With UC primed only to pay direct into claimants’ bank accounts and landlords waiting with baited breath to see how tenants manage their budgets, the need for account holders to make use of standing orders, direct debits and savings accounts (for bills, for example) has never been greater. It could be described as a huge leap into the unknown if trials across the UK hadn’t uncovered major flaws in the assumptions that people could manage single, direct payments.
Until recently, few Basic Bank Accounts (BBA) included standing order and direct debit facilities, which would immediately set UC claimants up to fail. No coincidence, then, that the government has been enlisting support from mainstream banks to upgrade them. Towards the end of 2014, the FCA (Financial Conduct Authority) negotiated new terms with banks to ensure more access to fit-for-purpose accounts, to which nine corporates signed up: Barclays, Coop, HSBC, Lloyds (including Halifax and Bank of Scotland), Clydesdale and Yorkshire (parts of National Australia Group), RBS (including NatWest and Ulster Bank), Santander and TSB. The plan is that the BBAs, which no longer carry fees, will be in place by the end of this year.
Consumer magazine, Which?, has produced a comparison of BBAs, ranked by customer satisfaction. The table includes accounts that are free to operate, offer a card for cash withdrawals and allow standing orders and direct debits. It also outlines charges for failing to ensure balances cover automated payments.
The FCA hopes the new BBAs will be available to consumers who have no bank account or have one but wish to switch. The agreement is also designed to allow people who have found themselves in financial difficulty but now need a functional account through which to manage their income and expenditure going forward.
New card account products are coming onto the market and recognise the potential to meet the needs of low income households. The Change Account, for example, offers “full transactional capabilities with multiple benefits” including the usual debit card facilities as well as “wallets” to set aside funds for bills, rent and other outgoings. Its founder, Steve Round, resists the label of “challenger bank”, which the government reckons will compete for the trust of consumers who are currently excluded from mainstream banks. He tells QIPN:
“I am not a great believer in Challenger Banks and what they will do for the less well off. What is needed is more organisations such as The Change Account – but not just The Change Account – to challenge the banks to offer innovative accounts to all and make them inclusive. If we can make it work then the major banks taking up the challenge will have a dramatic impact not only on the trust but also the relevance to many more individuals. That would really change financial behaviour.”
The Change Account and similar card-based products still face an uphill struggle, if they are to engage claimants. For a start, they are managed online or on mobiles and digital exclusion remains a huge issue among low income households, (just 21 per cent of social tenants who responded by post told Quids in! magazine they would bank online). Where trust is also a barrier, the new kids on the block are also unfamiliar and have a long way to go, made worse by having to compete with mainstream institutions who advertise ‘free’ banking that is generally subsidised by fees attached to debt of various kinds. By contrast, the new brands tend to attach fees, albeit presenting them as fair and transparent ones.
In terms of trust, people on low incomes feel unwanted. High Street closures and an emphasis on online facilities doesn’t help but there has also been a reported culture among bank staff that alienates some consumers. A report by Which? this month finds that bank staff feel their organisation culture is less sales-oriented than it was three years ago. In 2012, 43% felt under pressure to make sales compared to 27% now. This may signal good news for consumers in general but will it mean a warmer welcome for customers with little money to invest?
A key stakeholder is the DWP but QIPN has learnt that benefit claimants are being directed to accounts with automated payments and the system is in chaos. Sarah, (not her real name), was sent to NatWest by Jobcentre Plus (JCP) in South West London. She was turned away twice before JCP recognised the paperwork she needed - apparently a barcoded referral form that cannot be obtained from the local job centre, only from its head office. Sarah says: “They want us to do this. So why are we being messed around? They should have all this in place. If it’s not all in place when Universal Credit comes in many people are going to be in trouble with having their benefits paid.” Two months on and the correct paperwork has still not materialised.
Beyond the improved offer to consumers, there remains the problem of take up. Service providers, landlords and authorities know all too well that you can lead a horse to water but you cannot necessarily make it drink. Creating a strong ‘What’s in it for me?’ message for claimants will be key and this needs to happen before tenants fall into arrears or face eviction proceedings.
Three authorities in Lincolnshire have come together to encourage claimants to organise banking facilities and get online in preparation for changes to the welfare system. City of Lincoln, North Kesteven and West Lindsey district councils have jointly launched UCan with local press, website and Facebook content to promote the key messages, including tips like "Set up a direct debit or standing order to your landlord to help you budget your money and make sure that your rent is paid" and "Consider joining Lincolnshire Credit Union, which will help you to find the right type of account for accepting Universal Credit and paying your bills". It also signposts free-to-access internet facilities required both for UC claims and online banking
The Social Publishing Project has developed a ‘3 Bs’ strategic response to Universal Credit, designed to help stakeholders address the triple threat challenge of banking, budgeting and being online faced by prospective UC claimants.