Excerpted from May 2015

civilsociety.co.uk The voice of civil society

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We identify the rising stars among charity professional advisers

charity banking survey 2015 • divestment from fossil fuels • effective board reporting • charity 250 index • English Heritage survey banking

Rising to the challengers

With the large high street banking groups splintering banking relationships with them – particularly in the area of deposits – and new players eyeing their customers, the UK banking as charities seek to maximise their cover from deposit protection for sector looks set for another shake up, findsDiane Sim. balances up to £85,000.

Climate ripe for change Almost 10 per cent of charities Charity Banking Survey 2015 surveyed this year say that their bank has experienced – or is about to SINCE OUR survey of the charity which hold the remaining 73 per experience – a change of ownership banking scene last year, there have cent of Unity Trust. and, for the most part, they are been a number of restructuring The recent upturn in the UK happy with the way in which the moves aimed at creating new – or equity market has also prompted change has been communicated. strengthening existing – so-called a wave of IPO activity, with Virgin However, with new players eyeing ‘challenger banks’, with a view to Money and OneSavings Bank the space and ongoing change increasing competition and choice floating last year, and among the incumbents, many in the UK banking sector. Bank and Shawbrook Group floating charities may judge it a good time Since demerging Lloyds TSB in earlier in 2015. Should market to shop around: a quarter of 2013, has conditions remain positive, other charities say they are likely to review sold a 50 per cent stake in TSB Bank banks thought likely to seek a stock their banking arrangements over the and plans to sell its remaining 50 market listing include Santander’s next 12 months and half of these say per cent holding to Spain’s Banco UK business and Metro Bank. that they expect to switch their main Sabadell, whose takeover bid for banking provider (see figure 10). TSB Bank was accepted in March. It is against this backdrop of Meanwhile RBS Group is in the Challenger banks are increased competition that many process of combining 308 RBS increasing competition in banks active in the charity sector are branches in England and Wales, the UK banking sector increasing their efforts to develop and the six NatWest branches in tailored, value-added propositions, Scotland, under the Williams and aimed at attracting and retaining Glyn brand. The new bank, which While none of these banks can their charity customers. will have 1.7 million customers, currently boast widespread primary Just over 400 charities participated is expected to separate from RBS banking relationships with charity in Charity Finance’s 2015 banking and float by the end of next year. clients, many enjoy secondary survey. Small charities with annual Both sales have been mandated by the European Commission as figure 1: Banking arrangements a condition of these institutions’ entitlement to state aid: Lloyds Have you reviewed your banking arrangements in the last year? Banking Group has until the end Yes No of this year to divest itself fully of 2015 32 68 TSB Bank, while RBS Group has 2013 32 68 until the end of 2017 to sell off 2011 45 55 Williams and Glyn. 0 20% 40% 60% 80% 100% Another move signalled but yet to Have you spread money across more than one bank over complete, which involves two major the last year to offer more protection to your funds? players in the charity banking Yes No market, is the proposed sale by the 2015 47 53 Co-operative Bank of a 27 per cent 2013 28 72 stake in Unity Trust Bank, which is 2011 43 57 likely to be offered first to existing 0 20% 40% 60% 80% 100% shareholders – namely trade unions,

22 Charity Finance May 2015 civilsociety.co.uk banking survey

income of under £1m are well figure 2: Primary bank by charity income bracket 20151 represented and make up 43 per cent of the survey sample. The remainder Number of clients Charity Charity Charity Charity Total income income income income is split between charities in the £1m- < £1m £1m – £5m £5m – £20m > £20m £5m income bracket (32 per cent); Allied Irish Bank2 4 4 charities in the £5m-£20m income Bank of Scotland3 bracket (15 per cent), and large 11 5 1 6 23 charities with income over £20m 10 18 29 79 136 (10 per cent). C. Hoare & Co. 3 3 We have supplemented these CAF Bank 21 7 2 1 31 survey responses with data sourced / Yorkshire Bank4 3 3 1 1 8 from the UK’s largest 350 charities, Co-operative Bank 27 27 9 17 80 which are routinely tracked for the Coutts5 1 4 14 19 purposes of compiling the Charity 1 1 2 Finance Charity 100 and Charity HSBC 12 9 6 34 61 250 Indexes. 3 Figure 2 shows the primary bank 9 10 16 47 82 used by charities participating in the NatWest5 12 16 21 59 108 survey and by charities that are RBS5 5 7 37 11 60 members of the Charity 100 or Santander 5 5 Charity 250 Indexes. While it does Triodos 10 4 14 not purport to represent the charity Unity Trust Bank 51 23 5 2 81 banking market as a whole, it Other 2 3 0 3 8 provides fairly comprehensive Total 178 133 132 282 725 coverage of large charities with 1 annual income of over £20m and Based on data provided by 350 members of the Charity 100 and Charity 250 Indexes, plus 410 survey respondents (minus the overlap) 2 Part of AIB Group 3 Part of Lloyds Banking Group 4 Both part of National Australia Bank 5 Part of RBS Group more selective coverage of small and medium-sized charities. figure 3: Ethical banking

Market share How important is an ethical/socially responsible approach The large charity segment is when making a decision on who to bank with? dominated by the main high street 2015 34 41 20 5 banks – namely Barclays, HSBC, 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Lloyds Banking Group (comprising Very important Fairly important Neither important/nor unimportant Fairly unimportant Lloyds Bank and ) and RBS Group (comprising NatWest, RBS and ). Do you think that banking ethically would increase your charitable impact in the eyes of your supporters and trustees? Together, these four act as main Yes No bank to 90 per cent of charities with 2015 58 42 annual income of over £20m. 2013 64 36 Barclays has the most primary 2011 60 40 banking relationships in this income 0 20% 40% 60% 80% 100% bracket, with a 28 per cent market share, with RBS Group having Has ethical banking become more important to you a 30 per cent share split between over the last five years? Yes No NatWest (21 per cent), RBS (4 per 2015 52 48 cent) and Coutts (5 per cent). 2013 59 41 Lloyds Banking Group has a 2011 63 37 19 per cent share of main banking 0 20% 40% 60% 80% 100% relationships with charities in this segment, split between Lloyds Bank civilsociety.co.uk Charity Finance May 2015 23 survey banking

figure 4: Bank review figure 7: Additional banks

How often do you review your main bank? Banks used in addition to the primary banking relationship 2015 8 22 16 24 14 16 2013 12 21 16 20 9 22 Barclays 10% 2011 15 21 17 19 12 16 CAF Bank 8% 2009 10 22 17 25 11 15 Lloyds Bank1 8% 2007 6 20 24 17 8 25 Co-operative Bank 7% 0 20% 40% 60% 80% 100% NatWest2 6% Every year Every 2-3 years Every 4-5 years Every 5-10 years 10 years+ Never Triodos 6% Santander 5% Virgin Money 5% figure 5: Length of service CCLA 4% How long have you been with your main bank? HSBC 4% Clydesdale Bank/Yorkshire Bank3 3% 2015 9 19 25 27 20 RBS1 3% 2013 15 26 26 22 11 Unity Trust Bank 3% 2011 13 16 22 32 17 Bank of Scotland1 2% 19 23 2009 11 29 18 Charity Bank 2% 2007 9 10 23 27 31 COIF 2% 0 20% 40% 60% 80% 100% Nationwide 2% Less than 2 years 2-5 years 5-10 years 10-20 years 20 years or more Scottish Widows Bank1 2% Close Brothers 1% (17 per cent) and Bank of Scotland figure 6: Important factors Metro Bank 1% (2 per cent), while HSBC has a 12 when choosing a bank per cent share. United Trust Bank 1% The most significant provider Good reputation in charity sector 39% Other 15% outside the big-four high street Ethical/socially-responsible approach 30% banks is the Co-operative Bank Existing relationship 28% 1 Part of Lloyds Banking Group 2 Part of RBS Group with a 6 per cent share. Competitive fees 26% 3 Both part of National Australia Bank Internet/online banking 24% Ethical banking Ease of access 23% The concept of ethical banking Offers specialist charity services 14% figure 8: Biggest complaint suffered a blow at the end of Range of services 13% about main banking provider 2013 when the formerly mutual Recommendation 13% Co-operative Bank sold a 70 per cent Attractive interest rates on cash deposits 10% Low interest rates 19% stake to private investors – mainly National representation 5% Fees 10% hedge funds – to plug a £1.5bn Credit rating 2% Call centre/back-office support 7% capital shortfall. This was followed Sponsorship/support 2% Internet/online services 6% by the arrest of its chairman Paul Other 5% Lack of dedicated contact 6% Flowers in connection with a drugs Understanding needs of charities 6% supply investigation. Respondents could choose more than one category. Inadequate services/facilities 5% As a leading proponent of ethical banking, it was perhaps inevitable Change in relationship manager 3% that its difficulties would have wider Ethical banking is clearly important Errors 1% repercussions and the importance to charities but there is a growing Ethics 1% placed on ethical banking, which awareness that this cannot be at the Security 1% rose in the wake of the banking expense of strength and stability, as Other 6% crisis, has fallen back slightly well as the appropriateness of the No complaints 29% (see figure 3). core banking proposition.

24 Charity Finance May 2015 civilsociety.co.uk Want a bank that understands your organisation?

In fact the 2014 Charity Finance Unity rated No.1 for Banking Survey also rated us top for Relationship Managers, Fees and Sector Knowledge Charges and Meeting Expectations. Not to mention being runner-up in the other five categories and overall top for customer satisfaction! So, if you’re a business or organisation that creates social, community or environmental benefits, look no further. We’re on the same page

unity.co.uk/weunderstand

Unity Trust Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Unity Trust Bank is entered in the Financial Services Register under number 204570. Registered Office: Nine Brindleyplace, Birmingham, B1 2HB. Registered in England and Wales no. 1713124.

UTB2668_Spring_Advertising_Charity_Finance_We_Understand_AW.indd 1 15/04/2015 17:13 survey banking

figure 9: Customer-satisfaction ratings

Relationship manager Branch services Telephone services Unity Trust Unity Trust Unity Trust Triodos Lloyds Bank2 CAF Bank Co-operative NatWest1 Co-operative 1 2 Coutts Bank of Scotland2 Lloyds Bank Coutts1 Barclays CAF Bank 2 Triodos Lloyds Bank Co-operative NatWest1 NatWest1 Barclays CAF Bank Barclays HSBC Bank of Scotland2 HSBC 1 RBS1 RBS RBS1 Bank of Scotland2 Overall HSBC Overall 0 1234 Overall 01234 very very 01234 very very dissatis ed satis ed very very dissatis ed satis ed dissatis ed satis ed

Internet services Sector knowledge Fees/charges Unity Trust Unity Trust Unity Trust Triodos Triodos CAF Bank RBS1 CAF Bank Co-operative CAF Bank Co-operative Triodos Bank of Scotland2 Barclays Bank of Scotland2 NatWest1 Coutts1 Barclays HSBC NatWest1 Lloyds Bank2 Lloyds Bank2 Lloyds Bank2 NatWest1 Barclays RBS1 Coutts1 Co-operative Bank of Scotland2 HSBC Coutts1 HSBC RBS1 Overall Overall Overall 01234 01234 01234 very very very very very very dissatis ed satis ed dissatis ed satis ed dissatis ed satis ed

Interest rates Availability of nance Commitment to CSR3 Triodos Unity Trust Unity Trust Unity Trust Lloyds Bank2 CAF Bank Coutts1 Barclays Triodos 1 Co-operative NatWest Co-operative Barclays RBS1 2 Barclays Lloyds Bank Co-operative 2 1 Lloyds Bank RBS HSBC 1 CAF Bank CAF Bank NatWest 2 Bank of Scotland2 Overall Bank of Scotland 1 RBS1 NatWest 01234 HSBC HSBC Overall very very Overall dissatis ed satis ed 01234 01234 very very very very dissatis ed satis ed dissatis ed satis ed

1. Part of RBS Group 2. Part of Lloyds Banking Group 3. Commitment to corporate social responsibility Note: Banks with fewer than five charities rating their services have been excluded.

26 Charity Finance May 2015 civilsociety.co.uk banking survey

Conflict zone Banks active in the charity sector at NCVO, commented: “We understand Several banks interviewed have come under fire in the last year banks may sometimes find it simpler have taken steps to help their charity for withdrawing their services from to end relationships with customers, customers comply with the several international NGOs in a bid to rather than carry out the complex requirements. comply with regulatory requirements, compliance work required to satisfy designed to minimise money themselves that their risks are at a High-risk jurisdictions laundering and the funding of satisfactory level.” CAF Bank, for example, has terrorism in conflict zones. Over the last few months the developed “a questionnaire to help Criticism has been pretty much Charity Finance Group (CFG), charities understand the financial across the board, with HSBC slated commissioned by the British Bankers’ and anti-money laundering risks that for closing the accounts of three Association, has undertaken a review they may be exposed to when Muslim charities, including the of the impact of banks’ de-risking operating in high-risk jurisdictions”, Finsbury Park Mosque; Barclays activities on charities. Its report gives says CAF Bank CEO Peter Ostacchini. and the Co-operative Bank reported guidance to banks, charities and Similarly Hugh Biddell, head of to the Financial Ombudsman Service government to ensure that actions charities and not-for-profit at RBS and for closing the accounts of Islamic taken by banks – and their NatWest, observes: “When charities advocacy organisation Cage and correspondent banking partners – are sending money to countries CAF Bank censured for reportedly to comply with anti-money laundering where there is heightened risk, withdrawing accounts and and counter-terrorism legislation are we have a duty to play our part in donation services from several based on due diligence and are preventing the facilitation of proceeds Muslim charities. proportionate to the risks involved. of crime and stopping terrorism. Accusations levelled at the banks Banks we contacted in the course of “Although this process brings involved have ranged from this survey were unable to comment additional cost, we recognise the vital Islamophobia to disproportionate on specific cases, but stressed that role many of these charities play and levels of risk aversion. Following a their actions were prompted by work with them to counter the risks meeting with the charities involved, compliance with the regulatory attached to international money Elizabeth Chamberlain, policy manager requirement to ‘know your customer’. transfers,” Biddell concludes.

The Co-operative Bank has acted that we won’t finance, to include of its lending, issued on its 30th quickly to reassure its customers that three new areas that our customers birthday in 2014, the bank reported it is still governed by a customer-led have concerns about: irresponsible that, in the space of a year, it had ethical policy, which since 2013 has gambling; payday loans and more than doubled its loan volume been incorporated into the bank’s companies that do not pay to social economy customers, constitution. tax responsibly in the UK and who have used the proceeds to “We are still the only bank elsewhere,” he adds. fund various community on the high street with a clear Moreover the bank will be development initiatives. ethical policy, which ensures that publishing an annual, independently “Unity Trust was also the first customers’ money won’t be used to audited values-and-ethics report UK bank to become accredited finance businesses or organisations intended “to ensure that the bank for paying the Living Wage and which go against their ethics and does what it says”, says Martin. is also a pioneer of the Fair Tax values – be they environmental, Mark, which shows it is transparent human rights or animal welfare,” Social economy and responsible in matters of says Paul Martin, national Unity Trust Bank, which describes taxation,” says Peter Kelly, business manager of charity, co-operative itself as “the specialist bank for the development and marketing director and social enterprise banking at the social economy”, also positions at Unity Trust Bank. Co-operative Bank.“We have also itself as an ethical provider. In its Neil Hewitt, social and cultural strengthened the list of companies second report on the social impact team manager at Triodos Bank, civilsociety.co.uk Charity Finance May 2015 27 survey banking

figure 10: Changing banks which only lends to organisations delivering social and environmental Do you expect to undertake a review of your main bank benefit, says that the change of in the next six months? Yes No emphasis which enables charities to 2015 24 76 demonstrate a social return, as well 2013 14 86 as a commercial return, has been 2011 30 70 boosted by the CC14 investment 0 20% 40% 60% 80% 100% guidance issued by the Charity Commission four years ago. Do you expect to change your main bank in the next six months? Yes No Even without that spur, however, 2015 13 87 “momentum had been gathering 2013 4 96 throughout the sector, and charities 2011 14 86 are now recognising the importance of 0 20% 40% 60% 80% 100% transparency and demonstrating how their funds are being used”, he says. Owned by the Charities Aid figure 11: Transaction charges Foundation, CAF Bank occupies a pivotal position in the charity Does your bank levy transaction charges on the following? Yes No banking sector. “The fact that all surpluses from CAF Bank are Cheques in 53 47 gifted to the foundation has been Direct debits in 42 58 highlighted by both new and existing Standing orders in 37 63 customers as a major driver in Cash in 44 56 moving their accounts to us,” Cheques out 50 50 comments CAF Bank CEO Peter Direct debits out 43 57 Ostacchini. Standing orders out 38 62 Areas of innovation Bacs transfers 68 32 A key area of innovation for banks Chaps transfers 69 31 developing services for charities Failed cheque in 63 37 is a collection facility to support 0 20% 40% 60% 80% 100% fundraising activities. In the last year CAF Bank has launched CAF Donate, “an online figure 12: Bank loans donation processing service which Percentage of respondents answering yes gives charities the tools to fundraise 2015 2014 2013 2012 through their own websites, mobile 16 devices and Facebook account”, Does your charity currently 14 says CAF Bank’s Ostacchini. have a bank loan? 7 CAF Bank has also been “an 16 integral part of the team developing 14 a contactless debit card donation If not, have you considered 14 terminal for charities”, he adds. taking out a bank loan? 8 The facility, which is currently being 13 piloted by Save the Children, is 16 effectively an electronic collecting Would you consider taking out 17 box, which accepts contactless a loan in the next 12 months? 10 card payments rather than coins. 14 Barclays has also been utilising 05% 10% 15% 20% contactless technology to develop new ways for charities to receive

28 Charity Finance May 2015 civilsociety.co.uk banking survey

figure 13: Social finance involving six Community Development Finance Institutions Have you considered social finance as (CDFIs) across the country, to an alternative option to a bank loan? whom lending requests that fall outside of our own remit can be Yes No Don’t know referred. These CDFIs have access 2015 19 67 14 to local, national and European 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% grants and funding, which may be more suited to the borrower’s needs”, he adds. Kelly, at Unity Trust Bank, says donations. These include payment “There has been a general increase that loan enquiries have increased facilities accessed via smartphones in loan demand from charities over by 76 per cent over the last year, and other mobile devices. It has the past 12 months. Notable areas though not all of these will develop recently developed a wristband with of demand are for the acquisition of into actual loans. “Many of these a contactless chip that can be used freehold premises, working capital enquiries come from first-time for payments. facilities for treasury or liquidity borrowers, who may decide after “The technology has been purposes and for investment in shop discussion with their relationship used successfully at large festivals or enterprise activities,” says Hugh managers that it’s not the best and has huge potential for use by Biddell, head of charities and not- option for them,” he says. charities organising large fundraising for-profit at RBS and NatWest. events,” says David McHattie, Early days for social finance head of charities, corporate banking, Charities were asked for the at Barclays. Social finance gets far first time in this year’s survey Barclays has also enjoyed a very more attention than its whether they had considered social positive reception for its smartphone importance justifies finance as an alternative to a bank payment app called Pingit, which loan. It is clear from their responses enables charities to receive donations that there are uncertainties about and gift aid from consumers via a “Some charities are taking the social finance and concerns over its Quick Response (QR) code, opportunity afforded by low interest complexity, risks and relevance (see advertised by the charity. rates to borrow and invest where page 43 for more on this). “The app is now used for most they anticipate a greater return,” “Social finance works best large telethons such as Sports Relief he adds. for those delivering direct services and Comic Relief,” says McHattie. CAF Bank’s Ostacchini observes and where commissioners can It was used earlier this year to “a significant increase in the demand underwrite and reward social receive donations from the public for loan finance, particularly investors,” comments Andrew van via statues of well-known comedians from the social housing, faith Doorn, deputy CEO at housing located in major UK shopping and disability sectors. We have innovation charity HACT. “It is centres, as part of Comic Relief’s also seen an increase in the size of a marginal part of funding in the fundraising activities. loans requested, with facilities of sector that gets far too much between £1m-£5m sought by attention for the actual value that Loan demand charities, generally in relation to it delivers,” he says. ■ Loan demand, which has never property or social housing schemes”. been very widespread in the charity Hewitt at Triodos Bank, where sector, does at least seem to be the loan book has grown by Diane Sim is holding up. Some 16 per cent of 16 per cent over the last year, notes a research analyst charities surveyed have a bank loan, “increasing demand for borrowing, at Charity Finance up from 14 per cent last year, and especially in our core sectors of a comparable proportion are housing and health and social care”. considering taking out a loan in the Triodos has recently launched next 12 months (see figure 12). “a Referral Partner Scheme civilsociety.co.uk Charity Finance May 2015 29