Tuesday, March 23, 2010

Bank to basics

If Alistair Darling does announce in the budget tomorrow that banks will be legally required to offer a basic bank account to anyone with an address it will be an excellent step forward.

How are people supposed to get jobs and enter the mainstream of society if they can't be paid by their employer? They're more likely to stay unemployed or keep taking cash in hand. The government has promoted 'financial inclusion' for the last decade with some success, but 1.75 million adults still remain stubbornly outside the banking system.

This is partly down to the government's cockeyed approach. It's put time and money into setting up a postoffice account which can only accept money from benefit agencies, not employers or savings! Given the opportunity to sort the problem out when the contract came up for renewal last year it did the same thing again.

The even bigger issues have been those of identification and bank intransigence. There's no short term profits in offering a service to people that you can't sell credit to and an account which isn't allowed to go into the red. So even banks that offer them put a tangled web of bureaucracy in the way of something that should be straightforward.

One building society with a generally good reputation insists that all basic bank account applications are sent to head office rather than dealt with in branch like other accounts. I was supporting someone to get an account. Twice an application was sent off from the branch. Twice it got mysteriously 'lost' in headquarters. The government recognised that this paperwork caused problems and in 2005 put three years of floating staff in to help people through the process.

Identification is a problem - even if people have a tenancy agreement to prove address (not always the case) they often lack a passport, birth certificate or driving licence and the money to obtain one. The banks need to be more thoughtful in finding ways to help people prove who they are without putting an insurmountable barrier in their way. It is possible to do, but it does take a little more time and effort.

Access to a basic bank account is an essential prerequisite to integrating and fully contributing to society in 21st century Britain. It is a solvable well defined issue, which the banks could easily have resolved for a relatively small amount of money. It is a shame, but given the recent record of the banks unsurprising, that we need legislation to force banks to take on their social responsibilities in our society.


  1. I agree with you that opening a bank account or any other kind of legitimate finance is too bureaucratic and there are too many obstacles in place. However, most of those obstacles are put there by government, especially in relation to ID. The latest Money Laundering Regulations are an example of the madness. Legitimate financial institutions or professionals are required to certify the identity of any customer / client. Failure = prison. If there is any suspicion at all in relation to the client or that their funds may be “criminal proceeds” there is a duty to report to the Serious Organised Crime Agency (SOCA). Incorrectly claimed benefits or a little bit of income on the side undeclared in a tax return all count as “proceeds of crime”. After a report to SOCA expect a wait of around 6 weeks before permission is given to go ahead with what you are doing. Any mention of why you are delaying to your customer / client results in tipping off, punishable, again, by imprisonment! Quite how loan sharks can approve horrendous credit terms online or over the phone without reference to the money laundering regulations is a mystery to me, but, for once, I have just a little sympathy for the banks in this process.

  2. I hadn't realised that the law was quite as rigorous as you say.

    I can see that verification of ID would be a problem.

    It must cost more money to do the necessary investigations to prove the identity of the customer when they didn't have standard ID. I heard the figure of £120 per account. I'd much prefer that banks gave slightly less to charity if it meant that they could empower people in their own area of business.