There’s been plenty of news today about the Government’s investment in the Post Office, to increase the banking services it offers and help it become the “people’s bank”.
The Government is pumping £180 million into the Post Office network of 11,500 branches, which would make it the largest bank (in terms of branches), a good 9,000 ahead of Lloyds Banking Group – indeed, it has more branches than all of the high-street banks combined.
Of course, it is unlikely to be taking the other high-street banks head on, as the products it offers will be at the more basic end of the market. Here’s the details of the products it will offer:
- Weekly budgeting account. An account to help people on low incomes manage their household budgets, and save money by taking advantage of the discounts for using direct debits to pay their utility bills, will be available through the Post Office. The Government is already working with the Post Office and utility companies to make this account a reality as quickly as possible.
- Children’s savings account. The Post Office will launch a Post Office Children’s Savings Account in the next twelve months, encouraging children to save through visits to their local Post Office.
- Post Office current account. The Post Office will launch its own current account that will be accessible from any Post Office in the country.
- Access to accounts from other banks. Detailed negotiations are taking place with RBS and Santander to give access to their current accounts. This would mean that around 86% of current accounts would be accessible at Post Offices.
- Business services. A new agreement between the Post Office and Santander will allow all its business account holders to access their accounts at the Post Office. The Post Office will also explore the development of a Post Office business bank account, which would be available throughout the network.Additionally, following responses made to this consultation, the Post Office and the Regional Development Agencies will explore how they can best work together to serve small and medium enterprises in each region.
- Mortgages. The Post Office will offer a new mortgage product with a 90% loan-to-value ratio aimed at first-time buyers. The Post Office will also increase its lending substantially, aiming to double the value of its mortgage book in the financial year 2010/11.
- Increasing affordable credit. It plans to support a national distribution network with credit unions, reflecting the natural partnership with the Post Office, through a proposed levy on retail banks. This will ensure that credit union savings, loans and current accounts can be accessed anywhere in the country.
- Saving Gateway. The Post Office will launch a Saving Gateway account this year. This is a new account for people of working age who are on lower incomes which aims to kick-start the savings habit, with the Government adding 50p for every £1 saved.
So it will definitely cater to a certain section of the community – those who struggle to get a mainstream bank account currently, and those who are on low incomes.
But there are a few points to be made following this annoucement.
Firstly, as pointed out by Martin Lewis, some of the Post Offices banking products are far from market-leading, and are provided by the Bank of Ireland, which does not have the normal £50,000 savings guarantee provided by other banks in the UK (thanks to the FSCS). Will clients be happy placing their money with such an institution? Whilst the likelihood of losing money is small, we’ve seen in the past that when people think their money is at risk, they’re quick to withdraw it, which can cause big problems for a bank.
Also, many would take offence at Lord Mandleson’s comments about the Post Office being a “well-loved community institution”, because whilst the Post Office still has a massive amount of branches, the numbers have been declining, and many in small towns and villages have recently shut. So for many in rural locations, this will be too late.
Finally, a few people have pointed out that the idea of a Post Office Bank is not new; Girobank was established back in 1968 by the GPO, but was later sold off to Alliance & Leicester, which itself was brought by the Spanish super-banking group, Santander.
Indeed, the reasons for its development sound eerily familiar:
Politics played a part in the development of the National Giro as the British Postgiro was named. It reflected a general feeling in the Labour Movement that the banks were not meeting the mass banking needs of the British population. In the early 1960s, the majority of adults in the United Kingdom did not have a bank account and the banks did not court business from the working classes, which they regarded as unprofitable. If you were working class, you would be paid weekly and in cash. If middle class, you were more likely to be salaried and paid with a bank cheque at the end of the month. If you could afford to have a bank account, you could pay the cheque into the account — but even among the middle class, many had no bank account. It was common practice for cheques to be endorsed to local traders (and especially the milkman) who would know the customer and be prepared to exchange the cheque for cash.
Girobank was actually pretty innovative in its day:
It was the first bank designed with computerised operations in mind; the first bank in Europe to adopt OCR (optical character recognition)technology; the first UK bank to offer free accounts to individuals; and the first bank in Europe to offer telephone banking, beating the much trumpeted First Direct service by several years. It is widely credited for shaking up the UK banking market, forcing competitors to innovate and respond to the needs of the mass market.
The new Post Office Bank is unlikely to provide as much innovation, and it would appear neither will the current high-street banks or the new entrants.
photo credit: Mike Cattell