Centrally controlled products constituted another way in which banks took origination of services out of branches. Up until the 1980s, centrally designed, branded and controlled products were the exception rather than the norm. Branches operated with a handful of products and they determined who would be able to access these. Banks issued often detailed, guidance to assist and direct managers in screening for products. Introduced in 1966, Barclaycard was one of the few exceptions. The access to this card was determined by a centrally designed scoring system and branches had very limited influence on the process. However, in the 80s onwards the number of such products increased considerably. Some of these were in new product areas, such as insurance and mortgages, while others were products already offered by branches, including business and personal loans.
The rationale behind centrally controlled products centred on cutting the costs associated with the branch networks. Given that the criteria for access to services were already specified and defined centrally there was less reliance on discretion on
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part of branch staff. Consequently there was less need for skilled and higher paid staff to underwrite these services. The standardisation implied by centrally set criteria also meant that underwriting could be done via remote banking technology, such as telephone and internet banking. Further, centralisation of underwriting access to products was a means to improve the quality of lending in the branches, often perceived to be patchy and of poor quality. Common to centrally determined products was that they were made possible by some form of credit scoring.
The introduction of credit scoring was gradual and uneven in a number of ways. Some banks such Midland Bank implemented and used it to a greater extent than the other banks, especially for business lending. Credit scoring was also introduced gradually across the product range. It was first introduced for personal lending in the 1970s (Wainwright, 2009). Given the increasing number of personal bank customers in the 80s onwards, there was a strong incentive to introduce credit scoring to cope with the number of loans. It was also easier to predict lending outcomes for personal customers due to larger sample sizes, more data and as the repayment for personal customers was easier to predict. In the 1990s, the banks started introducing credit scoring for business loans. The first recorded introduction of business credit scoring for business lending out of the banks in the sample, was Midland which introduced a manual score card in the early 90s. In the mid-90s, the bank introduced a computer-based form of credit scoring:
they were just beginning to introduce a manual score card for business lending in 1990… The software was called the Business Lending System and it asked the questions and put the answers in and it would give you a score at the end of it and the score would either reflect whether it was a pass, a refer or a fail… This was introduced in ‘94, ‘93, ‘94.
Jonathan, branch manager, Midland/HSBC, early to mid-00s
As suggested by the quote and as discussed below, at that stage there was still an element of manual assessment required.
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Barclays introduced a form of business credit scoring system in the mid-90s called Lending Advisor:
For corporate customers they brought in a facility called Lending Advisor… It wouldn’t give you a credit score. It would say no. I could override that but if I did override it and it went bad, you’d be in trouble. So you didn’t override it… Lending Advisor was brought in ‘94.
Brian, branch manager, Barclays, early 80s to mid-90s
There was an emphasis on reducing overrides as these would limit the effectiveness of the system and prevent the imposition of central control and uniformity in lending, which was among the reasons for introducing it in the first place.
A further aspect of the introduction of credit scoring that was gradual concerned the amounts. It was first introduced for small loans and then gradually larger amounts, as the banks grew more confident in the predictive power of the system:
So the whole range of junior managers that were lending up to 30,000, 50,000 and then the next level that was going into 100,000, they were all cut at a stroke because HSBC was then confident the business credit scoring system was robust enough to cope with businesses of up to 100,000 pounds lending. Jonathan, branch manager, Midland/HSBC, early to mid-00s
A final aspect of the introduction of credit scoring that was staggered was in terms of the degree of compulsion in using the system. It started out as an advisory system to aid branch managers. Then the banks increasingly frowned upon overriding of credit scored lending decisions until eventually there was no possibility for managers to override decisions:
Now, at the beginning, business credit scoring was purely in an advisory role, but gradually as the data become more reliable and as HSBC became more aware of the benefits of credit scoring… it got to the stage where… if the credit scoring system said you couldn’t lend, you couldn’t lend even it you took it to a manager with the authority you weren’t allowed to override the credit scoring system
Jonathan, branch manager, Midland/HSBC, early to mid-00s
The move from advisory to compulsory was in part due to the perceived enhanced robustness of the system. It was also a reflection of the quest for greater central
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control as suggested by the theories of bureaucratisation and depersonalisation outlined in Chapter 2. This claim is supported, in the case of Lloyds, by an internal report on the role of the branch manager, which explicitly identifies credit scoring as a means of centralising decision-making and delegating lending to clerical staff:
A system of credit scoring should be introduced as a means of scientifically assessing requests for consumer finance. Initially we see credit scoring used in branches as a means by which personal lendings can be delegated to senior clerical staff. Ultimately it will be the means by which personal lending can be centralised (Anonymous, 1979, p. 6).
The extent to which the branch managers interviewed were directly affected varied. Some branch managers, like Kieran, were not affected because their lending was always above the thresholds for credit scoring:
I: What about credit scoring? Was that ever introduced for business lending? R: Well, to a large extent it was, but I was always above that.
Kieran, branch manager, Midland/HSBC, early-00s
The managers that were the least affected were specialist business-lending branch managers. Other managers, like Laurence, had a reduced portfolio as a result of the introduction of credit scoring, as suggested by the quote further down.
A number of branch managers were no longer required following the increasing amounts covered by business credit scoring:
How they were able to cut those managers at that time in 2002 was because the business credit scoring system had been improved, allegedly to the extent where it could cope with business loans up to £100,000. So the whole range of junior managers that were lending up to 30,000, 50,000 and then the next level that was going into 100,000, they were all cut at a stroke because HSBC was then confident the business credit scoring system was robust enough… So that’s why they got rid of a whole swathe of management, myself included. Jonathan, branch manager, Midland/HSBC, early to mid-00s
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This enabled banks to cut the costs associated with the branch network. The interviewees generally accepted the need for it for personal lending as vital in servicing a larger client base with greater propensity to lend:
I: What did you think of credit scoring when it was introduced [for personal lending]?
R: That we couldn’t survive without it. It’s all down to the cost dynamics and the scale. Remember, more people now have got bank accounts. More people have now got loans, credit cards--. The system couldn’t cope without charging people money-lending rates.
Daniel, branch manager, other bank, mid-70s to mid-80s
Also, beyond recognising the necessity of credit scoring for personal loans in light of the scale of demand, most branch managers showed little interest in underwriting personal loans. Hence, the introduction of credit scoring for personal lending was generally not perceived by the interviewees to be a threat to their authority as this was related to business lending. Some branch managers who were coordinating managers rather than primarily business lending managers, like Laurence, also saw the benefits of business credit scoring:
But basically, once the scoring system came in, that took a chunk… away of the small business which could be done on the credit scoring system and done much quicker to free up my time to spend on, you know, other things, really. Laurence, branch manager, Midland/HSBC, early 90s to early 00s
In particular, some interviewees thought that the introduction of credit scoring for smaller business lending freed up time for sales, staff management and underwriting larger business loans. Further, even some branch managers who were apprehensive about business credit scoring, recognised the predictive power of computer statistics in business lending and its implications for the traditional branch manager:
The small branch manager just doesn’t exist. Not required anymore… because of computer statistics, you could analyse and maintain databases on how individual type of businesses worked and what sort of gross profit they made, what gross profit in percentage a particular business was getting on average through the country and what the range was. So that when you got an application from the company that was outside of that range, there had to be a reason why it fell outside of that range.
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Hence, as per the quote above, there was a recognition that science and statistical packages were more powerful than the knowledge of individual branch managers.
However, for the most part, the interviewees were deeply sceptical of the application of credit scoring in the underwriting of business loans. There were several reasons cited underpinning this scepticism. Some of the managers interviewed expressed concerns about the accuracy of the system for business lending:
But business lending is definitely a much finer art and I defy anyone to say that it can be done on a pure credit-scoring basis.
Sean, branch manager, other bank, mid-80s to late 90s
In particular, as discussed in Section 6.3.2, interviewees felt that the underwriting of business loans required judgement and was based on tacit knowledge.
Consequently, the introduction and extension of credit scoring led to a deskilling of the business lending process by enabling the banks to remove more managers in the branches as clerical staff could now do the lending. Branch managers, like Harry, were concerned about the poor lending decisions that could result from delegating business lending to staff without business lending experience:
The clerks could then do business lending for the first time, which frightened me to death… A builder would come in, who’d say I need an overdraft of £1,000. I’ve got this big contract… And they put it in a computer and say that’s fine Mr Hudson… So you could interview a small businessman without asking him any questions about his business and tell him whether you were going to give him an overdraft.
Harry, branch manager, Midland/HSBC, late-70s to late-90s
The concerns about poor lending decisions highlighted by the quotes above suggest that interviewees saw the skills and learning used in and derived from the manual underwriting of loans, through examining accounts and by visiting or interviewing the owner, as essential to good business lending. Similarly, Sennett (2009, p. 52) argues that the separation of hand and head degrades the quality of craftsmanship, which he says is “particularly evident when a technology like CAD [computer assisted drawing in architecture] is used to efface the learning that occurs through drawing by hand.”
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The lack of expertise also caused problems in terms of explaining decisions, especially rejections of applications, to customers:
If… you’re just a clerk and if you haven’t had the experience, you don’t know why the computer said no. So when the customer says why can’t you lend me the money, and this is a problem today, you can’t tell then, because you don’t know. You’ve not had the experience.
Jonathan, branch manager, Midland/HSBC, early to mid-00s
Even some branch managers found it difficult to understand the reasoning and operation of the credit scoring technology:
In those days credit scoring had been introduced so there was this magical credit scoring system, which we knew nothing about other than the fact that we fed it in and it came out with an answer.
William, branch manager, Barclays, mid to late-80s
As suggested by the quote above, credit scoring gave banks greater central control over activities in the branches through monopolising the knowledge about working practices. As argued by Braverman (1974), this leads to deskilling as it separates the conception from execution of tasks meaning that the people executing the tasks can be less skilled as no specialist knowledge about the process is required.
A final concern of branch managers in relation to credit scoring was that they thought it changed the relationship with their customers. For managers having to rely on credit scoring, they had to be careful in what they told customers, as they could not guarantee the outcome
What you’ve got to look at is the way the whole system is going. So you’re no longer responsible for personal lending. That’s gone… You can only sanction if Lending Advisor says yes this looks all right. So you could see the way things were going, but the days of the manager having discretion to say to you right now, that’s not a problem, after having a chat with you or a meeting with you accountants or solicitors saying shall we do something here. Now I had to be careful with what I say because I had to go through Lending Advisor and it might say no.
Brian, branch manager, Barclays, early 80s to mid-90s
This removal of authority to decide outcomes meant that affected managers could no longer effectively manage relationships with customers. On the one hand, credit
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scoring could result in the end of long-term customer relationships by rejecting the loan applications of longstanding customers:
So if it didn’t credit score and the lending was less than 100,000 pounds, you couldn’t lend the money despite the fact that that business may have been a customer of the bank for 30 years, and, all of a sudden, the bank said no, because, you know, the business credit scoring system was sacrosanct.
Jonathan, branch manager, Midland/HSBC, early to mid-00s
As explored in Chapter 2, credit scoring is an important disembedding mechanism as it renders the social networks and the social content of the relationship between the lender and the applicant inconsequential. The judgement by and the relationships of the branch manager were no longer important where access was determined by such technology. On the other hand, credit scoring sometimes prevented branch managers from acting, as they saw it, in their customers’ best interest:
On the personal side we started credit scoring personal loans in 1982-ish, I think… And I got told off for overriding some of the credit scoring positives… For the personal lendings and saying… we know this chap’s history, we’ve looked at it. We don’t think, you know, he can afford this. Think this might be too much of a burden for him… I was told that’s not relevant. I mean, the bank actually said that.
Barry, branch manager, Barclays, early 80s to mid-90s
As suggested by the quote, credit scoring brought an element of unbalance to the branch manager role. In particular, it meant that customers’ interest, as perceived by branch managers, was subordinated to the banks’ objectives and views of risk.
In part in recognition of the potential negative impact of credit scoring on relationships with customers and the perceptions of customers of the bank, interviewees did not inform customers about the use of credit scoring to appraise their applications:
I told him to stick strictly to the credit scoring, never say the system won’t do it, refer to me if in doubt and it worked very well.
Harry, branch manager, Midland/HSBC, late 70s to late 90s
By removing authority, it also removed branch managers’ responsibility for outcomes for customers. Under discretionary lending, there was an incentive for branch
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managers to be prudent lenders and, ultimately, at least as perceived by interviewees, act in customers’ best interest by not letting them overstretch themselves. As discussed in Section 5.3.3, poor lending within discretionary limits was frowned upon and could seriously hamper one’s career. Credit scoring, conversely, removed the responsibility for the outcome away from managers and protected them from the consequences of defaults and poor outcomes:
And if the loan went into default, you were, sort of, from the branch point of view you were protected because it was credit scored and it passed the credit score at the time.
Laurence, branch manager, Midland/HSBC, early 90s to early 00s
Interestingly, one of the major selling points that the management of the Bank of Scotland Group put forward when they introduced credit scoring into one of its subsidiary banks was that the staff would not be accountable for any bad debts caused by it (Edelman, 1992).