Memorandum submitted by PayPoint plc
A. EXECUTIVE
SUMMARY
1. PayPoint welcomes the opportunity to
contribute to the Business and Enterprise Select Committee's inquiry
into the future shape of the Post Office network. PayPoint is
well placed to comment on the issues being considered by the Committee
as it is also a provider of services to the general public through
a national network of local outlets. PayPoint's business model
is successful and profitable, due to its efficient use of technology,
convenience, popularity with customers and first class service.
2. PayPoint believes that:
2.1 The Post Office subsidy is a direct result
of the organisation's inefficiency. By providing taxpayers with
poor value for money and restricting choice and convenience for
the customers most dependent on its services, the subsidy cannot
be justified.
2.2 There is no accountability to explain where
the £1.7 billion committed by the Government to the
Post Office subsidy is to be targeted, which post offices will
receive the subsidy or how the expenditure will be monitored to
ensure it meets the legal and operational requirements. The same
concern applies to the £150 million per year provided
from the EU towards sustaining the rural network.
2.3 The £1.7 billion headline figure
underestimates the true level of subsidy, as the absence of competition
for Government business makes it likely that many Post Office
services are provided on uncompetitive terms at taxpayers' expense.
2.4 The subsidy supports the provision of services
that can be provided profitably and successfully by other parties
as well as the Post Office. The past and ongoing investment
in the PayStation network has been wasteful and unnecessary as
PayPoint offered to provide its proven, successful technology
and hardware to the entire Post Office network at no cost
to the Post Office.
2.5 The Post Office runs a highly effective political
lobby to pressure the Government to protect its services and subsidies,
but this primarily serves the interests of its central bureaucracy
and the National Federation of Sub-Postmasters, frequently at
the expense of the Post Office's customers.
2.6 A viable Post Office can be an important
contributor to the social fabric of a local community but it is
not unique in this respect; policymakers also have to accept the
huge contribution made to local communities by local convenience
stores, many of which are able to offer the same services more
efficiently than the Post Office and at less expense to the taxpayer.
3. For businesses to survive and prosper,
especially in the current economic climate, they need to embrace
modern, cost-efficient, automated processes; they must be strongly
customer orientated and, above all, must offer value for money.
The Post Office falls short on all counts. Any inquiry into its
subsidy must consider:
3.1 Value for money—should the subsidy
be used to support the provision of products and services where
a more efficient, cheaper, commercial structure already exists?
3.2 Impact on competition—does the subsidy
have an adverse impact on a competitive market place for services
provided by the private sector?
3.3 Complementary services—should sub-postmasters
be restricted from working with third parties who can provide
additional services and income streams to create additional footfall
and so reduce the dependence on the subsidy?
4. In order to ensure full consideration
of each of these requirements, the services currently provided
by the Post Office should be subject to competitive tender in
an open and fair procurement process.
B. ABOUT PAYPOINT
5. PayPoint is the leading cash and electronic
payments provider in the UK and Ireland and is widely recognised
for its leadership in prepayment systems, smart technology and
consumer service. Based in Welwyn Garden City, Herts, it was established
in 1996 and listed on the London Stock Exchange in 2004.
6. PayPoint handles in excess of £8 billion
from over 515 million transactions annually. The company
operates with several payment networks:
6.1 The PayPoint retail network numbers around
21,000 terminals located in local shops (including Co-op,
Spar, Costcutter, Sainsburys Local, One Stop, Londis, McColls,
Somerfield and thousands of independents) in all parts of the
UK and Ireland. Terminals handle gas and electricity meter prepayments,
cash bill payments, council tax, rent and school meals payments,
mobile phone top-ups, transport tickets, BBC TV licences, savings
schemes and a wide variety of other payment types for all of the
leading utilities, telecommunications suppliers and many consumer
service companies. This network is used by consumers, free of
charge, over nine million times a week. The network has 98.9%
population cover on a one mile urban or five miles rural measure;
6.2 Additional multiple retailer connections
via retailers' electronic till systems in the UK, including BP
and Superdrug, for mobile top-ups and selected payments from the
PayPoint range;
6.3 The PayPoint ATM network has 2,200 "LINK"
branded machines across the UK, also typically in convenience
stores;
6.4 PayPoint.net provides secure credit and debit
card payments for over 5,100 web merchants linking into all
the major UK acquiring banks; and a facility to enable customers
to make cash payments for purchases made online, thus opening
up the benefits, offers and savings available online to financially
disadvantaged groups who were previously excluded from them.
C. INTRODUCTION
7. Any organisation established to provide
services to the public must put the customer at the centre of
everything it does. The modern consumer demands choice, flexibility
and convenience that reflect their lifestyles and circumstances.
They want shops and services to be available at times and in locations
that suit them; they want to feel that the service provider puts
their needs first.
8. The Government has confirmed that the
Post Office will receive a subsidy totalling £1.7 billion
over five years, including £150 million per year from
the EU towards sustaining the rural network. Ministers argue that
the UK must maintain rural post offices, which are structurally
loss making, but vital to rural communities' access to essential
services. However, there is no evidence available of how the subsidy
will be targeted or allocated; what criteria will be used to determine
which post offices qualify for a subsidy; or how the subsidy will
be monitored—and what guarantees are in place—to ensure
it is restricted to meeting the stated objectives of the subsidy
and is not used to provide commercial services in competition
with the private sector.
9. The Post Office has considerable public
support, according to PostComm research, with around 90% of people
making some use of a post office. Support and usage were higher
among vulnerable groups, especially in rural areas, who use it
to collect pensions and benefits and use its banking services.
Less than half the population visits a post office more than once
a week.
10. According to the same PostComm research,
most respondents use their local post office to post letters and
packets/parcels. Between 30 and 50% of respondents use the
Post Office for services, such as Road Fund licence renewals and
passports, for which the Post Office is monopoly service provider,
while a slightly smaller proportion use it for other Post Office
services, such as redirections and international mail. It must
be the case, therefore, that much of the retained business in
the Post Office is the result of its continued monopolies, rather
than customer choice.
11. Supporters of the subsidy claim that
post offices act as a vibrant and social community hub where local
residents share information and find out if anyone needs help.
While we do not doubt that there are many post offices that do,
indeed, provide an important community role, post offices are
not unique in doing so; the same is equally true of village and
local convenience stores, even where there is also a nearby post
office. The reality is that many remote post offices have limited
opening hours, providing only occasional support for their communities,
and many more offer an extremely limited range of goods that is
inadequate for the day-to-day subsistence requirements of the
community.
12. Many large communities, especially those
on former council estates, no longer have a post office; instead,
local residents rely on PayPoint terminals in convenience stores
to conduct many of their vital cash transactions, such as energy
pre-payments, mobile top ups, rent and council tax payments. However,
they often have to travel considerably further to collect pensions
and benefits and will continue to have to do so following the
cancellation of the POCA procurement process in favour of continued
exclusivity for the Post Office.
D. RESPONSES
TO BRIEF
Question 1: What services should the Post
Office network offer?
(i) Government
13. The Post Office already provides a wide
range of services on behalf of the Government, although revenues,
which represented 43% of its income five years ago, fell to 26%
in 2007-08 and are expected to fall to 17% in 2011. Subject
to its ability to provide these services cost-effectively, to
modern service standards, and without abusing its privileged market
position, it should continue to provide them.
14. However, the Post Office network's right
to continue to provide public services should only be accepted
if it is consistent with the Government's procurement rules, including
value for money.
15. When cancelling the procurement process
for the Post Office Card Account (POCA), the Government took a
political decision to ignore this principle. In doing so, the
Government has ensured that the very people whom the POCA is intended
to benefit receive a third class service and remain the only group
in society unable to obtain their own money when and where they
need it.
16. While it may, at first glance, appear
to be a consumer friendly decision to retain the POCA in post
offices only, politicians should reflect on what the alternative
might have been:
— 70,000 free places including Post
Offices, other local shops and ATMs for pensioners and benefit
claimants to get their money
— Access to their money at any time of
day or night
— Taxpayer savings of tens of millions
of pounds
17. The key issue is whether the Post Office
should have a monopoly on the provision of Government services.
If a subsidy is needed to maintain the monopoly due the Post Office's
own operational deficiencies, despite the proven ability of the
private sector to provide the same service profitably and with
far greater choice and flexibility in when and where those services
can be accessed, then the monopoly cannot be justified. Furthermore,
if the Post Office uses its monopoly power and its subsidies to
distort other competitive markets, their continuation cannot be
justified,
(ii) Local authorities
18. Key services provided by the Post Office
network on behalf of local authorities include, or could include,
Council Tax and rent payments, and transport (road, rail, infrastructure)
payments.
19. In principle, the Post Office should
have the same ability to bid for and provide payment and information
services for local authorities as for central government.
20. However, there is just as great a priority
that the service provider is the most cost-effective, efficient
and can meet the social needs of local Council Tax payers. If
the local authority can find an alternative, cheaper and more
efficient provider than the Post Office, if should be forced to
use that provider. UK and EU subsidies should not be allowed to
undermine competition and the development of private enterprise
in the local authority's area.
(iii) Other sources, including services
in competition with Royal Mail Group
21. The same principles apply to the provision
of services from non-governmental sources. The Post Office already
offers home, travel, vehicle, pet and life insurance, foreign
exchange, bill payments, a Christmas Club, saving stamps, international
money transfers, savings and investments and broadband, among
a growing range of services designed to enhance footfall and Post
Office revenues, and reduce reliance on revenues from government
services.
22. Most of these services are financed
or administered by third parties. The common denominator of all
these services is that they enhance consumer choice. This is in
stark contrast with the POCA, which restricts pensioners and benefits
claimants to a single provider with a declining network and limited
opening hours.
23. By offering these white label products
and services, the Post Office is operating in competition with
the private sector. But, as long as it is paying competitive market
rates to the service originator to repackage them for sale to
consumers under the Post Office brand, and is pricing the products
and services at a level to give an economic return on investment
and profit margin, the Post Office should be free to provide any
service it wishes. However, it should not be allowed to provide
any product or service that covertly diverts subsidies to undercut
private sector competition.
(iv) Is there any case for any service
to be subsidised?
24. There is no economic, social or public
interest case for any service to be generally subsidised, even
when it is a service provided on behalf of the Government. There
might be a case in extreme situations when a Post Office serves
a small community in a rural location where a local shop/post
office would not be economically viable and where there is no
viable alternative within a reasonable distance for people to
travel. In return, restrictions on the availability of other products
and services in the outlet must be lifted.
25. It must be of great concern to the Committee
and others charged with the oversight of Government expenditure
that there appears to be no guidance or accountability to explain
which post offices will receive the £1.7 billion subsidy
or how it will be monitored to ensure it is used only to fulfil
the subsidy criteria and not used to provide commercial services
in competition with the private sector.
26. The Post Office subsidy does not work
in the interests of consumers or taxpayers; it breeds inefficiency
and complacency, with sub-postmasters relying on their Post Office
salaries or minimum revenues where they are not sustainable by
the actual level of business going through the Post Office.
27. The true cost to the taxpayer of subsidising
the Post Office is continued attrition, inefficiency and distortion
of competitive markets. It also denies sub-postmasters the opportunity
to build additional income streams by locking out certain products
and services.
Question 2: How much account should be taken
of
(i) Costs to the taxpayer in providing
services through the Post Office rather than through cheaper channels?
28. The only consideration that central
and local government should have is whether the service provider
is offering the best value for money and that the flexibility
and convenience of the delivery method will benefit those using
the service.
29. The real losers from the Post Office
subsidy are actually the most disadvantaged and vulnerable who
suffer from lack of access at convenient times, as well as taxpayers,
who are paying for unjustifiable expenditure at a time when the
Government has committed the country to an unprecedented level
of national debt, which taxpayers will be funding for generations
to come. Government needs to consider making some compensating
cutbacks in expenditure, particularly where subsidies are discretionary,
distort markets to the detriment of the private sector and have
a negative impact on consumer choice and social inclusion.
(ii) Consumer preference for alternative
channels?
30. We agree with the frequent statements
from the Government in which it places the highest importance
on consumer choice in the delivery of Government services—enabling
consumers to exercise choice in the timing and location of the
delivery of the services they use. However, these statements are
at odds with making delivery of certain services mandatory through
a particular channel.
31. Consumer choice benefits local businesses
such as convenience stores, which, in turn, are able to play a
vital role in their communities. Consumers have an enormous choice
when it comes to obtaining most of the types of products and services
provided by post offices—from supermarkets/superstores,
Co-ops and local convenience stores to online, phone, direct contact,
brokers, banks and even by letter.
32. Consumers show their preference by making
more than 515 million transactions annually through PayPoint
outlets. They choose to do so because they are satisfied with,
so prefer, the service they receive.
— Customer satisfaction with PayPoint constantly
exceeds 97%
— Wales and Scotland have the highest satisfaction
levels with PayPoint despite the higher proportion of rural locations
— The more transactions people do, the
more satisfied they are
— 69% of customers use PayPoint once a
week or more frequently—considerably more than those using
post offices
— People choose PayPoint because it is
conveniently close to their home
— Opening hours are vital to choice of
payment location
Source: Ipsos MORI, November 2009
Question 3: To what extent would a desire
for the presence of a post office or Post Office services translate
into actual use of those services?
33. The Post Office sells around 170 products
and services and claims to carry out 2.7 billion transactions
each year, the majority for banking, leisure and postal services.
So there can be little doubt that there is a demand for the services
it offers.
34. In many, especially rural, locations,
the Post Office is the only provider of some of the services it
offers, so consumers have no choice but to use them. This is not
always because other providers see these locations as unprofitable
and choose not to offer their services in the location. For example,
by prohibiting sub-postmasters from offering competing services,
such as bill payment, at the same premises, PayPoint is prevented
from providing its service in villages where the only available
retail outlet in a community is also a Post Office. The customer
satisfaction figures in paragraph 31 above indicate that
the Government cannot assume that consumers will necessarily use
services provided by a post office when there are alternative
providers.
35. Research by leading retail industry
research company, CTP, reinforces the preference for PayPoint
over the Post Office, and the measurable benefits this brings
to local community stores. It also demonstrates that the Post
Office contract actually works to the disadvantage of the village
and community retailers it claims to be supporting.
Question 4: What are the impacts of the availability
of Post Office facilities for businesses and local residents;
and, in particular, how significant is the network in aiding social
and financial inclusion?
36. It cannot be denied that the presence
of a post office in a community, particularly in rural areas,
can benefit the community it serves, both local residents and
businesses. It is, of course, the only place to renew the Road
Fund Licence in person and sub-postmasters will, for a fee, check
passport applications. People can also obtain their pensions and
benefits from POCA.
37. These are all services not available
elsewhere because Government chooses not to offer consumers the
choice of other outlets. The POCA reverses progress towards social
and financial inclusion by placing claimants and pensioners in
third class citizenship, the only group of people unable to access
their own money at the time and place of their choosing.
38. Post offices also provide a facility
for people to manage their bank accounts in areas where there
banks do not have branches, including the basic accounts that
are used by many people on lower incomes. In this respect, the
Post Office provides a valuable service that enhances financial
inclusion.
39. Many small businesses are sole traders
or small partnerships and will use the Post Office almost as a
private individual. In this respect, therefore, the Post Office
offers them a valuable service—providing it is available
locally. In some areas, the presence of a post office could even
be part of a package of local services that aid the incubation
of small and start-up businesses.
40. Sub-postmasters and their supporters
have run a successful campaign to perpetuate a rose-tinted image
of the village post office uniquely lying at the heart of the
community, often the sole social lifeline for many elderly people.
This image does not represent the diverse, multi-channel, online,
mobile Britain of the 21st century. There is no evidence to support
the claim that the Post Office is only local business able to
provide this function.
41. In fact, it is common to see a thriving
village store selling a wide range of goods with a vibrant convenience
store close to a poorly-run post office where the sub-postmaster
relies on his subsidy for his income, rather than trying to compete
with other businesses in the area.
42. The Post Office network now numbers
just 11,500 outlets compared with PayPoint's 20,750 across
the UK, and there are also other similar networks. One in five
post offices in rural England has closed since 2000, a rate of
more than three every week. As a result, in many rural and suburban
locations, there is no post office but there is a local convenience
store that provides a similar function as a social and community
hub, where customers are known personally to the shop-owners and
their staff.
43. Where a post office provides bill and
energy pre-payment payment facilities, it fails its customers
and the local community by limiting its opening times and, therefore,
the availability of the facilities. Whereas the average convenience
store is open for more than 100 hours per week, including
Sundays and public holidays, most post offices are open for around
45 hours per week and are closed on Saturday afternoons,
Sunday and public holidays (and are often only open part-time
two or three days a week in rural areas).
44. If the only place for an elderly, disabled
or disadvantaged resident to top up their gas or electricity meter
on a weekend in their town or village, when they have no transport,
is at a post office, they could be left cold and hungry for two
days. This is already true if those people need to collect their
pension or benefits in order to obtain the cash to top up their
meters, even when there is a village store with a PayPoint. It
also applies to people in low paid jobs when they would lose money
if they have to get to a post office during its limited opening
hours.
45. The key questions members of the Business
and Enterprise Committee and another politicians have to ask themselves
are:
— is this level of service is acceptable?
— can it be classed as enhancing social
or financial inclusion or public safety?
— do the current policies of the Post Office
maximise its public service remit?
46. In our opinion, the answers to all these
is no.
Question 5: What level of subsidy-if-any
per Post Office would be reasonable in the long term; for example,
should it be £20,000 or £200,000?
47. The credibility of Government is seriously
undermined by the presentation of such large sums as potential
subsidies. As PayPoint does not believe that a general Post Office
subsidy can be justified, it feels that the recommended figure
should be zero. Only in those rural locations where there is no
viable alternative, such as where the local market is very remote
and travel to the nearest alternative Post Office is felt to be
unreasonable, should the Government consider a subsidy on a case-by-case
basis in order to ensure continuation of services for the local
community. In return, to justify this subsidy, it must also remove
restrictions on the availability of other products and services
in the outlet.
48. At present, there is no information
available on which post offices receive a subsidy and how the
subsidy has been allocated. With its sophisticated modelling techniques
and experience in geo-demographic profiling, PayPoint is well
placed to identify whether an individual post office needs a subsidy
to remain viable.
49. We have made clear in this document
that we do believe that many consumers do value the services provided
by the Post Office and that there is a demand for those services.
However, in the majority of locations, the Post Office provides
services that could—with the right political will and commercial
freedoms—be offered by alternative providers alongside,
in addition to and in competition with the Post Office.
January 2009
| 
