Cheque Replacement and Financial Inclusion

Thursday 3rd March 2011 Written Statements

[The Minister of State, Department for Work and Pensions (Chris Grayling)]

Since taking office the coalition Government have been working to reform the welfare system, providing a fairer deal for customers and taxpayers alike.

Well over 98% of all benefit customers are now paid directly into an account. But there is a relatively small number who cannot be paid into an account of any kind or who choose not to be. These customers currently receive their welfare payments by cheque and in total this amounts to fewer than 250,000 people in the UK.

Welfare cheques have become outdated, costly and too open to fraud. As a result, and in light of wider changes in the financial world, the previous Government set the terms of and invited bids on a procurement for a product to replace this payment method.

Following a competitive bidding process I can announce today that Citibank, working in partnership with PayPoint, will be awarded a seven-year contract to provide the new service that will replace the current girocheque service. The contract value is estimated to be a total of £20 million per year, shared between the two providers.

This new service will be free of charge to customers and accessible over the counter at PayPoint outlets. PayPoint outlets are already serving many of our customers and can be found in newsagents, community stores, and other local outlets.

DWP will ensure customers are moved across to the new payment method as seamlessly as possible. Information and advice will be made available so that customers know what will happen and when the change will take place.

Customers will still be able to collect their cash from the Post Office if this is important to them, either by switching to the Post Office card account or by using one of the many commercial bank accounts that are accessible at Post Office branches.

This Department values its relationship with the Post Office and we are working closely with them as we design the delivery of our future services. In particular we are setting up three pilots in partnership with the Post Office: verifying identity as part of the national insurance application process; support for those jobseekers who live in more rural areas, and verification of supporting documents such as birth and marriage certificates for customers of the pension service.

In addition, this Department will continue to work with the Post Office to explore further opportunities for them to support new ways of delivering welfare, including playing an important role in supporting the delivery of universal credit—building on the work on pilots already underway.

We also see real opportunities for the Post Office network in building closer links with credit unions. Credit unions have made great progress in recent years in bringing affordable financial services to people who would not otherwise be able to access them. I want to see credit unions—in partnership with the Post Office—providing more services, more efficiently, to more people.

I am therefore pleased to announce this Department’s continuing support for credit unions, building on the existing growth fund, and providing the new funding required for further expansion. This modernisation fund, worth up to £73 million over the next four years, will support those credit unions who are ready and prepared to step up to the plate—to expand their service to benefit more customers.

My Department will work with the credit unions to look at ways in which the future progress of this sector can best be supported. This includes the possible development of a shared banking platform, for which funding has already been set aside. Subject to successful feasibility studies, this will open up opportunities for many more people to access credit union services, including through the Post Office network.

Making credit union services available to more people who could benefit from them is an important part of our welfare reforms: making work pay; reforming crisis loans; making people better off for every pound they earn through universal credit; and simplifying the benefits system.