Lloyds Banking Group – Written Evidence (GAM0120)

Lloyds Banking Group – Written evidence (GAM0120)

Lloyds Banking Group is a leading UK based financial services group providing a wide range of banking and financial services, focused on personal and commercial customers. The Group operates the UK’s largest retail bank and has the largest branch network in the UK. Group brands include Lloyds Bank, Halifax, Bank of Scotland, MBNA and Scottish Widows.

Introductory remarks

We welcome the Committee’s interest in this topic and are pleased to contribute to your important work. Given the very real human cost of problem gambling, we take the issue seriously and are committed to working with partners to alleviate gambling related harm for our customers.

Our experience and considerable research in this area has led us to conclude that simply banning gambling via a credit card is not the silver bullet, and could prove to be counter-productive. Instead, there needs to be a more holistic response to what is a multi-faceted behavioural issue.

We have put in place a range of measures and tools over the past few years designed to tackle the challenge and help protect our customers from harm, including our industry-leading card controls on gambling transactions. We recognise however that there are further steps that the industry can take. At the same time, we are mindful of our regulatory obligations and the danger of potentially being seen to police our customers’ financial activities; we see our role as helping and supporting customers by providing them with the tools to manage their money and how they spend it.

We are open to cooperating with gambling operators, the Gambling Commission and other partners to tackle this issue.

AREAS OF INTEREST IDENTIFIED BY THE COMMITTEE

Routine analysis of customer spending on gambling

We undertake two levels of analysis.

First, we look at our entire customer base – around 26 million customers – to understand relevant trends and the impact that gambling activity might be having on our customers’ finances. This is all part of our efforts to understand our customers better and meet their needs.

Secondly, we look at the account transactional data for individual customers as we monitor transactions for fraud and for credit risk reasons. While this does not look specifically at the risks arising from problem gambling, we do look carefully at extreme cases or where we have received feedback from customers. We are mindful, however, about being seen to make value judgements about how customers choose to spend their money. We do not see our role as, in effect, policing customers’ spending habits and behaviours. Instead, we aim to provide customers with the tools to manage and track their spending so they can make informed choices; and we encourage customers to engage with us if they need support with their finances.

We have done a lot of research with external research organisations, including Ipsos MORI and the universities of Warwick and Bristol, to help us shape our approach to problem gambling and ensure that we are working in the right areas. This has included focus group sessions with people impacted by gambling. Our ongoing work with Warwick University is aiming to develop analytical research based on longitudinal data – unlike other research in this area, it is based on actual transaction data for 26 million customers, and is not reliant on surveys or self-reporting.

For example, last year we undertook research in order to better understand our customers’ expectations in terms of potential support from us on gambling. We received mixed views from customers in terms of monitoring – and possibly intervening – with concerns raised about privacy and causing offence by suggesting a potential problem. As a result, our focus has been to develop a range of support and tools for customers across a spectrum of potential problem gambling.

It is worth bearing in mind that for people who consider they are experiencing gambling related harm, if this isn’t evidenced in their accounts – i.e. they are well managed and up to date with payments and not exceeding limits – and they do not contact their bank about it, it will be difficult for their bank to identify.

Supporting our customers

We have introduced a range of measures over the past few years to support our customers in relation to gambling, including those set out below.

Customer support on-line: We have launched new support pages on our websites1 providing customers with information around what support we can offer and signposting customers to specialist external support.

Card controls: We implemented card controls on both credit and debit cards for our customers in Q4 2019. These controls provide customers with the ability to apply a block on all identifiable gambling transactions (i.e. those with licensed operators). Critically, we apply a 48-hour ‘cooling-off’ period for removal of the spending block. This is a major differentiator compared to many of our competitors since it provides an appropriate level of friction in the unblocking process. This is in order to prevent the risk of a customer impulsively removing the block and gambling further without time to reflect on their desire to gamble. Gambling is just one of the controls we have introduced along with online transactions, in store and overseas transaction blocks.

Colleague training: In association with GambleAware, we have developed enhanced colleague training to aid their understanding of issues related to problem gambling and outline methods to better identify and support customers. This includes

1 e.g. https://www.lloydsbank.com/help-guidance/customer-support/help-with-gambling.html signposting to external sources of support for those that need extra support. The training has been rolled out to 18,000 frontline colleagues across our various brands.

Blocking software: We are currently developing a pilot that offers customers access to Gamban software that blocks gambling sites from users’ devices. The software uses a live database of gambling sites and currently has c70,000 users across the UK. During the pilot phase, customers will be offered free access to this software for three months.

Money management: We are developing tools to help customers manage their money better, but helping them to understand where their weekly or monthly spend is going – categorising the spend. As part of a holistic money management approach we envisage that gambling activity will be one such category of spend. This will likely include the use of push notifications (alerts) to help customers influence their own behaviours.

Impact of the card controls

So far, over 124,000 customers have activated the card controls that block gambling transactions. 5,000 (4%) of these customers have subsequently removed the gambling block from their card. Customers applying the blocks are more likely to fall into the higher annual gambling spend bands and higher frequency segments when compared to the total gambling population as a whole. Our analysis shows that customers who activate the card controls have done so from a range of different starting positions; from regular gambling through to those who have not gambled before. The cooling off period is a critical feature, adding friction and time to reflect for our customers on an impulse gambling purchase. We introduced this feature following research with Gamble Aware and a review of best practice controls implemented in other markets such as in Australasia.

It is premature to draw firm conclusions about the impact of the card controls given thy have not been in operation for very long, but we intend to study the data alongside additional customer research as we evolve our approach to supporting affected customers.

Affordability checks on gambling customers

We are not aware of any direct contact from gambling operators in relation to undertaking affordability checks, but we are open to having such discussions. It is an area we have previously discussed with the Gambling Commission.

We are aware that there is work underway to develop a ‘single customer view’ across gambling operators and leveraging the expertise of credit reference bureaux. Consistency across operators is needed so that there are agreed common standards, protocol and markers of harm shared across all operators. There will be data sharing and data protection challenges to work through as part of efforts to enable a single view of a customer can be shared across gambling operators.

We would also be willing to act as brokers for wider conversations between gambling operators and the credit reference bureaux, such as Experian. The bureaux are an important part of this equation, pulling lending data from a wide source across financial services providers and enriching it with other payment trends and behaviours for individuals, giving a holistic assessment of individuals’ affordability on a monthly basis that is shared across financial services providers today.

Affordability assessments are integral to lending decisions

We have a range of general credit and affordability checks in place when making individual lending decisions to (potential) customers, whether this is applications for credit cards, overdrafts, unsecured personal loans or secured loans (i.e. mortgages). These will consider, among other things, existing levels of debt, other borrowing and transactional behaviour together with an individual’s income.

In addition, as part of a pilot in 2019 we have introduced specific checks in relation to gambling activity. These checks specifically consider the extent of gambling activity on an account by customers in relation to their income, when considering whether any new lending should be offered or extended.

Having said that, it should be recognised that all these checks are at the point of application for new lending when the affordability assessment is completed. They do not happen at the point that existing lending is actually used by customers, which could be at a later point.

We established an internal working party in 2019 to assess this issue, as well as to consider past cases where we have received feedback from customers, discussions with external support organisations or other relevant experience. We want to learn from these previous experiences so that we improve the support we provide our customers in the future.

Gaming transactions

The card controls discussed above only apply to identifiable gambling transactions, which relies on information provided via the industry payment systems and how different merchants are categorised, which in the case of gambling merchants is relatively ‘clean’ as there are a limited number of merchant codes used for licensed operators. As a result, other transaction types – including gaming – are not currently considered.

It is conceptually feasible that the blocks could be extended to other activity types, including gaming. However, you do potentially run into challenges about how precisely different merchant categories are defined in the payment systems. The blocks could inadvertently catch spend on non-targeted activities.

There are other controls that could be applied by customers – including blocking all remote transactions where the card is not present, which would have the same effect, albeit there is no 48 hour cooling off period. The problem is that this would also block many other transactions that the customer may wish to continue.

As part of our ongoing work in this area, we are developing analysis that considers the potential connection between these sort of gaming transactions and how that might develop over time into gambling transactions – especially in young people. Unlicensed gambling operators

We are not aware of any requests, from the Gambling Commission or other relevant authorities, to us in our role as issuers of cards to block unlicensed gambling operators.

We would consider such a request from the authorities, albeit we would need to satisfy ourselves that in preventing such a payment requested by a customer, that we would not be in breach of our regulatory obligations to customers under relevant rules from the Financial Conduct Authority and Payment Systems Regulator, among others. It is standard practice when deciding whether to accept a payment request from a customer that we check whether it is within the customer’s facilities – their credit limit – and that there are no fraud flags triggered.

The Gambling Commission could in the first instance work with the unlicensed operator’s merchant bank, who are requesting the payment, or the payment platform the merchant is using to process payments. In addition, the Gambling Commission could also work with MasterCard and Visa as payment network providers.

Daily spending limit on gambling transactions

We believe that the card controls we have introduced, with a 48 hour cooling off period, provide the appropriate level of friction in the customer journey to ensure there is time to reflect on impulse purchases. This was the approach taken in the Australasian market, informed by substantial customer research, and was defined as industry-leading. There is a strong argument that such cooling off period should be adopted across the banking industry and given time to take effect, along with other measures to address problem gambling.

In terms of proposed limits on gambling transactions, our initial assessment is that while they are conceptually feasible, the facility does not currently exist. It would require considerable efforts across the banking and payments system given the many different players involved.

This leads to another – arguably faster and better – approach which would be for the gambling operators to make this type of functionality available to their customers, if they haven’t already done so. This would, in effect, tackle the problem at source. It would likely require data to be shared across operators, and there is an existing initiative looking at this as discussed above. It would in all likelihood prove to be a more effective solution than a banking-led approach.

Issues arising from credit card ban on gambling transactions

In our response to the Gambling Commission’s consultation in 2019, we highlighted the risk of gamblers turning to other forms of borrowing, such as overdrafts and payday loans and emphasised the need for a more holistic solution to provide different levels of support for this behavioural issue. Having said that, we understand the Gambling Commission’s reasoning behind their decision to take action on the use of credit cards by either banning or restricting their use for online gambling. We support a restriction rather than a ban as we believe that credit cards represent only a small proportion of the sources of gambling-related harm and an outright ban could lead to a number of potential unintended consequences:

 A ban would limit the ability for providers to track usage, identify issues and provide support to customers.  There are complexities that need to be considered that would impact the effectiveness of a ban – e.g. cash can be withdrawn from a credit card and paid into a current account, losing the ability to recognise that a credit card is being used for gambling. It would also not restrict the ability for customers to gamble online with their credit card via an e-wallet which continue to be a more popular way to pay.  For the small proportion of customers at risk of problem gambling from credit cards, a ban is unlikely to reduce the demand for gambling as their behaviour can lead to addiction. A ban could drive customers towards other high cost credit methods, such as payday loans and the issue could remain hidden with a lack of visibility and direct linking to a gambling transaction.  The Gambling Commission believes 0.7% of gamblers in the UK are considered to be problem gamblers and this suggests that a ban is likely to impact the majority of non-problem gamblers by reducing the range of payment methods available to them.

It is also our view that research undertaken by the Gambling Commission that presents credit cards as the largest source of borrowing associated with gambling, does not accurately reflect the level of gambling present with other financial products given that these are inherently harder to trace. With this in mind, we will ensure careful monitoring and tracking is in place to understand changes in behaviour as the ban is implemented in April 2020 and we will work with the Gambling Commission to understand any risks as they arise.

19 March 2020