Supplementary memorandum submitted by
Post Office Ltd
TREASURY SELECT
COMMITTEE INQUIRY—CASH
MACHINE CHARGES
At our hearing on 10 February, Post Office Ltd
agreed to supply you with a supplementary memorandum covering
a number of points that we were unable to make in public session.
This information is provided in two appendices, to separate the
information that we are happy for you to make public, and that
which is commercially confidential, and is not for publication
or disclosure beyond the Committee. (see Ev 146)
In addition to dealing with these issues, we
would also like to ensure that the Committee are aware of the
following:
1. 98% of cash withdrawals at Post Office
branches are free of charge.
2. Post Office Ltd does not make a profit
from surcharging ATMs.
3. Post Office Ltd does not own any ATMs—they
are all supplied, on contract, by banks and building societies
and Independent ATM Deployers (IADs).
4. During the month of December 2004, across
our network of around 15,000 branches, we did 30.5 million free
cash withdrawals across our counters, and 3.5 million transactions
through free ATMs. This compares with 0.6 million transactions
through surcharging ATMs in our branches which equates to less
than 2% of total cash withdrawals in post offices.
5. Of the 30.5 million free transactions
across our counters, 12.5 million were either Post Office Card
Account, or Basic Bank Account transactions, and 16 million were
benefit book/exceptions service transactions. We therefore have
unparalleled experience at providing financial services to those
on low incomes. There is no evidence however that benefit claimants
are frequent users of ATMs located within Post Office branches,
not least because Post Office Card Account cards cannot be used
in ATMs.
6. The other 2.5 million free counter withdrawals
were for customers of our partner banks: Barclays, Lloyds TSB,
Alliance & Leicester, Co-op Bank, Bank of Ireland, Clydesdale,
Cahoot, Smile and First Direct (Scotland only). All of these have
signed contracts with us enabling their customers to use our counters
for free cash withdrawals. We are currently negotiating with several
other banks, which we hope will allow us to extend this arrangement
to even more consumers.
7. The number of free machines in Post Offices
has increased from less than 150 before 2000, to over 600 now.
8. There are two distinct business models
used by deployers in the ATM market. The economics of these models
are as follows:
Free model: The ATM owner applies
no charge to the user.
(i) The income to the ATM owner is derived
from interchange (the charge paid by the card issuer) in respect
of both cash withdrawals and balance enquiries.
(ii) These are generally high footfall
sites if the ATM is to be economically viable from interchange
alone.
(iii) If the owner of the ATM is also
a card issuer (the case with all the major banks and building
societies) then the overall customer relationship becomes a consideration.
Adequate free ATM access is now essential to maintain existing
relationships and acquire new customers. The profitability of
an individual customer is derived from that customer's total use
of services, not just from the ATM.
Surcharging model: The ATM owner
applies a charge to the user.
(i) The income to the ATM owner is derived
from the charge made to the user for a cash withdrawal. Interchange
is received only in respect of a balance enquiry.
(ii) These are generally low footfall
sites where interchange income would be insufficient to make the
deployment of an ATM economically viable.
(iii) The vast majority of charging ATMs
are deployed by IADs. These companies have no customer relationships
and the profitability of the ATM business must therefore stand
alone.
9. Post Office Ltd is not a bank in its own
right and therefore does not have a current account relationship
with the users of ATMs located in our branches. The cost of deploying
a free ATM cannot therefore be recouped through the financial
benefit of a wider relationship with these customers.
10. The machine provider determines whether
or not they are prepared to place an ATM in a branch, and if so
whether this will be a free or a surcharging machine. Surcharging
machines have only been installed at locations where machine providers
were not prepared to install a free machine. The alternative to
a surcharging machine would therefore have been no machine. The
branches that have free machines have, in the opinion of the machine
provider, sufficient footfall for them to recoup the costs associated
with the machine through the LINK interchange fee.
11. Banks and building societies (eg Nationwide)
that are committed, as part of their marketing proposition, to
running their estate of ATMs free, are only located in high footfall
sites. Alliance & Leicester, by contrast, whose estate of
ATMs is greater than their branch network, run their ATMs free
to their customers but, at lower footfall sites, charge the customers
of other financial institutions.
12. No subpostmaster is forced to have an
ATM installed. We acknowledge subpostmasters do not have the option
to request the removal of a machine if the supplier decides that
it is no longer viable to continue to operate it on a free to
the customer basis (usually because volumes have failed to live
up to initial expectations). We are discussing this with our suppliers
with the objective of providing the subpostmaster with that choice.
13. The Committee referred on a number of
occasions to analysis by LINK which suggested that nearly 38%
of ATM transactions at a Post Office branch in Speke could have
been completed over the counter. This needs to be set into context.
There were over 17,000 free cash withdrawals in Post Offices in
Speke in December 2004, (13,500 at the office in question) of
which 320, or 2%, were conducted at the surcharging ATM when cash
could have been withdrawn at the counter for free. We do not therefore
agree with the view expressed by some members of the Committee
that we have failed to communicate adequately the message of access
to free cash at the counter.
14. We are, however, not complacent. We will
look at what further measures we can take to ensure that all of
our customers who bank with our partners are aware that they can
get access to cash for free at the counter. This is in the commercial
interests of Post Office Ltd, through the opportunity to provide
additional services to customers, and our subpostmasters, who
receive payment for every cash withdrawal that takes place over
the counter. However, as we do not own ATMs we do not have the
right to put any kind of label on the machine advertising cash
withdrawals over the counter, although we are looking at whether
we can put up signs near to machines. We have to date spent £6.5
million advertising our banking facilities—while this may
not be the biggest advertising campaign that the Committee has
ever seen, it is a considerable sum for an organisation that had
losses from operations of £102 million last year.
15. The Committee also suggested that queues
in Post Office branches effectively encourage our customers to
use ATMs instead, at which they may be subject to surcharges.
We do not accept the implication that there are widespread queuing
problems in our branches. As transactions through surcharging
ATMs amount to less than 2% of total cash withdrawals at Post
Office branches, there is no evidence to suggest that significant
numbers of people are voting with their feet and opting to pay
rather than queue. We acknowledge that there are times when our
customers do have to queue—as is the case with most retail
businesses, banks, and indeed at ATMs in busy locations—and
that in some locations there is room for improvement. Where there
are problems, we put in place plans to rectify these. 90% of our
customers are satisfied with the service they receive at the Post
Office, and 82% would recommend us.
16. We advised the Committee at our hearing
that we were seeking to join the LINK scheme. We understand that
the Network Members Scheme Committee (NMSC) have just considered
our application to join, and our proposal for a rule change which
would allow manned terminal operators into the scheme. The NMSC
have however referred the matter to a sub-committee, for a more
detailed study of the impact that these proposals would have on
existing members. We do not know how long this activity will take.
We have addressed the issue of financial inclusion
in an annex to this note. We are very proud that our customers
hold the Post Office in high esteem, and appreciate that for many
we provide a valuable social service. 96% of our customers trust
the Post Office. We take our corporate social responsibility seriously.
We were pleased that at the end of our hearing
you promised to write to the banks, to encourage them to allow
their customers to access their accounts at Post Office branches.
This could be achieved "at a stroke" if we were allowed
to join LINK. We do not believe that developing banking and financial
service products of our own need be an impediment to this. It
has not put off our existing partners, and as some 28 million
customers a week use our branches, we are invariably serving their
customers for other reasons anyway. We have also indicated our
willingness to negotiate on the price we charge banks, which is
possible if we can secure additional volume of transactions over
our counter. We feel that this will be a significant step towards
financial inclusion, as our extensive network would then be available
to provide free banking services to an even greater population
than at present.
Sir Michael Hodgkinson
Chairman
22 February 2005
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