Memorandum submitted by The Post Office®
EXECUTIVE SUMMARY
The Post Office® is pleased to submit evidence
to the Treasury Select Committee on the issue of Financial Inclusion.
This document seeks to highlight areas where the Post Office has
made positive contributions to the promotion of financial inclusion.
We have highlighted the areas of: access to banking services;
access to affordable credit; and financial education.
— The vision for the Post Office®
is to be a universal provider of free cash access in the UK.
— With a network of approximately 14,500
branches across the country, the Post Office® offers greater
access to banking services than all the main banks and building
societies combined. This network provides services (including
cash withdrawal and financial services) to many in rural and marginal
areas who are poorly served by banks or free-to-use ATMs.
— Royal Mail Group plc is required
to maintain a network in which 95% of the population is within
five kilometres of a Post Office® branch. Current figures
are:
— 93% of people live within one mile
of a Post Office®
— 99% of the population live within
three miles of Post Office®
— 60% of those who live in rural areas
have a Post Office® whilst only 4% have access to a bank
— 1125 Post Office branches are located
in 10% of the most deprived wards in the UK
— Post Office Ltd has been working
on increasing free cash access available at Post Office® counters.
— more than one million people a day
use this service,
— Post Office Ltd is one of the fastest
growing, free cash withdrawal outlets in the UK,
— 98% of cash withdrawals at Post Office®
branches are free of charge.
— Post Office Ltd has contracts with
nine major banks to allow customers free current and basic bank
account services at Post Office® counters. We are hoping more
banks and building societies will join up to allow customers free
access to cash withdrawals. At present, we are only able to provide
this service to approximately 40% of people with a bank account.
— The Post Office® is currently
changing its ATM strategy to promote more free ATMs and has taken
the decision to withdraw from its over-arching contractual arrangements
with existing ATM suppliers. Following this we have reached an
agreement with Bank of Ireland and are currently introducing 1,000
Post Office®/Bank of Ireland free-to-use machines across the
network. The Post Office is currently reviewing all sites where
there are currently surcharging machines and considering the viability
of replacing these.
— Post Office Ltd applied to join the
LINK scheme 18 months ago. This would enable customers of any
of the LINK member banks to access their cash for free at Post
Office® counters; this would dramatically reduce the numbers
of people who are effectively financially excluded because they
cannot physically get to a bank branch or free ATM. The LINK members
have turned down the application to date, but discussions are
ongoing, via the OFT Payment Systems Task Force—LINK Access
and Governance Working Group, which is due to report in January
2006.
— Post Office Ltd made a loss from
operations of £110 million in 2004-5, with 6,000 of the 8,000
rural Post Offices being loss making. Post Office Ltd therefore
has a very limited ability to develop products and services where
these do not generate a commercial return.
— Furthermore Post Office Ltd's ability
to maintain this network of rural Post Offices® and accessibility
to banking services is dependent on the Social Network Payment
(£150 million a year) which expires in 2008. We are currently
in discussion with the Government about the future funding of
the rural network.
1. ACCESS TO
BANKING SERVICES
1.1 Research has shown that many customers
who do not have a bank account find the prospect of dealing with
financial institutions very daunting. With 28 million customers
a week, Post Office Ltd has traditionally been the place where
many poorer and vulnerable citizens have collected their pensions
and benefits. The range of banking products available at the Post
Office® enables these customers to continue to collect their
benefits at their local Post Office®, a familiar and trusted
environment. Of the 233 million free transactions across our counters
in 2005, 200 million were either Post Office Card Account or Basic
Bank Account transactions.
1.2 Access to banking and Financial Services
through Post Office Ltd includes:—
— Post Office Card Account (POCA)
— Basic bank accounts (BBAs)
— Savings and Payment services
1.3 Post Office Card Account
1.3.1 The POCA is the most basic form of
account, and is used purely for receipt of direct payment of benefits.
There are currently 4.3 million Post Office® Card Accounts
in active use. The POCA can be seen as the first step towards
having a bank account, by enabling account holders to become familiar
with using cards, and Chip & Pin technology. The POCA is more
flexible than the paper based benefits order book, as holders
of a POCA can also withdraw their money at any Post Office®
branch. Account holders are not required to withdraw all of their
benefits in one go and this is enabling some users to get into
a saving habit.
1.3.2 Not all individuals are however capable
of using card based banking technology, and this is a real barrier
to financial inclusion. Those who are unable to physically use
PIN pads, or to remember their PINs, have few banking options
open to them. Post Office Ltd is committed to continuing to provide,
on behalf of Government, an Exceptions Service for benefit claimants,
where those who cannot use card technology can continue to access
their benefits at Post Office® branches. It is vital that
this service continues if these customers are not to be financially
excluded.
1.3.3 The POCA contract itself is due to
expire in 2010 and the future of this channel is currently under
discussion with the Department of Work and Pensions. If the POCA
doesn't continue or is not replaced, recipients who do not bank
with a partner bank or do not want a basic bank account will be
excluded from accessing their benefits through Post Office®
branches. This in turn will also result in a further disastrous
loss of income to the business, which will potentially jeopardise
the sustainability of an extensive branch network. The Post Office®
has already had to contend with the loss of £400 million
annually—previously its single biggest source of income—as
a result of the decision to pay benefits directly into bank accounts.
1.4 Basic Bank Accounts
1.4.1 Post Office Ltd fully supports the
existence of basic bank accounts (BBAs) as a mechanism for encouraging
access to banking services from people with out any other form
of bank account. BBAs are a valuable contribution to financial
inclusion as they enable individuals to manage their financial
affairs in a straightforward manner without the risk of getting
into debt.
1.4.2 There are 5.9 million BBAs in use
in the UK. Of these, 2.3 million BBAs are with banks which enable
their customers to access their accounts to make cash withdrawals
at Post Office® branches[262].
The inability of customers with BBAs from certain banks to access
their account at a Post Office® branch may of itself act as
a disincentive for some people to open a BBA.
1.4.3 The majority of the holders of BBAs
listed below are however unable to pay in cash or cheques at Post
Office® branches (these are asterisked if no paying in facility
is available). There are opportunities for further discussions
with the relevant banks to encourage paying in facilities on more
accounts over the counter at a Post Office®.
1.5 Current Accounts
1.5.1 In addition to access to BBAs and
Post Office Card Accounts, current account customers of the following
banks are able to access their accounts at a Post Office®
branch: Alliance & Leicester; Bank of Ireland; Barclays (in
England and Wales); cahoot; Clydesdale Bank; The Co-operative
Bank; Nationwide Building Society; Lloyds TSB (in England, Wales
and Scotland); smile; First Direct (Scotland only). The majority
of these banks enable customers to make cash withdrawals; balance
enquiries; cash and cheque deposits in Post Offices®. Recent
research in rural and urban deprived areas tells us that 92% of
customers that use the service would be disappointed if it were
removed. Additionally, 92% consider the service more convenient
than their nearest ATM.
1.5.2 However, holders of current accounts
with other major banks are unable to access their cash at Post
Office® branches. These customers are therefore excluded from
benefiting from the geographical coverage of the Post Office®
network. Post Office Ltd would like to have arrangements with
all banks for their customers to be able to access their accounts
at Post Office® branches. In rural and urban deprived areas
89% of customers who cannot currently use the service would like
to be able to do so. In these areas, 83% of customers say that
if they can't get their money from the Post Office® they have
to travel more than a mile to their nearest bank branch (35% have
to travel more than 6 miles) and 61% have to travel more than
a mile to their nearest ATM, which may be a surcharging machine.
1.5.3 Post Office Ltd has applied to join
the LINK scheme. This would enable customers of any of the LINK
member banks to access their cash for free at Post Office®
counters; this would dramatically reduce the numbers of people
who are effectively financially excluded because they cannot physically
get to a bank branch. The LINK members have turned down the application
to date, but discussions are ongoing, via the OFT Payment Systems
Task Force—LINK Access and Governance Working Group, which
is due to report in January 2006.
1.6 CASH
MACHINES
1.6.1 Since our last appearance before the
Committee, Post Office Ltd has changed its cash machine strategy.
Post Office Ltd has taken the decision to withdraw from its over-arching
contractual arrangements with existing ATM suppliers and going
forward will only introduce free-to-use Post Office Ltd ATMs.
In practice this means that the existing physical arrangements
in branches will continue until the end of each contract.
1.6.2 In place of this arrangement, Post
Office Ltd have now reached an agreement with Bank of Ireland
to provide approximately 1000 Post Office® branded free-to-use
machines across the network. The roll-out of these machines has
already started.
1.6.3 These will replace existing free to
use machines provided by other suppliers—over the course
of the next five years as existing contracts expire. In addition,
there will be over 300 new free-to-use machines located in the
network over the next three years. Post Office Ltd is reviewing
all sites where there are currently surcharging machines and considering
the viability of replacing these in due course with a free-to-use
machine. So far, 100 such sites have already been identified and
we have informed the subpostmasters here of our intention to deploy
a free-to-use ATM once the existing ATM contracts expire. We are
pleased to advise that the surcharging machine in Speke will be
removed as soon as we can install a free Post Office®/Bank
of Ireland machine. The result is that more ATMs will be free
and Post Office Ltd does not anticipate that any sites that currently
have an ATM will be left without an ATM as a result of this change.
However, the potentially huge investment that would be needed
to install a free ATM in every branch—14,500 sites—of
the network means that the majority of branches will not have
a free or charging ATM in them.
1.6.4 Post Office®/Bank of Ireland branded
ATMs will display clear signage stating that the machines are
free to use.
1.6.5 If Post Office Ltd decide not to place
a free-to-use ATM in a branch, the subpostmaster will then have
the option of concluding a separate contract with an alternative
supplier for installation of a surcharging machine on the non-Post
Office® side of their business. Post Office Ltd will not facilitate
`introductions' between subpostmasters and ATM suppliers, nor
will we negotiate with suppliers on their behalf. Where a subpostmaster
has a surcharging machine, Post Office Ltd has recommended a maximum
surcharge of £1.50 per transaction. The signage will also
state that the machine is not operated or maintained by Post Office
Ltd.
1.6.6 If a subpostmaster is offered, but
declines a Post Office®/Bank of Ireland branded ATM, he/she
will then be restricted from seeking to contract with an alternative
supplier for the installation of an ATM (free or surcharging)
on their retail side of the business. This will prevent the installation
of a charging machine at Post Office® branches where a free
machine is viable.
1.6.7 Unfortunately we have received notice
from Alliance & Leicester that 45 of their free-to-use ATMs
located in Post Office® branches are to be converted to surcharging
operation. The Post Office® has argued against this change
but Alliance & Leicester are entitled to make it under the
terms of the existing contract. The Post Office® has been
unable to persuade Alliance & Leicester to retain the machines
on a free-to-use basis. However, Post Office Ltd will be replacing
these machines with Post Office®/Bank of Ireland branded ATMs
when the contract expires.
1.7 Savings and Payment Services
1.7.1 Post Office Ltd offers a number of
ways for consumers to budget and make payments in cash. This is
particularly relevant for those on low incomes
1.7.2 Post Office Ltd handles approximately
400 million bill payment transactions (eg for car tax, TV Licensing,
Council tax and rent payments) a year, of which more than 90%
are free. Post Office® branches also sell tokens for the payment
of gas and electricity charges.
1.7.3 Post Office Ltd offers savings stamps,
in denominations of £5. These are a very easy way for customers
who are wary of using more sophisticated financial instruments
to put money aside. The saving stamps can then be used to pay
for most bill payment transactions and Post Office® services
available over the Post Office® counter.
1.7.4 Post Office Ltd also provides Postal
Orders, which can be used to pay for goods. These are particularly
useful for people who need to send a cheque but do not have access
to a bank account.
1.7.5 One of the main barriers to savings
for people on below average incomes is the cost of accessing savings.
Those on low incomes may be discouraged from opening savings accounts
with banks if they have to pay to travel to do so. Post Office
Ltd's extensive network will in many cases provide more convenient
access to savers and a range of different savings products are
available from either Post Office Financial Services, or National
Savings & Investments.
2. ACCESS TO
AFFORDABLE CREDIT
2.1 Post Office Ltd is currently loss making,
and therefore considers that the contribution it can make towards
financial inclusion is the availability of its network for access
to cash. The company is in a limited position to address the issue
of those excluded from mainstream credit that may need access
to affordable credit.
2.2 The Post Office® does offer a competitive
personal loan and unique credit card with a `two in one' feature
that allow customers to switch bigger purchases to a lower `loan
like' facility with a 12 month repayment plan.
2.3.1 Post Office Financial Services, the
joint venture between Post Office Ltd and the Bank of Ireland,
is a responsible lender. Stringent credit checks are performed
routinely on applications for loans or credit cards.
3. FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
3.1 Post Office Ltd is engaging with various
organisations and bodies to improve financial literacy, literacy
and numeracy.
— Post Office Ltd is working in conjunction
with the Citizen's Advice Bureau and Business in the Community
(BITC) to improve levels of literacy and numeracy amongst the
illiterate.
— In conjunction with the Personal
Finance Education Group (PFEG), BBC, OFT Consumer Education Alliance
(OFT CEA), and the BITC, Post Office Ltd is working to improve
the level of numeracy and literacy of those who already have a
basic level of numeracy and literacy but need further support
to understand financial products and their value.
— Post Office Ltd is also supporting
the Financial Services Agency (FSA), in their activities to improve
understanding of financial products such as basic bank accounts,
and where to go to complain about issues such as mis-selling.
Post Office Ltd intends to support the initiative by displaying
leaflets in branches, at a significant cost to the business.
3.2 Post Office Ltd is currently the main
distributor of the Government guide to Stakeholder Savings.
4. THE BENEFITS
OF FINANCIAL
INCLUSION
4.1 Post Office Ltd is not in a position
to assess in any quantifiable way the benefits of financial inclusion,
or whether financial inclusion measures can contribute to combating
poverty or reduce barriers to employment.
However, providing consumers with a convenient
means to access their cash for free in their immediate locality
does have a positive impact on the physical ability of individuals
to undertake basic financial transactions. There is also a
positive benefit to local economies if the resident customer base
is able to access their money in the local area.
January 2006
262 The following banks have basic bank accounts which
enable their account holders to make cash withdrawals and balance
enquiries in Post Office® branches: Abbey National* (Bank
Account); Alliance & Leicester (Basic Cash Account); Bank
of Ireland (Basic Cash Account); Bank of Scotland* (Easycash-green
cards only); Barclays* (Cash Card Account); Clydesdale Bank (CashMaster
Account); The Co-operative Bank (Cashminder); First Trust Bank*
(Basic Bank Account); Halifax* (Easycash); HSBC* (Basic Bank Account);
Lloyds TSB (Basic Bank Account); Nationwide Building Society*
(FlexAccount-cash card only); Natwest* (Step Account); Northern
Bank* (CashMaster Basic); The Royal Bank of Scotland* (Key Account);
Ulster Bank* (Basic Bank Account); Yorkshire Bank* (Readycash
Account). Back
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