen i, ond dwi'n gweithio gydag undebau credyd yn fy ardal i sydd yn gwneud gwaith da iawn. Yn sicr, fyddwn i ddim eisiau bod unrhyw beth yn cael ei gymryd oddi wrthyn nhw. Beth yw'ch barn chi ar hynny? Ydy e'n hollol wahanol?

Just in terms of the credit unions, Cambrian Credit Union have told us that they think that this might have unintended consequences in that it would draw members away from them. Now, I work—I wouldn't say I have an interest in them, but I do work with credit unions in my region who do very good work, and I would certainly not wish to see anything being taken away from them. So, what is your view on that? Is it entirely different? 

I think you're absolutely right. I think credit unions are a natural partner, not a competitor for this. And if I look at what's being proposed in different regions of the UK, in places like greater Manchester, where there's a very strong credit union movement, they're one of the prime movers behind this, because they can see that it offers things in addition to what they're doing. I think the other thing to bear in mind is that every credit union needs a bank, and about half the money that people pay into credit unions, the credit union simply pay it into a bank, and I think a bank like this would be a better option for that. But we've also, in places like London, where credit unions are working to see how services credit unions can offer, like mortgages—they can benefit from the banks applying those mortgages. So I see credit unions as a complementary and natural partner to this.

Yes, they do. They provide unsecured loans, small amounts for short times, at very high interest rates. What we want to be able to do, because these things are a serving a lot of people, is supply loans at much lower rates of interest. But a large part of the business of these banks will be dealing with small businesses as well as individuals, and that's quite complementary. So I think we would be very helpful for credit unions.

10:15

Can I just add as well that we've got people from the credit union network who have been involved in this journey for a period of time, so we recognise the importance of them in the market? But there is a note of caution insofar as, when we're putting together our banking licence application, we need our board to be able to make decisions that are independent of other influences, including Government, including credit unions and others. So, our product range, our pricing, and things like that, will be set as an independent body. So, we just need to be aware of that. But I think there are real opportunities, and we will start to engage with them more about sharing opportunities for premises, perhaps putting some of these automated ATM machines in premises that they're paying rent for, so there could be a rental income that goes directly to credit unions and others. We see this as working together. Ultimately, the space that we're trying to fill is the space that's been vacated by the big, formerly high street, banks. It's not the credit union network. 

First of all, can I ask, because we're all guilty of it, that when we just use initials, that we try first to use full words? Because we're speaking to an audience of people who have probably—at least we hope we are, and you hope you're going to—no understanding of what all these acronyms mean.

Anyway, I want to ask questions around the regulatory process and where you are within that. I would like you to clarify where you are in the process of achieving the necessary regulatory approvals that we've spoken about to obtain your banking licence. 

Shall I outline the process? The Bank of England publishes the process for getting a banking licence now, and there are three distinct phases. There's what they call pre-application, which is where you're going through the initial thing where they have a sort to see if you're capable of achieving a banking licence. Then you apply. And when they're convinced that you are capable of running a bank prudently, you get a provisional licence. They call it mobilisation. And in that time, there are certain conditions placed on you that you have to satisfy before you get a full banking licence. That process typically takes 18 months to two years. Where Cambria is at the moment is preparing to go into that pre-application phase.

Pre-application. Okay. And what do you think are the greatest challenges in obtaining those particular licences?

I think raising the money is the easy part of it. I think the harder part is finding people who've got the right balance of skills and ethical motivation for wanting to create something in Wales with these characteristics.

I was going to pursue that, anyway—the skills—because clearly that's going to be possibly the biggest challenge. And you're asking, in this pre-application stage, people to be quite generous, because you're not going to pay them, to offer those skills in what is a very small country, really. So are you confident that you can attract people to do that?

I think there's a window of opportunity. I think, first of all, we tell as many people who were bankers in a system that was kinder than the one we have just now—and we're quite keen to return to that—that it gets them into heaven, and they haven't got many opportunities left to achieve that. I think there's a time when those people have still got 10 or 15 years of working life left in them where they can be the foundation that can create the next generation coming along behind them. I think, if we don't do this in that time, it will be much, much harder. 

But also, you're hoping to work in rural areas, and rural areas—the ones we cover, anyway—are full of people who've retired from very good jobs and so there will be a lot of skills there, and I'm assuming that you're, perhaps, tapping into some of that. Because my understanding from some of the credit unions is that they've struggled with that, with trying to get a skill set, and consequently run into problems. So, have you spoken—I know what you said about the separation—but have you spoken to credit unions to understand why they've struggled and where you might not struggle?

10:20

We've spoken to credit unions in many places. I think one of the big problems that credit unions have is one of scale, and these banks will be of a scale much greater. Credit unions, because of their lack of scale, have had to rely largely on a lot of volunteering and people's goodwill. The assumption in our business model is that these banks pay very good salaries and can attract people. So, as well as having the ethical tick, you can also pay the mortgage. So, there are business propositions, and I think that will overcome many of those problems. I don't think there's a shortage of skills but, as you say, there are people that need to be attracted into this.  

Okay. So, the Community Savings Bank Association, CSBA, is working with a number of other organisations around the UK to establish community banks, and using that particular model. So, can the CSBA outline whether you are any—? Sorry. Can you tell us whether you belong to any of the organisations that have obtained banking licences? 

No, none of them have got that far in the process yet. There are three organisations that have applied for a banking licence, and they are some way through the process they're in. But until 2014, it wasn't actually possible to do this at all, and it's quite a long process. We've also slowed a lot of them down, because we wanted to make sure the points you were making about risk and viability—that we had nailed all of that before wasting anyone's time and effort.  

So, they haven't actually got the licence, but have they got beyond the pre-application stage? 

Yes. The one in London is the furthest ahead. And if I look at what's happened in the south-west, they're not far behind them; that's Devon and Cornwall. And the process has been slowed down a little bit by, dare I say, Brexit. For a lot of the European banks that used to have a licence to work, you had to re-apply and get a UK banking licence, so there was a bit of a queue. That's now gone, so it's now back to business as normal.  

So, is that a potential problem for us, say, if we pull out of the European Union? 

No, not at all. The regulations are completely separate. It's just that there was a queue of European banks applying for a UK licence. 

Thank you. I'm looking at your written evidence, Mark, and you mention that you're going to seek to ensure that those furthest away from access to financial services are not left behind. Can you just expand on that? 

I think that's critical to why we're doing what we're doing, to be honest. I there are a number of practical ways we can make a difference. One is about place. It's about being in places where the banks used to be, because I think access is a critical factor. There are some opportunities whereby people currently who are furthest from financial inclusion actually get charged more for normal services. So, if you don't have a bank account, it's very difficult for you to be able to buy utilities on direct debit, which come with a discount. So, there are some conversations with some of the big utility providers, not necessarily in Wales but elsewhere, about whether or not the fee for payment may be paid for by those utility companies to get people into a banked environment rather than having to rely on meters, and so on and so forth. 

I think another important point is that, at the moment, banking charges affect poorest people the hardest. So, if you were to have an unauthorised overdraft, you'd be charged. You tend to get charged every time there's a letter, you tend to get charged every time—. We're going to be completely transparent with our fees. We're also going to—. We've also got live data so people can't go into an unauthorised overdraft. Our balances update when you spend your money, so it's not as though it has to wait for an hour lag or a day's lag to be able to update the data; the systems update in real time, so we will always be able to help people to manage their finances that much better.   

And the costs at the moment—. There's a fallacy that there's free banking. There's not free banking. My ability to have a free bank is the fact that other people are being charged disproportionately for not using the services in the way that banks want to use them, and that's something that we're quite keen to go against. And this becomes part of how we can explain why we're different to the other banks, because there's challenger banks out there who you could argue aren't challenging the things that people are really concerned about. People are concerned about charges. People are concerned about things like high bonuses. People are concerned about moving out of our communities. So, they become our marketing speak as well; these are the things that we want to talk about to attract people. 

10:25

I'm just trying to square what you're saying with another extract from your evidence to us, where you talk about aiming to open at least one branch where the customer base is evidenced as suffering particularly badly from financial exclusion. You've mentioned one bank; well if you talked about 50 banks, I would have thought you open many of these banks where there are issues—

If I can clarify that, that's in relation to when we start. When we kick this whole thing off, we want to make sure that at least one of our branches is clearly in a place where financial exclusion is recognised as an issue. So, we may—. I'm not going to pick towns out of a hat at the moment, but there may be places that we think, actually, we can learn something that can help us to expand our network in towns and villages that suffer from the same issues as that one has. So, that's a place-based approach to our launch, rather than our overall strategy. We will have—. The majority of our branches will be in places where financial exclusion is a problem, because it is a problem across Wales. 

Okay. I'm looking perhaps at James for this question. The First Minister was very keen to open the first bank before the end of this Assembly, which is in May 2021—the next Assembly elections. But you've talked in your evidence of the—I won't say 'complications'—but the time it takes, the regulatory time process it takes. Is it possible for the—

Just. Okay. That's a nice clear answer. Do any other Members have any other questions at all? Joyce Watson. 

Thank you. Back to the financial exclusion. Credit unions were really funded by the Government—and I'm a member of a credit union, so I'll declare that—for that very purpose. So, how do you think that you're going to succeed where they failed? Now, I know what you said about it being a much bigger operation and more expertise, so there's no need to repeat all of that again. So, in terms of attracting people—I suppose that's the answer I'm looking for. 

Just briefly, I think the opportunity that we have that credit unions don't have is because we are a bank. So, a current account is critical to this. There are not many, but there's a group of people who are financially excluded who don't have a current account, so that is part of that issue, and how we address that is to try and get perhaps other people to pay for their—. So, utility companies, we spoke about before, may well be the people who pay their fees to get on to it. I think the other thing is to be able to offer a rate, if it is about loans, that is effective and something that people can afford as well, rather than some of the charges there. I think the critical thing though is that credit unions aren't a group that this bank is trying to address. The failure in the market is in high-street banks, as they were, leaving, and leaving a space that we're intending to occupy and be part of. 

I know, James Moore, that you were a bit sniffy about building societies, but Principality is an example of a building society that is actually doing the opposite of what banks are doing, in keeping branches open. And also, they've actually got an awful lot of sunk costs and maybe you don't need to replicate some of those sunk costs. What kind of dialogue have you had with the like of Principality?

We've started a dialogue and it's been extremely positive. They're interested in what we're doing. We've met them at board level. We'll be meeting them again soon to find out where we can find ways to work together. We both—. I had a conversation with their chief executive this morning that talked about us mutuals working together to help to be part of the answer to Wales's economic issues, rather than it being something that the private sector come into.

10:30

And is that a kind of spreading of risk and spreading of cost with them?

They've been around for a long time. They've been working with the regulators for a long time. I think they've got experience that would benefit us, which I think we are keen to work alongside. And then other things are about—they have premises, but they don't offer a current account. This could be part of an added solution. The answer for this sector isn't to compete with each other. The answer for this sector is to find ways that we can work alongside each other for the benefit of all of us. This is an answer, I think, we are all trying to come to, which is concerned about place, but it's also concerned about people who are left out of the financial system as it is at the moment. There's a lot of work we can do together on this.

Okay. Is there anything else that you feel is useful for our piece of work that's perhaps not been drawn out through questions at all?

I've just got one. I think the challenge—. A banking licence is hard work; I think we need to recognise that. But the biggest challenge for us is to be able to persuade people to come and actually change their bank. It's a hard thing to do. This sounds like I'm coming up with a negative reason for this at the moment, but that tells us, actually, that our opportunity is to have conversations about the things that really matter to people. I referenced before that challenger banks aren't necessarily challenging the things that matter. We've got a lot of people—banking's an important everyday part of life; people need it for their everyday life. And, at the moment, they feel that they're out of control of it. A co-operative answer to banking could be part of that solution, and that's what we're trying to do. So, what I'd like the committee, perhaps, to go away with an understanding of is that this isn't—. I think you know it's not going to be easy, but it's something where the challenge is to deal with the issues that people actually really do care about. They care about branches closing, they care about high bonuses, and they care about people trying to sell you things you don't actually need, and they're things that we're not going to do, so this is quite different.

I suppose one of the issues that we're grappling with as a committee is having evidence from others, including building societies and the Post Office and others, saying, 'We can do this and we've already got the structures in place and it's very complicated, with the regulatory requirements and the process and the time it takes and the capital; we are all set up, we can do it.' These are some of the issues that we're grappling with as a committee.

Can I respond?

I would ask them in return, then: 'Why haven't you?'

Okay. Well, their answer would be, 'Because it's not financially viable to do so, but if we have public subsidy or Government support or investment to do so, then we could achieve that.' But your answer would be, as you said earlier, that it is viable.

It is viable. When we originally did this thing, we listened to all the banking myths about how unviable retail banking was, and then the Competition Commission actually analysed it, and retail banking is extraordinarily profitable. If you can close your branches, you can add to that extraordinary profitability, but you don't need to close them to be extraordinarily profitable. It's a choice, not a requirement.

James said exactly what I was going to. The market is failing people. It's been failing for a long time. We're not the solution; I think we're hopefully part of the solution. So, the others that you talk about can be part of it. And we can help. We'd like to work with them rather than—. I'm repeating myself a bit on that, but that's key.

Okay. Thank you for your time. This was a really interesting session. Thank you for your evidence papers and thank you for your time this morning. If anything else comes up in the meantime that you think—as other evidence comes to us from others and you feel that you want to respond in some way, then we are very much open to receiving that.

And you're welcome to come to Bicester and see what we've built.

Thank you for your invitation as well. We'll consider that; thank you.

We'll take a 15-minute break and we'll be back at 10:50.

Gohiriwyd y cyfarfod rhwng 10:34 ac 11:04.

The meeting adjourned between 10:34 and 11:04.

11:00
4. Mynediad at Fancio: Rheoleiddwyr
4. Access to Banking: Regulators

So, I move to item 4 in regard to our inquiry on access to banking, and we have two witnesses before us in terms of our scrutiny in terms of regulation in this particular area. Perhaps if I could ask the witnesses to introduce themselves for the public record.

So, I'm Chris Hemsley. I'm the co-managing director of the Payment Systems Regulator—so, we oversee most of the main payment systems, and that includes, in the context of this inquiry, the LINK network and the cash machine network that that supports.

Okay. Dave Pickering, the chief executive of the Lending Standards Board. Our specific interest here is we oversee the access to banking standard for the industry, which is the voluntary code that banks sign up to to communicate with customers post closure.

Lovely. So, banks and ATM operators—are they essential public services, do you think?

11:05

Do you want me to start?

So, I guess some observations from our perspective on that question, I think, are—

That's what others have suggested to the inquiry, so I'm putting it to you.

Yes. So, I think cash remains a really important part of society. It's still really important for most people and most businesses make use of cash and rely on it to buy the things that they need. That is part of our role, so that's why we've been focusing on making sure there is that good access to cash through the LINK network and also why this remains a priority for us, going forward, to try and work out what else needs to change in order to support society's access to cash.

I would say I think the simple answer is, 'Yes, they are essential services.' What we see from the banking perspective is very much, though, it's around the multichannel approach to banking and to access to banking. So, having a strong bank branch network is essential and a strong access to cash network is essential. I guess it's how that's actually—how the infrastructure itself is actually formed, I guess, that is the key.

We had some written evidence from Unite the Union, so I'll just read out a statement that they provided to us, and tell me if you agree with this or not:

'it is vital that the sector is forced to recognise its corporate social responsibilities to its customers, its staff and also to the local communities within which they gain their profits'.

Agree? Disagree?

I think I agree with the importance that they've—what they're saying there is that people need a good choice of how to pay if they're going to play a role in society. It's critical to our day-to-day lives. So, it is really important, both for electronic payments and for those that don't want to use electronic payments, that access to cash. So, I certainly recognise all that and recognise that that combination, which, David, you were just talking about of banks, the Post Office, ATM providers—they all have that important role to play in meeting society's needs.

I'd agree with the sentiment. I think there is a big challenge for providers of these services now, like the banks, the ATM providers, to just find out what the best, the optimum route is to deliver those services. It's become an incredibly challenging environment, and there's a great push out there for the digital economy as well. So, I think it's actually striking that balance.

I think the commitment—I sense the commitment's there from the work that we do. I think that the standard that we oversee now—the predecessor, for example, to the access to banking standard was the access to banking protocol, which wasn't independently overseen; it was a standard the banks just self-regulated on. This is one that they've actually now opened themselves up to independent monitoring on, which I think is a step forward.

That leads us nicely on, and good morning. If you could outline the role and the status of the Lending Standards Board and its establishment—so, you've sort of started—.

Yes. So, Lending Standards Board is an interesting—. Its predecessor was the Banking Code Standards Board. So, it was set up originally in 2001. It was set up by the banks. It was sponsored by, at the time, the trade bodies, the major trade bodies, and it was there, really, as the industry's, I guess, response to plug gaps in regulation. It became the Lending Standards Board in 2009, when the 'Banking: Conduct of Business sourcebook' came in from the Financial Services Authority at the time, and then it became the LSB—we're known as the LSB now. Clearly, obviously, the title itself is 'lending', but where we've been seen more in the past two or three years is very much for the Lending Standards Board to broaden its remit, and, actually, we're seen very much now by the industry—. Two major things have happened: (1) we were seen very much by the industry, going forward, as an organisation that can offer that independent oversight of areas that complement statutory regulation—so, where the statutory regulator doesn't currently regulate, we're seen as a very good vehicle to offer an independent voice out there in the industry to assure on standards. And that independence point is important because, whilst we have firms that we currently oversee, we have an independent board and we operate very much—we are not a trade body, basically. So, a trade body operates for its members, quite rightly, and lobbies on behalf of its members. We're very much seen as the—whilst we have registered firms with us, we independently oversee those firms, and we have independent challenge from our board as well in the work we do.

11:10

Right. Good. Thank you. So, perhaps to both of you, to what extent do you think the impact is of closures of banks on local communities, local businesses and individuals? Do you think that all of that is taken into account by the banks themselves when they're thinking of closing?

Would you like to pick that one up?

Yes. They do. So, the work we do—. I guess the value of the independent oversight now on the access to banking—we've already done, actually, two thematic reviews. So, we've looked at two major sets of closure programmes across all the banks that have actually signed up to the standards. So, we've got a bit of an insight into, I guess, the level of scrutiny and due diligence that those organisations undertake before they get to the point at which they close the bank. So, there is a lot of work, there's a lot of data, a lot of analysis. Whilst we don't opine on the pre-closure process as such, and very much the decision to close is the bank's decision, because we don't get involved in the commercials, what we do pursue, though, is that we do look at the level of due diligence that that organisation has undertaken before it makes its decision. And that does include looking at the local information, the throughput [correction: footfall] of customers, et cetera.

So, there's a lot that goes into it before the decision is actually taken. Usually, what often happens is that they have a list of branches that are—and then, quite often, they'll have a discussion and they'll pare that list down to the ones where, actually, it just isn't viable now to have that branch open in that particular area. So, there's a lot of work that goes into it beforehand. And we see that and, to be honest, if we felt that the decisions had been taken very, very lightly we would flag that up. We don't see that, if I'm being honest.

I think, once it gets beyond that point, the standard does kick in and we look at things like the information that's provided through, for example, the impact assessment. So, the impact assessment and the communication—that's where the banks themselves will actually put down, lay down, all the information around the rationale for the closure and then also where customers can actually access that information. Two things that I know for a fact that do factor very heavily into it: the level of vulnerability that's prevalent in a particular area—so, the banks do take into account vulnerable customers and whether there is a particular need for that service in that particular town—and I guess the other area is really around small business as well. So, certainly there is a focus on small business and access for small businesses to access those services.

So, you've told us all of that, and yet I cover a rural area and I know that places have been left without any banks, with very limited alternative services and, in some cases, none. So, I'm just confused, really, in terms of how all that works. Because my first question was on the impact on the communities, and I suppose there are two impacts, aren't there—one that they're leaving buildings empty, right in the heart of town, so there's that impact, but, more crucially, where they put in alternatives, like mobile banks, we've been told and we've had evidence that they're running out of money and businesses want cash flows and that there isn't enough money, that they're not private enough for people to conduct their business. So, having looked at the programme as you understood it, do you go back at all and review it as to how it actually is? Do you have that power?

11:15

Yes, we do. And, actually, on that particular point, I can take that point away, around the mobile. Because, obviously, one of the solutions in the rural areas—and it's certainly true, certainly in Scotland, Wales, and parts of England—for a number of the banks is to provide mobile banking. There's obviously the Post Office. I don't know whether—in that particular example you've got, there should be a post office that does offer fairly basic cashing-out services. But, clearly, the mobile service is one of the services that is offered, and that's something that we would—. We do pick up thematic reviews, so we don't just—. What we've done—. I guess the first review was very much—. Because we've only picked up this standard for the last couple of years, basically. So, we've done two fairly major pieces of work, both of which have generated findings, recommendations, for improvement. But, clearly, what we can do as part of that is we could undertake, for example, a piece of work that looked at specifically the rural areas, and, I guess, the adequacy, or otherwise, of the mobile offering.

Okay. Well, that's only a part of it, because you mention post offices, and people have told us repeatedly that some services are okay in a post office, but you can't—you don't want to talk about your business alongside somebody who's buying a packet of crisps, maybe, and there's not always the privacy afforded to people. So, what I'd like to know is an overall of—and, if you can, if you can outline the way in which access to banking standards are actually being implemented in Wales.

The way in which, if you are doing it, the access to banking standard is being applied in Wales.

So, we've looked at—. We've looked at every closure programme in the last two years. So, if there have been closures in Wales in the past two years, then we will have looked overall at those overall closure programmes. We don't go into every—. We clearly don't look at it on a branch by branch—we just haven't got the resource to look at it on a branch-by-branch basis. Because, for argument's sake, supposing a bank closes, I don't know, nationally, 100 branches, then we would have to look at it very much on a sample basis. So, whether we've actually delved into a lot of branches in Wales, or not—I suspect we haven't been to a lot of branches in Wales, but we will have looked across a sample of how—. What tends to happen is that a bank will tend to operate the same process across. So, if it runs a closure programme of 100 closures, for example, the way that that is put into practice will be universal across the piece. So, we tend to look at maybe a sample of branches, and we tend to find that, actually, it is the same process that's applied. Clearly, the impacts are different in different towns, but we will look at it across a sample.

Thank you, Chair. I've got some questions around the process for bank branch closures, so they'd just be for yourself, David, regarding the Lending Standards Board. First of all, can I clarify that the access to banking standard only applies when a decision has been taken to close a bank branch or to reduce its opening hours by more than 30 per cent in one year? Is that correct?

To your knowledge, has any bank ever reversed a decision to close a branch, in light of response from the local community?

So, since we've picked up the standard, there's probably only been—. There has only been, I think, to my knowledge—. I think, to my knowledge, there's been one instance of that, which was up in Scotland. But that was done due to an independent review that one of the banks up there did for a number of its—. So, I think a couple of branches, two branches—they reviewed 10. They reviewed 10. They were asked to review again some of those branches; they undertook an independent review, and decided to retain two of those banks. That is the only instance, I have to say, mainly because, probably, as I said at the outset, the process that they've gone through to get to the point at which they make the decision is a pretty long process. It’s taken over a very long period of time, using a lot of information. So, once they’ve got to that point, it’s probably got to the point where they’ve, I guess, looked at all the different options open to them that they've got for the branch.

11:20

So, what was the difference in this one case, and would you be prepared to tell us, first of all, what bank it was? Was the difference that they actually went to the local community earlier on in the process, whereas what we tend to see here in Wales is that banks only reveal their decision to close to the community when it really is a fait accompli?

So, I think—. There is a topical debate around at what point should the consultation process take place, should it take place before or after. There are—. It’s not quite as straightforward as that, because, clearly, there are quite a lot of difficult decisions and conversations that need to take place prior to the closure programme. So, there's the local—there are the staff, for example, of the bank itself, which has to be managed quite carefully. And, sometimes, it could set quite high expectations if you end up having a consultation prior that makes people think, actually, this is going to change things, and, if it doesn’t, then that could actually have quite a negative effect. So, I think, at the moment, the way it works—. And we really do, literally—. You’re absolutely right, we get involved, clearly, at the point at which the standard kicks in, and that standard does not kick in until after that closure decision has been taken and communicated, so—.

So, could you tell us the name of this bank that did reverse its decision?

Yes, and it's in the public domain—it's Royal Bank of Scotland.

Okay. And, to your mind, did they actually go and talk to the community earlier on in the process than most banks?

No, it was just part of their work that they were doing in Scotland.

Okay. We've taken evidence from a range of stakeholders and one was the Church in Wales, which has suggested to us that, when banks reduce their opening hours, this creates a vicious circle, with reduced hours leading to reduced usage, leading to an unviable business. And it's certainly something I've seen in my own constituency, where a bank says it's going to reduce its hours, they get representation from the community, saying, 'I hope this isn't a fast track to saying that you're going to close the bank'; they say, 'No, no; we guarantee this branch is going to remain open', and then, lo and behold, 12, 18 months later, they say that, due to reduced usage—which clearly has been forced because of the reduced opening hours—the bank isn't viable, that branch isn't viable. So, what is your view on this idea of a vicious circle when it comes to reducing opening hours?

I don't think it’s quite—. I don't think it’s quite as clear cut as that in every case. So, for example, there could be situations where, actually, it’s a more cost-effective use of the uses of the premises and of staff time. So, if you’re reducing the staff time, you’re reducing the cost of provision of those services. I guess it’s down to at which point local communities are accessing, or willing to access, those services. So, I’m not saying that it doesn't happen as you’ve outlined it, but I think it's—. I don’t think it’s quite as clear cut in every case.

So, I think, as I would see it, the analysis—. Typically what would happen—I’m not saying it’s happened in this case, but, typically, what would happen is that the analysis would be done beforehand in terms of what the impact would be of implementing a reduced-hours service. From what we’ve seen—and it’s fairly limited, to be honest, what we've seen around that in terms of reduced hours; it tends to be either closure or mobile services as opposed to the reduced hours. From what we’ve seen, the analysis is done in exactly the same way as I’ve outlined beforehand: so, they will take the decision off the back of the information that they have, which says that this is the right way, the best, most cost-effective way, forward.

Okay, thank you. Given the impact on businesses and communities when banks do close branches and the fact that people do see access to banking services as a public service—they believe that banks have a moral duty to stay on the high street—do you think that additional regulation is needed in this area?

11:25

I don't—. My personal view is 'no'. I'm not sure what additional—. I'm not quite sure what additional regulation might achieve. I think there's a really—. I think that the way that the financial services are moving generally—and Chris might have a view on this as well; sorry to put that on you, Chris—is around the way that channels are now—. People are choosing to access—. It's changed. The financial services network as we see it is changing, and the financial services industry is changing so much in terms of how people want to access. I'm not saying—. There's clearly a community that wants access to a bank branch, I'm certainly not denying that, but I think, in terms of the way that, generally, the UK public are accessing banking services—. And it's changing, and banks, I guess, as commercial entities—yes, there is a service they provide, but that service obviously is provided to everybody, and they have to try and balance a lot of quite strong competing priorities, I guess, in terms of how they deliver those services. The point I'm trying to make is—. I think we all acknowledge the fact that this is an issue and that's why we're here doing this work, to be honest. But, equally, it's a tricky conundrum, because of the changing face of the UK economy and the way that people are accessing services, which means that actually in these cases difficult decisions are having to be made because of looking at the broader picture.

We've just taken evidence from our last group of stakeholders who said that the only driver, really, is huge profits, and that it is profitable to keep more banks on the high street, just not in line with the vast profits that the big banks want to make. 

My personal view, I think—. The banking sector is vital to the UK economy, and we've seen that. We only have to look back to the 2008 financial crisis to see what could have happened to the UK economy if the banks had gone out of—had crashed out. So, I think, from what I—and I can only speak from what I see, from the work that we do. I think the people we work with and we oversee in the banks and the efforts that they put in—a lot of work goes into it. I'm not saying necessarily that—you know, I can see both sides of the argument, to be honest. But I think it's a bit more nuanced and complex than just trying to make big profits, in my view.

To your general point about the provision of those financial services, I think the role of the Post Office is quite a significant one here as well. A couple of weeks ago, I was in a rural area, and it was experiencing bank closures, and, actually, you saw the importance of the post office there was really key, both in terms of distributing cash and taking deposits from business and consumers. So, it was actually providing quite a lot of those business services—sorry, those banking services—in more remote areas. So, I think there are bank branches, the post office and other ways of accessing services, and there is a—there is a solution there that, hopefully, would work for most communities. 

Okay, thank you. Just briefly, then, to close on this line of questioning, we've taken some written evidence from the Federation of Small Businesses and they have cited some instances where, when a bank has closed and given out information to its customers about where the nearest post office is for them to use, that information has been either out of date or inaccurate. From your perspective, is this a widespread problem?

So, I think it's fair to say that, as we've done the work that we've done, there is—. The information, for example, on some of the impact assessments that we saw was not of the order that it should be. So, we've raised those issues. So, when we do a piece of work, we issue a report, basically, that goes to each individual bank. I think it's fair to say we've picked up on issues where the information that's been provided hasn't been of the standard that it should have been.

Has that been recent or historic? Because the FSB wanted to clarify with us that that evidence they took in 2016.

So, we've—. So, our first piece of work pretty much covered 2017 onwards. But I know, from the first review—I know improvements have been made, because we went in again, after we'd been into some of the banks that we'd actually reviewed, so the impact assessment—. The summary report that actually is in the public domain will probably outline some of the findings that we came up with.

11:30

Okay. I'm aware that our next set of four witnesses are here, and we're just over time, so if we could just perhaps curtail some of the questions that you might have wanted to ask in these last two sections we've got. Joyce Watson.

I just want to look at evidence from LINK, and ATM cash machines and the current coverage of the network in Wales, particularly rural areas. So, do you think that it's adequate? Do you think that it should be free, always, because these are some of the questions—and I'm truncating them now—because the Payment Systems Regulator thinks that there ought to be a review of your financial inclusion programme and wider commitment?

So, stepping through some of that, so I think—. I mentioned before we want people to have a good choice of how to pay and, today, that includes cash. Our own research shows that about 80 per cent of people still use cash every week, so, while their general use of cash is reducing, people still use cash; the majority of people still use cash. So, that's why we took the steps that we took last year to use our formal powers to require LINK to take those steps to follow through on its commitment to protect that geographic spread of ATMs. One way of looking at what they've done so far is to try and protect the current spread of ATMs, and, where there is a closure, a closure of a free ATM, and there isn't a suitable alternative within a kilometre, they will then take steps to act. And they have done that in Wales; they have taken steps to make sure that ATMs have reopened where they have closed.

So, that's kind of the immediate, to protect where we are today, and then, looking a bit longer term, most people expect the use of cash to continue to decline to some degree, looking forward. That's why we've got a—. A particular priority for us at the moment at the PSR is to understand what further steps are needed. So, we've got some work under way at the moment; we're seeking views on whether there are further changes needed in the way that banks pay for the use of free ATMs. Also, we're shortly going to be publishing some more consumer research, including some results focused on Wales, to try and understand a bit more about people's needs, to see what combination of free-to-use ATMs, the post office, cashback—and any other clever ideas that are out there, really, to try and make sure that cash system really works for society.

When are you going to publish that? You said 'shortly'.

So, weeks rather than months. We're just putting those results together.

Of course we can send you a copy of those, and we'd be really interested in your views on what it shows.

Thank you. We appreciate that. Any other questions or—?

Thank you. Just to step back a little bit regarding access to cash, LINK told us that they believe access to cash for free for customers is a vital national service. Do all banks and ATM operators and regulators see it this way?

So, I think you've probably heard—. I, personally, and PSR, we see the fact that cash plays such an important role in society, and that's not going to change any time soon, particularly for the groups in—. So, not everyone is ready to go cashless, I think is the simple way of putting it. Some people are, some people enjoy electronic payments, find them really convenient and that's great. But there are groups of society out there who are just simply not ready to make that switch.

Do you think that the current climate is forcing people towards a cashless society—some people—before they're actually ready for it?

So, I think that is a danger, and, in some areas, I've talked to people and they do find it difficult to get access to cash and that does maybe force them a bit down that direction. So, that's why we're taking this action, really, is to—. We want people to have that good access to cash, we want businesses to be able to continue to accept it and use it where it makes sense for them. There are no easy solutions here, really. It is quite a tricky problem, because it relies on an understanding of what each community needs. So, there is no one simple solution, unfortunately. 

11:35

LINK expressed a concern to us that a key weakness in the current arrangements is that no organisation is responsible for ensuring cash access in a particular community. Would you agree with that?  

I think it is true that there are a number of regulators who have roles here. So, there's ourselves, the Financial Conduct Authority and the bank. But we all have distinctively different roles to play here, and, I think, in general terms, we all have a shared objective here to try and improve outcomes for society. So, I don't see that there's a particular problem there. And, more generally, as you'd expect, we work really closely with these organisations, particularly on cash. We've been working with them for months now. And, as you're no doubt aware, there's the recently announced—by the UK Government—so-called JACS group, which provides a bit more of a formal structure to that co-ordination.

Could you just briefly give us an outline of what role that joint authorities cash strategy group will play in co-ordinating the work to support nationwide access to cash?

Yes. It's that 'co-ordination' word, really, that you used there. Parliament has given the regulators, the Bank of England, the particular roles that we have, and the key issues here is to make sure that it all joins up, and that's what this JACS group is trying to do. The Bank of England is particularly looking at some of the issues around bringing the cost of distributing cash down—so, the vans that go around and move cash around the country. We're particularly focused on more of that retail end. How do people get access to cash? What are the barriers to moving to electronic payments, if that works for people? So, there's complementarity there, really, and the key thing is that we're working well together. 

In terms of the Welsh consumer, part of our inquiry is listening to their concerns. And in our next session, we've got four different witnesses that will certainly be outlining concerns that the Welsh consumers have. I should add you'd be very welcome to listen from the public gallery, if you've got time available.

Our report will be making recommendations to Welsh Government and, potentially, the UK Government. What is it that you think is needed in our recommendations to Government to, perhaps, address some of the concerns that Welsh consumers have from your perspective?

I think there are probably two aspects that are really going to be quite useful for us at the moment. I think the first is that piece of work on what the barriers are to moving to electronic payments and other ways of accessing financial services. So, I know the committee has referred to the issue of connectivity, and that's clearly part of it. And if there are other issues that prevent people from making that switch to electronic payments, I think that would be really useful.

I think the other side of it is on more those cash needs. So, we're doing our work to try and understand, trying to engage with as many people as possible, really, to understand the reasons why people continue to want to use cash. Because if we have a really good understanding of what that means in Wales, the aspects of remote communities, vulnerable socioeconomic groups, things like that, if we have a really good understanding of that, that will put us in a much better situation to try and identity the solutions to that problem. So, I think that would be really, really useful, adding that knowledge of frankly what do people need from payments and cash.

I'd agree with that. From our perspective, we look at things very much from a customer outcomes perspective. So, really understanding the needs, I think, helps then dictate how you then move things forward.

Okay. Well, if you have got time available, it would be perhaps useful to listen in on the next session, or part of it if you can. Can I thank you then, both, for your time this morning and for your written evidence? And if I can thank you, Chris, as well for offering to share with us the further report that was mentioned as well. We'd be grateful for that as well.

If you want, we've got the report we've done on access to banking. We'll be doing another one fairly soon, actually—it's due in the next month or so on the last tranche. I'm more than happy to share that with you.

That would be helpful, because it's likely that we'll be coming to our conclusions in the next few weeks, and drafting our report over the summer period. So, that would fit in with our timeline. So, yes, I'd appreciate that; thank you very much. So, thank you, both, for your time this morning.

Pleasure. Thank you very much.

Thank you.

We're just remaining in public session, but just bear in mind perhaps we could curtail some of the questions in the next session so we can finish on schedule.

11:40
5. Mynediad at Fancio: Effaith ar Gymunedau
5. Access to Banking: Impact on Communities

Good morning. Right, we move to item 5 in regard to our continued work on access to banking, and we have a panel before us in regard to impacts on various sectors of the community. So, thank you very much for being with us and for your papers in advance of the meeting. We are extremely grateful. It's an important piece of work and an interesting piece of work that we're doing. First, if I could just ask you to outline for the public record—we know who you are, but if you can outline for the public record who you are and who you represent.

I'm Valentine Mulholland. I'm the senior policy manager for the Money and Pensions Service. We've been set up to help the whole of the UK population make the most of money and pensions.

My name is Lee Phillips. I'm the Wales manager, also for the Money and Pensions Service.

My name's Derek Walker. I'm chief executive of the Wales Co-operative Centre. We run a contract with Welsh Government around digital skills, but I should also say I'm involved as chair of the board of the developing Banc Cambria, which you've taken evidence from this morning.

I'm Valerie Billingham. I'm policy and campaigns manager at Age Cymru.

Lovely. Thank you. As we ask questions, I don't expect you all to have to answer every question, so please talk amongst yourselves who's the most appropriate person to answer. Perhaps you could just outline to start with what the impact is of a bank closure on a community, but obviously particularly a sector of the community as well, and also if that impact is in some way different in Wales to the rest of the UK. Who would like to have a stab at that first? Valentine.

Shall I start with that? So, clearly, the impact of bank closures is much greater on vulnerable groups. So, we know that, currently, about 70 per cent of the population is involved in online banking, and many people still have access to bank branches but predominantly are interacting online. So, what we're looking at are the people who are going to be particularly exposed because they're less likely to engage with online banking. We know that that tends to be those who are digitally less engaged, and whilst that's a problem throughout the UK, we know that we've got additional problems in Wales because of some of the broadband coverage issues. So, about 85 per cent of the population has the right level of broadband coverage, but in other areas it can be unreliable.

Vulnerable groups can also feel quite—they have a trust issue. So, we've seen research that shows that, even those who could engage with online banking—they are digitally engaged—they don't trust online banking, they don't trust their transactions and there's the prevalence of scams. So, what we need is people to be able to have access to their money and to financial services. So, for the Money and Pensions Service, we know that it's really important for people to manage their money effectively and not get into trouble, not get into financial difficulties. They need to be able to have access to savings, they need to be able to have access to good quality credit when they need it and, actually, access to a bank branch for people who are vulnerable is the best way to do that. When you've got that absence of access to banking branches then people are more likely to look at other alternatives, which can be much less viable for them.

No, just—

Yes. Some feedback from our local partners, who are going into people's houses and helping them manage their finances and become more financially aware: they are finding that more people are keeping cash in their homes, due to the lack of a local bank, and about 20 per cent of people who are aged over 65 are using other people to withdraw cash for them. Now, that could be due to several different reasons, but lack of access to a bank is one of the big reasons. And, of course, we’re concerned that this decreases their independence and increases risk of financial abuse if you’re relying on someone else to take your bank card, know your PIN number and take money out of your account.

11:45

With the person's consent I'm not sure it's illegal.

Is that right? Okay. That’s something perhaps the committee can take up as well. Vikki Howells.

Thank you, Chair. According UK Finance,

'Looking after every customer, especially those in vulnerable circumstances, is a priority for our members.'

So, with that in mind, what is your view on the extent to which the impact of closures on local communities, businesses and individuals is actually taken on board by the banks themselves when they make these decisions?

I'm happy to start, again. Whilst we know that that's the aspiration, we know that that's not entirely there at the moment, so the access to banking standard, which was set up by the UK Government in 2017 was set up because the previous protocol, which included ensuring that the needs of vulnerable consumers are taken into account and that they're supported to have different access to banking services, wasn't working very well. So, the access to banking standard was implemented in 2017, which is a voluntary agreement overseen by UK Finance.

But the Lending Standards Board, who are regulating [correction: who are supervising] that, carried out their first report on that standard and they still feel that there are a number of areas for improvement, and one of the areas for improvement was about banks identifying their vulnerable consumers. And sometimes it is quite difficult to identify vulnerable consumers in the way they interact with the bank. It's more straightforward if people are actually coming into their bank branch and speaking over the counter, but it's definitely still an area to be improved, which is why this inquiry is clearly welcome, because I think there is more work to be done. But the journey—UK Finance are leading a journey towards that, overseen by the Lending Standards Board, but they recognise that's still a weakness.

And just if I can clarify there, as well, you're saying to us that the access to banking standard, there's room for improvement there too.

I think the access to banking standard sets out the right standards, it's just that the implementation of that at the moment is still on a journey, and I think it's a recognition that that was one of the greatest weaknesses in relation to vulnerable consumers at the moment.

I don't have anything to add. I was going to say very similar things about the Lending Standards Board. Just to add, which I'm sure you're already aware, I know a Scottish Parliament committee also looked into this and felt that the standard wasn't being adhered to as best as it could be.

Just a couple of things to add. Again, feedback from our local partners who are working with individuals is that little or no thought seems to have been given to older people, particularly older people in rural communities, the impact on them of bank closures, and no forward thinking by the banks on how they have access to services. So, that's the view from the individual, sharp end.

The other thing, in terms of identifying vulnerable customers, of course, the utilities companies have done a lot of work on this, and I don't know whether that has cross-fertilized into the banking sector or not, but it might be worth having a look at.

Thank you. Whenever banks close branches, they seem, at least in their dialogue with me, to put a lot of emphasis on the role of the Post Office and how that can step in to fill the gap. And, when we've taken evidence from the National Federation of SubPostmasters, they've said to us that the Post Office network is, I quote, 'perfectly placed' to be the go-to location for banking services, where bank branches are not available. What is your view on that quote?

I think for many banking transactions, they are perfectly placed, but there are two issues. One of them is that people still don't really realise that those services are available through post offices. So, in the 2017 UK Government budget, they identified that there needed to be more work to raise the profile of that for the Post Office. So, I think that does need to happen. And the services that they offer are good for communities, but they're predominantly about putting money in and out of payment accounts and getting bank balances, and some additional services for small businesses. But, in terms of ensuring that people—again, the point I was making—are in a stable financial situation, they also need to be engaging with a branch, engaging with people, about the fact that they might need a short-term credit, or the fact that they might start to take on some savings behaviour. We know that 8 million people, adults in the UK, don't even have £100 in savings. So, the slightest thing that happens in their life will knock them off course. And you're not going to get that. So, you're not getting the whole range of banking services.

But, just in terms of managing your money coming in and out, and getting a position on your money, that's really important. And we know for people on low incomes and vulnerable people who are really struggling, we know that they might want to find out how much they've got daily, or every two days, so that they actually might want to look at their account every day, every two days. So, that kind of service, yes, you can get from the post office, but it is more limited. 

11:50

It's also around how you actually shop around for your financial products. So, again, if you're using the post office for putting money in and withdrawing cash, that's one thing, but if you're actually looking to access financial products, change your financial products, that creates issues too. So, we've got some financial capability stats for Wales, and we know that in Wales, 71 per cent of people shop around for deals on their car insurance, or their house insurance, but only 39 per cent do that already for bank and savings accounts. So, the harder we make it for them to identify and access those accounts, the less, again, people will be shopping around. And that's even less again—it's only 36 per cent in Wales—for shopping around for credit cards. So, the harder it is to access financial services, the less shopping around people will do, and possibly pay more than maybe they need to. 

We think that post offices do have a lot of potential to provide a useful access point to basic services, and for a lot of older people, it's the basic services that are the most important to them. And, again, coming back to the utilities companies, it's well known that older people are the least likely to shop around in any case.

But we do have some concerns because a lot of post offices themselves are closing or are under threat of closure. So, that's worrying. Older people have said to us that pensions are now being paid directly into a bank account, pension cards are being withdrawn, and local post offices are saying that it may not be viable for them to offer pension withdrawals any longer without the pension card. So, older people without access to a local bank are now very worried that they may lose access to post office withdrawal facilities as well, and not be able to get hold of their pension through a post office. 

We think current and basic bank accounts should be fully accessible at post offices, but then again, about 6 per cent of households with someone aged over 85 have no bank or post office account. And for a lot of the older old, it's very difficult for them to open an account because they don't have the ID that banks ask for; they don't have a passport or a driving licence, so that's a barrier to them opening an account. 

Can I just add, sorry—? One of the particular challenges for Wales is we see that we're seeing the highest rate of bank closures nationally, and we're seeing that, in terms of closures of post offices, although that's much slower, between 2017 and 2018, Wales saw 2.7 per cent closures, which was much bigger than any part of the country—of the UK, sorry. So, I think that's a particular concern, is that we're being hit on both sides there, really. So, that is, particularly for very rural communities—. And my taxi driver today in not a very rural community was talking about that issue just in the Vale of Glamorgan. So, I think it is quite extensive in Wales. 

I think it also impacts on other organisations as well. So, one of the pieces of work that we've been doing in Wales is working with Carmarthenshire and Ceredigion, and I'm sure we'll talk about that later on. But they actually gave us some feedback about some of the impacts it's had on them. And one of the housing associations has a sheltered scheme, and they arrange a once-a-week service to take the tenants to the post office, so there's an impact on them and how they provide services, and that cost as well. And some of the other feedback they gave us was about some of the charities who are holding on to money because they haven't been able to pay that in as well, and the impacts on that. Other things like not having—. There's a discouragement now to have your statements printed on paper and you get those online. Of course, if you don't have that and you can't access your branch to have a look at that, then how do you know what's going in and out of your account? You're more open to being scammed because you can't see what's going on in your account, particularly for older people if they can't access their statements.

11:55

LINK, in their evidence to us, have said that one of the weaknesses is that, in the current arrangements, there's no organisational body that is responsible for ensuring access to cash in a particular community. Do you share that view or have anything to add?

That was the view, but since we all submitted evidence, the UK Government Treasury have issued their report on cash and digital payments. So, they've been looking at whether we are moving towards a cashless society. And they've recognised that there are 2.2 million people in the UK who absolutely rely on cash—they only rely on cash—and they tend to be the more vulnerable, the more elderly and those in rural communities. As part of HM Treasury's response to this, they've said that somebody does need—. They've set up a joint authorities cash strategy group—very catchy—that will have that co-ordination role.

Right. Absolutely, yes. So, you're all aware of this group that's referred to as JACS. Does anybody else have anything else to add at all?

Only that older people have said to us that someone should be obliged to make sure that every community has access to cash and that this should be backed up by legislation.

The only thing I can add to this is that, as part of the Banc Cambria work that we've been doing, we've been looking at whether people are going to continue to want to use cash and whether we are moving towards a cashless society. It does seem, as we've heard from other evidence, that particular groups, and particularly the groups we work around on digital skills, are often reliant on cash and are likely to require cash into the medium term. Anecdotally, I think, in terms of post offices and SMEs and access to banking, this isn't a scientific response to some of the questions you're asking, but we are hearing stories of businesses closing at lunchtime on a Friday because they need to get to the bank, because it's too far away. So, that's a service and a business that's not operating for half a day a week.

Good morning, all. I want to understand the role played by the Welsh Government and other stakeholders in terms of addressing issues related to digital inclusion. So, the first question goes to the co-op centre, and it's whether you could set out the aims and activities of the Digital Communities Wales scheme.

Yes, absolutely. So, we run the Digital Communities Wales contract for Welsh Government. We've just been successful in winning a successor contract, which starts on 1 July, and the focus of that work is on digital inclusion. So, very basic internet skills—getting online effectively and helping people to get online. The new programme will have a much greater focus on health and supporting people to access information about their health and manage their health through getting online.

How we work is that we tend to start with what people are interested in and then work from there, because one of the biggest barriers to people becoming digitally included is that they don't see that they want to or they don't have a willingness to do that. That's the biggest barrier. Other barriers are then around skills and the cost and connectivity, of course, but the biggest barrier is often an attitude about wanting to get online. So, we start with what is of interest to people, and work from there. Often, that is not around—. We don't support people in doing their online banking, for example. This might be Skyping people or getting information or downloading something from the internet. How we work is that we don't do that much—although we will do a bit more in the next contract—direct work. So, we work with organisations to help their clients. So, we'll work with public bodies, we'll work with library services; we'll work with people in job centres and health services so that their staff know how to help their customers, their clients and their patients when they come in and they need support.

So, we'll provide training for staff in that regard, we will lend out kit for people to use on a short-term basis, we will support volunteers to support people with online skills. We've got a fantastic initiative with young people called Digital Heroes, whereby young people, often in school or Scouts or Guides or something, will be trained to be a digital hero, and then they will help older people to get online and to use the internet. You get a real intergenerational activity there, whereby the young people are learning from the older people about their lives and their experiences and, vice versa, the older people are learning and developing their digital skills.

Just to go on quickly to say the position of Wales compared to other parts of the UK in terms of digital skills: we have just had the national survey for Wales data around digital inclusion, and it looks like the figures for Wales have gone from 15 per cent to 11 per cent of people digitally excluded. So, that is a significant improvement. Areas of the country that have a higher proportion of older people, have a higher proportion of disabled people, have a higher proportion of people on lower salaries tend to have higher rates of digital exclusion. So, Wales has tended to have higher rates than the rest of the UK. There are different surveys by different organisations that give you different data, but that would show that, at the very basic end of digital skills, Wales is in a fair place compared to the rest of the country. We're certainly no worse than any other part of the country and we'd be better than many with those results. But that's probably because—and I would say that, wouldn't I—there's been a concerted effort over years to focus on supporting people with basic digital skills in Wales.

12:00

We did a committee survey and we asked people what their concerns were and the effects bank closures had on them, how they might be aided, and there didn't seem to be—in the answers that we got from the people we asked—much appetite to receive training on digital banking. Did you find that that was the case when you've gone out and about?

Yes, because, as I say, we don't do direct training on digital banking. We might start with giving people support around getting information about finances or that sort, but we don't do the direct digital banking. Often that will lead on to—. You know, if they start being confident about looking at the news online, they might then go on and think about banking, but that's not usually the starting point for people. I spoke to the Pensioners' Parliament a couple of weeks of go in Blackpool around digital inclusion, and there was a lot of concern about privacy and the safety of banking online. So, we do work around safety online, and there was lots of concern around how people's data was being used, and there was lots of concern around the cost of the kit and the access to broadband for older people. So, they are factors, but as you've indicated, the key factor that puts people off, or is not getting people online, is still willingness to do so—a lack of willingness to do so.

So, have you found that reliable fast broadband coverage is there, that it's able to support the future developments, if this is how we're all moving? And do you think that if that was improved, or if it needs improving, that it will help improve access to cash and banking services more generally? Anyone can feel free to answer.

Shall I kick off? I think it is still an issue for many communities—a lack of connectivity—and so, that will prevent people being able to, effectively, bank online if they don't have decent connectivity. I know things are improving across the country and investment is being put in. But one of the things that the other side of our business at the Wales Co-operative Centre—one of the things that we're doing more work on now is supporting communities to set up, effectively, social enterprises, co-ops of some sort, to bring broadband into their communities. So, they put together a community shares issue, which is a co-operative way of raising finance for an initiative, and they invest in the infrastructure then, for their village or their local community to access broadband, and they do that collectively. So, Michaelston-y-Fedw is the most famous example, I think, but we've got three or four enquiries now from other communities in our community shares programme to support them just on that broadband connectivity to their communities.

12:05

Again, we have our financial capability data for Wales from last year and it tells us that although we got about 76 per cent of people in Wales who do internet online shopping or trading or auction sites, actually only 67 per cent use the internet for their banking and that's either online or mobile. But what I thought was particularly interesting and worth noting was that 50 per cent don't feel confident about protecting themselves from financial scams when they're doing that. So, there's a job of work here to help people feel confident and understand what a financial online scam might look like. So, I think when we were talking about that mistrust of digital banking as well, there's also that fear of being able to protect yourself when you do that.

But they don't see the danger the same if they're shopping. So, they're quite happy to put their details in, their card details, bank account number and everything to buy something maybe on a mass site, and they don't think that's dangerous. But then, when it comes to banking, their mindset changes. Is that what you're saying?

I don't know if that's exactly what they're doing, but there are certainly more people shopping online than there are wanting to bank online. And we specifically asked them about how they felt about scams and 50 per cent said they weren't comfortable with that. And I think a lot of people do find that when they're doing their shopping online, things are happening, but I think maybe they do it more and they recognise it more than they would necessarily in an e-mail from their bank, 'Dear User' or 'Dear Customer', and not recognise the fact that that may be a scam.

Thank you, Chair. What are your views on the Welsh Government's work around tackling financial capability and inclusion?

Shall I start? We've been working closely with Welsh Government. Before we were the Money and Pensions Service, we were the Money Advice Service, and we've been part of the financial inclusion steering group with Welsh Government and Welsh Government have been part of our work and our forum that we do.

We've been working very closely together. We've ultimately picked up the financial capability part of the financial inclusion strategy—that theme—although one of the themes is access to debt advice as well, and when we were the Money Advice Service we were responsible for funding debt advice in Wales. When we became the Money and Pensions Service, we devolved that funding to Welsh Government, so we no longer have the delivery responsibility for debt advice in Wales. We still have a strategic responsibility, but we work very closely with Welsh Government to make sure that people are able to access debt advice and they've included that money now as part of their single advice fund. We also jointly fund three financial capability forums that run across Wales—one up north, one in west Wales, which jumps between Ceredigion and Pembrokeshire, and one in the south, so it meets in Merthyr, but is run by Powys. So, we jointly fund those in order to get practitioners together to talk about the issues and understand the issues for training and working together too.

We've also worked very closely with Welsh Government education colleagues who have introduced the new schools curriculum. Just last week a video went up that we worked with them on to promote financial education in schools and why that's important. Welsh Government have been absolutely making sure that that goes into the new areas of learning experience for maths and numeracy and also for health and well-being. You'll see them in the learning progression steps, and one of the things that we felt was really important about that is that it's absolutely embedded in the new curriculum, but of course the feedback we've received over the years is that teachers' confidence isn't quite as strong as it could be. So, we're talking to Welsh Government and Welsh Government colleagues are supporting us in helping fund some professional learning for teachers in Wales to build their financial education work. And so that's been very much Welsh Government supporting us in being able to do that.

Also, with regard to the advice agenda, so access to information and advice, that sort of financial capability side of it, how do we embed that into the debt advice journey now? We're working with Welsh Government on trying to make sure that that financial capability is part of that journey. And prevention is very much part of the new single advice fund from Welsh Government too, so when people are accessing advice services, it's not just about crisis; it's about helping people around that prevention as well.

And I suppose it's also worth telling you about some work that we've done over the last couple of years with your colleagues in Flying Start, Families First, with officials in the parenting and children and young people team, and it sort of takes us back to the point earlier when we were talking about access to cash. We did a pilot with those Flying Starts, and most local authorities in Wales are involved in some way or another, and it was helping parents talk to their children about money, which was very interesting. In fact, it's so important that one of the very first activities that we did as part of that was, we call it the 'Aliens', where people actually imagine there's an alien following them around and watching how they spend their money. And all the parents were saying, 'Oh, I flash my phone' or 'I tap my card' and we realised that people weren't actually seeing cash. And one of the outcomes of that research that we did, that we piloted in Wales, which is now being shared across Scotland and Northern Ireland by the way—it started here—is actually saying that parents really need access to cash, because they believe that helps them teach their children about money. So, for future generations, access to cash and that learning is very important, and parents felt that it actually helped them understand the value of cash, of money, because they could actually see it and feel it and touch it. And, so, the more we move away from cash, our future generations are going to have less opportunity to actually understand how money works and understand the value of money.

So, all that has been done through Welsh Government colleagues' support for the work that we do. So, lots more to do, but, yes, there's a lot going on. 

12:10

My final question then is to the Money and Pensions Service. You've given us a whistle-stop tour there, Lee, of so many of your projects, so apologies if I'm going back to ask you to expand on some. But, in your written evidence, you said that you're developing a number of projects to support the capability of working-age people, and that, as part of your 2019 to 2020 business plan, you're exploring the potential of a local authority financial capability pathfinder with a rural Welsh local authority. Could you expand on both of those points for us?

Certainly. So, the pathfinder is ongoing. So, we held a workshop in May, so last month, the month before sorry, with Ceredigion and Carmarthenshire local authorities. And the reason we chose those was because these projects are happening across the UK, but none were particularly rural, and I'm very keen in Wales to make sure that we understand rural issues here. So, we focused on rural local authorities, and Ceredigion and Carmarthenshire came out—they what we called 'over-indexed' on our squeezed population. So, basically, we gave segments to the population across the UK. There were people who were struggling; there were people who were squeezed—those families referred to as 'just about managing'; and then there's those people who are cushioned. We wanted to make sure we got, not just particularly vulnerable people, but our neighbours, our friends, us, those people as well, people who are working age. 

We spoke to Ceredigion and Carmarthenshire about what it could look like, when what we wanted to do was help people increase their savings or reduce their borrowing, or both. And we spoke to Ceredigion and Carmarthenshire officials, and they invited colleagues, which included the Welsh Local Government Association, of course, Wales Co-op were there, Citizens Advice, Workways+ and others, and we did a co-design workshop to understand what that might look like. And what came out of that was a training package for staff, which would be local and bilingual, to look at financial resilience through savings, which would be aimed at front-line local authority staff, with both Ceredigion and Carmarthenshire. It would be aimed at Supporting People staff, housing association staff and other potential problem noticers, like volunteers or people who are going to people's homes.

And the potential hooks that they understood from that were things like existing digital training that Digital Communities Wales are doing, maybe building up emergency savings. Carmarthenshire has more working-age people who are non-savers in rural areas than most. Looking at bulk house oil purchases. So, as you will know, in rural areas, people who have to purchase their oil maybe, and some people aren't purchasing enough because they just can't afford to, or they're borrowing to be able to do that. So, it's like, how do we help those people save in advance, and actually have enough to do that, and not go for short-term, high-cost loans? And things like school uniforms, Christmas, buying a car, those things that people tend to do, and need to do. And, so, the project is working with staff across Ceredigion and Carmarthenshire to make sure that they can identify where there's an issue, understand what the savings options are, understand how people access financial products, and actually are on the front line to be able to support people in their communities to do that. 

Another couple that we are doing is something called youth checkpoints. So, we've been talking to Youth Cymru and other education people across Wales to understand what the teachable moments are for young people. We're particularly focusing, across the UK, on entering the workplace, accessing welfare support or entering or graduating from university and college. We did a workshop again about what the issues were and what that might look like, and, hopefully, there's an invitation to tender going out in the next week or so.

We're doing the same—something called money mentors. Again, we worked with—. You will have heard of mental health first aid where people recognise there's an issue and know how to refer. We're trying to do the same thing, but with money, that recognises an issue. Again, we have spoken and run a workshop in Wales of co-design: what does that look like? What already exists? What can we build on? We particularly focused in Wales on, ironically, the mental health practitioners. So, we had people like Hafal, Gofal and some mental health practitioners who work with Welsh Government come along to that as well to help us identify what that would need to look like. Again, an invitation to tender for Wales will be going out in the next week or two.

12:15

Finally, from me, I just want to discuss the potential for establishing a community bank for Wales and whether you want to outline your views on the potential benefits, but also challenges, of setting up a community bank in Wales.

If I come in, I've got a particular interest in—

You probably do know my view, yes.

Do any other witnesses want to come in first, and then perhaps we'll come to Derek?

We said in our submission that that sounds like a good opportunity, particularly both for consumers and for small businesses. I think what we would need to ensure, though, is that whatever is developed is integrated with some of the existing opportunities. So the credit union sector is particularly strong and it's had a lot of support from the Welsh Government and is having a really good impact. There's a real opportunity there to have a bank that might be able to finance—to provide the capital for credit unions or community development financial institutions. So, I think it is very much about whatever is developed, and anything that is going to extend more access to financial services to more consumers is something that we would welcome. But I think the strength of credit unions is that they've got that trust of people who often don't trust financial institutions, don't trust a bank, and they're a very good access point for vulnerable consumers or low-income consumers, so let's build from that. I'm sure that's the intention in how the Government would approach this, but I think it is really, really important to build that in from the outset.

We would support that. There's a lot of potential in credit unions, but we would like the needs of older people to be considered as part of the process of whatever emerges in terms of a community bank.

We haven't discussed the proposal of a community bank specifically with older people, but we did have a conversation with our consultative forum about the question of paying for continued access to cash in the future, and there was a strong backlash against any idea that older people should be expected to pay for access to cash. So, I would think that there would be a similar issue with establishing a community bank.

I can read some statements we had from our consultative forum:

'I certainly won't pay to get my own money out of my account.'

'I've walked miles to find a machine that doesn't charge.'

Someone else said,

'The banks themselves should pay for continued access to cash. They are the wealthier stakeholders. And we should remember that the taxpayer has subsidised much of the banking industry recently, and so we can make some demands to support older people.' 

I don't think older people will necessarily distinguish between a community bank and other banks when they're being asked to pay. 

So, the principle is in agreement with a community bank, but the concerns are that it's free, that it's accessible.

Yes.

I will go to Lee. Derek, you've already declared an interest, so I'm going to ask Lee.

I think, yes, in principle. I think that there's a fantastic infrastructure there that could be used. Valentine mentioned the credit unions there. There could be affiliation, there could be office sharing, there could be collaborations between them on the work there. The credit union movement has got 69,000 adult members in Wales, it's got £40 million-worth of savings and 140 employers across Wales offer payroll deduction as well. So there's a great infrastructure there that the community bank could be using. It could be locally based banking for local people, using the credit union resources and facilities, working together. Again, it's about improving reach and access, improving access to financial services and products to people in that local community. It's about: will people need to pay for access to those services? As Valerie said, people are already paying for access to cash. I took out £10 in Aberaeron last Sunday and ended up paying an extra 99p, and I thought to myself, if I've only got £10 in my account, then that machine's not going to give me £9.01, and I can't take out my own cash. So, it's about recognising, if you're going to be a locally based bank, then, again, it's about understanding the needs of that community and making sure you're enhancing access to services and making sure people can access their own resources and cash.

12:20

Perhaps we can assume that your views are in line with Mark Hooper, who gave evidence this morning, but perhaps you want to respond to some of the comments that have been made. Perhaps that would be useful.

Absolutely. I've been involved in looking and thinking about a community bank or a public bank for a number of years. I've been part of a group called the public bank for Wales action group that's been researching banking and how banking could be improved in Wales, but with a purpose. The purpose is: can we improve financial services for businesses, many of which we work with, and can we do it to the benefit of individuals and communities? There's no point doing it without having those outcomes in mind. So, now we're at the early stages of looking at the community bank for Wales, and I think it looks a strong idea and a viable idea, we need to do more market research, and as I'm sure you heard this morning, we're embarking on that process about how it's going to work.

The issue about alignment and not overlapping with what is there is an important one. So, I've met with the all-Wales credit union group a couple of months ago to talk to them about this, and we have a strategy day for the banking board tomorrow, and we are looking to co-opt someone from the credit unions onto the board so that we ensure we have that alignment and that communication. The credit unions have been very supportive about the idea, and wanting to make sure that it all works together, and I think that looks like it could be possible. When I started this job—I was just saying to Lee before I came in—about eight years ago, we were looking at the idea of a secondary co-op of credit unions, so that they'd have a central resource in Wales that could then support them to offer more services centrally, because they perhaps couldn't do that all individually, some of them being too small, and this is different to that. This is an independent bank that we're proposing to set up, but it could work in a way that would certainly work very closely with the credit unions, and signpost the credit union services, enable the credit unions to offer more services, and vice versa benefit from their high-street presence. But likewise with local authorities, local authorities have been very supportive already, so we might be able to use some of their premises and piggyback on some of their facilities already. So, what would be the point in doing it if it would take away the viability of the credit unions when they're already doing important work? We need to navigate this, but we're aware of needing to do that, and we're trying to do so.

Just that, the timescale, in terms of—I don't know, you might not have any views on that, but is it possible to set up a community bank if that's the way it goes before the end of this particular Assembly, which to all intents and purposes would be a year in March?

It's a challenging timescale to do this work. We're certainly trying to work at pace to make sure, if we do get to the point where we can establish it, we do it in a quick timetable. But it's more important that we do it right, put it down on firm foundations, than to do it quickly, in my view. But we are working at pace, and we are working to that kind of timetable at the moment.

12:25

Is there anything that's not been said through questions today that you want to add in terms of supporting our work, or do you feel that you've covered the areas that you wanted to?

There was one quick point around digital skills—maybe it was said, but just to emphasise the point—when we talk about people having better digital skills and increasing numbers of people being online, what that doesn't represent is the narrowness. So, there are a lot more people who may be online but are using the internet quite narrowly, and that is likely to exclude banking. 

Just very briefly, we had the chief executive officer of the Financial Conduct Authority come to one of our meetings in Wales with our key stakeholders, such as Welsh Local Government Association, Public Health Wales, the older people's commissioner et cetera. But following on from that, the chair is going to be visiting west Wales in September to understand the issues of access to banking. So, I just thought I might raise that with you in case you were interested to know that. 

September, in Aberystwyth.

There we are. Thank you. That draws our session to an end. Thank you for your time giving evidence this morning. We appreciate you coming to committee. Thank you. 

Thank you. Diolch yn fawr iawn.

Daeth y cyfarfod i ben am 12:26.

The meeting ended at 12:26.