Examination of Witnesses (Question Numbers
1-19)
THE CO
-OPERATIVE GROUP,
PAYPOINT
PLC
24 MARCH 2009
Q1 Chairman: Welcome to the first on-the-record
oral evidence session of the Committee's inquiry into sustaining
the Post Office network. We have already been out and about. We
have been to see PayPoint in operation and have visited Essex,
Exeter and Wales where we have had some very useful public meetings
with stakeholders about the future of the Post Office. I am running
a competition for a better word than "stakeholder".
If anyone has a better word I would be very grateful. This has
been a very constructive, interesting process, but we now reach
the more Westminster-bound phase of the inquiry. We are very grateful
to all those who have given evidence to this inquiry including
you who are before us this morning and the many people who have
written and contributed to our web forum. There is a bit of confusion
about the web forum. People seem to think that they can contribute
only on the web, but we issued our call for written evidence some
weeks or months earlier. It was meant to be an addition to that,
not a replacement of it. We have sorted it out. The response has
been positive and there has been very strong public engagement
generally which shows the interest in the subject. First, I ask
you to introduce yourselves alphabetically, taking the Co-op first.
Perhaps you would explain the relation between the Co-op and the
Post Office.
Mr Bowdler: I am
Duncan Bowdler and I work for the Co-op. I am chair of the CRTG
Post Office Group. For those who do not know, CRTG is the organisation
for the buying and marketing of co-operative societies' food shops
and supermarkets. What does that have to do with post offices?
Most of our post offices are co-located in our food shops and
supermarkets. Within the co-operative movement there are 14 co-op
societies that operate post offices. Collectively, we operate
about 515 or 520. They are based mainly in our convenience stores
and supermarkets. The position varies from society to society.
For instance, the Co-operative Group, the largest co-op society,
has about 260 post offices and we have very small societies like
Seaton Burn in the North East which has just one. There is a wide
variety of experience within the co-op movement in dealings with
the Post Office. We have a range of post offices, whether it is
a sub-post office with the usual sub-postmaster relationship or
the big franchise post offices which were Crown offices run formerly
by the Post Office itself. I hope that gives you a general introduction
to the relationship between the co-operative movement and the
Post Office.
Ms Wood: I am Sue Wood. My role
is national manager for post offices for the Co-operative Group.
I am responsible for the 260 post offices that my colleague has
just mentioned. They cover England, Northern Ireland, Scotland,
Wales and the Isle of Man, so we have quite an extensive reach
across the network. Our relationship with Post Office Ltd is very
strong and has improved significantly over the past five years.
I have enjoyed that improvement. I welcome the opportunity to
come along today.
Q2 Chairman: You have been well briefed.
We had a rather bruising experience at the post office in Evesham
but we will not raise that today.
Mr Taylor: I am Dominic Taylor,
Chief Executive of PayPoint. My colleague Tim Watkin Rees is the
Company's Business Development Director and was one of the founding
directors of PayPoint back in 1995. We both welcome the opportunity
to contribute to this debate on the future of the Post Office,
not least because we understand the retail environment in which
the Post Office operates and the challenges that that presents.
PayPoint was established in 1996 by utility shareholders to deal
with their difficulties in providing consumers with cost-effective
and high-quality places to pay in cash. There was a need to establish
a retail network which was accessible to consumers in a climate
where utility showrooms were being closed and the Post Office
could not offer sufficient access to energy prepayment customers
through technical limitations, restricted opening hours and high
cost which ultimately led through to higher tariffs for vulnerable
customers. At that time the energy companies had started to deploy
their own dedicated terminal networks in order to service those
prepayment customers in various shops. For example, London Electricity
had about 300 such terminals scattered around London to service
those customers. Now PayPoint provides over 2,000 terminals over
the same London footprint, servicing broadly the same number of
consumers with clearly a much higher level of service through
an infrastructure that allows those consumers to pay for other
things at the same time. When PayPoint started the Post Office
had just over 18,500 sites; PayPoint now has 21,300 locations—that
is the up-to-the-minute number—of which 17,800 are in urban
environments and the balance of 3,500 in rural locations. Fifty-four
per cent of the estate is in multiple retailers which includes
Symbol Groups of which the Co-op is a major partner, and the balance
are in small independent retailers all of which are businesses
in their own right. These businesses benefit from the regular
customer flow that we deliver to them and that earns commission
on a per transaction basis. It costs them nothing to join our
network. We invest in the proposition from PayPoint's perspective.
We provide a level of service to consumers and provide access
to all households within one mile urban and five miles rural 99.1%
of the time. Over the past few years we have grown by at least
1,500 new sites a year which we intend to continue to provide
even better access to consumers. At the heart of our efficient
service delivery is market-leading use of technology. PayPoint
now services over 1,000 client schemes including nearly all the
major utilities and service companies in the UK, 218 local authorities
and 540 housing associations up and down the country. We process
over 450 million UK retail payments, which is considerably more
than the Post Office, and collect over £5.5 billion worth
of clients' money which is passed on to those clients via UK-held
trust accounts.
Q3 Chairman: It is a rather longer
opening than I imagined.
Mr Taylor: To go on to the Post
Office, the nature of this debate tends to position PayPoint against
the Post Office as an either or option. We believe we are a proven
complement to the Post Office network. We are available in similar
local shops and are at the centre of local communities. We provide
a much valued service across the country with a 98% satisfaction
rate. We have reached out to the Post Office on a corporate basis
on a number of occasions to see how we can work together but they
have declined to advance those discussions. In our network we
have just over 1,200 sites where we are co-located with the Post
Office. A large proportion would be in the co-operative next door,
as it were, and we are very keen to continue to work alongside
the Post Office to provide access to consumers for the sorts of
payments they need to make.
Q4 Chairman: Where you are co-located
there are restrictions on the services that can be provided through
PayPoint, are there not?
Mr Taylor: Correct.
Q5 Chairman: There can be no competing
services with Post Office products, broadly?
Mr Taylor: Broadly, but I think
that is a matter of debate between retailers, particularly multiple
ones and the Co-op.
Q6 Mr Binley: I have been studying
the evidence submitted rather carefully. I find some conflict
between those who see sub-post offices in particular as a romantic
part of rural England and those who see them as being less romantic
in that respect. I note that PayPoint says 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. I also note that Citizens Advice
Bureau, which is to appear a little later, says that among certain
sections of the community there is a strong appetite for their
continued existence and ideally an expansion of post offices.
Clearly, it views them in a greater social context than PayPoint.
What role do post offices play in the community? Have you been
overly-harsh or has the Citizens Advice Bureau been over-romantic?
Ms Wood: The Post Office has a
history of meeting social needs and is well positioned to do that.
From the point of view of the Co-op our stores are in the heart
of the community where ideally Post Office Ltd would like to offer
its services. People have plenty of access to those services.
The structure of the Post Office is well placed to offer the types
of business where there is a requirement for data protection,
sensitivity and face-to-face business with the customer. A lot
of one-to-one transactions are required to guide the customer
through sometimes a myriad of complexities. There is a definite
need for this service and I believe a future for the business.
Conflicts arise and we are always working with the Post Office
to try to resolve them. From the Co-op's point of view we want
an opportunity to become involved in the strategic vision of the
Post Office at a much earlier stage to avoid those conflicts and
develop what is already a very strong partnership. We seek opportunities
to develop that partnership in many different ways and to get
involved much earlier to develop a business that sustains the
network in the long term where the partners involved can live
side by side with mutual benefits to the community and the businesses
operating those services.
Mr Taylor: From where we sit the
local shop is the entity that provides a wonderful range of services
to the local community. We see daily examples of the extraordinary
efforts made by shops in supporting their local communities. As
the Committee will be aware, the vast majority of post offices
sit in a local shop and so do we; we are in 21,000 or so of those
stores. We believe those local shops provide a social focus for
those communities. The Post Office is in a lot of them and so
are we. Our argument is that they are not the only source of social
cohesion in these local environments. It is the local shop that
provides that. We are very supportive of those stores within our
business. We think that the Post Office is in a sense complementary
to our proposition, which is socially supportive of those stores.
Q7 Mr Binley: You do not have much
coverage in rural areas. You do not know an awful lot about rural
post offices, do you?
Mr Taylor: We have 3,500 sites.
Q8 Mr Binley: Out of 21,000?
Mr Taylor: That is true. We will
continue to roll out more sites. We are somewhat constrained by
the fact that the Post Office sits in the local shop to a large
extent and is the only shop in the village. For the reasons the
Chairman mentioned earlier, we are not allowed to go into those
sites, so we are unable to provide a service to those consumers,
effectively depriving them of the sorts of service we can provide
in those stores. That is a significant constraint on our ability
to provide a level of access in rural communities similar to the
Post Office. If we look at our network based on a three-mile proximity
to where consumers live in a rural environment we cover that customer
base 91.8% of the time compared with 98% coverage by the Post
Office. The Post Office does have better coverage in the rural
community than we do, but for the reasons I have described we
still provide a very strong level of coverage; it is 91.8% of
the time within three miles.
Q9 Mr Binley: I think you rather
overstate your rural position, to be fair.
Mr Taylor: We pride ourselves
on having a geographic mapping system by which we can plot our
outlets. I think all the Members have maps showing the position
in their constituencies. We can provide that coverage across the
whole country, so the data I quote is factual.
Q10 Mr Binley: This matter concerns
me. I am a great supporter of rural post offices because I think
they are social hubs, but never mind. To move on, my concern is
about the unique role they play. I am a capitalist, so let us
get a balance. I am concerned as to how business might provide
the function of post offices, as it were, and how if we were forced
to replace the rural post offices—sad would be the day—they
might provide the same functions. The question of viability is
a really important ones and it impacts on a social necessity which
requires some sort of government support. How would business itself
provide the functions and do so successfully with an economic
viability that makes sense from a business perspective?
Mr Taylor: Before we started our
business in 1995 I think many would have doubted that we could
create an over-the-counter payments business of the scale we have
created. In those early days there was a lot of concern as to
whether shop-keepers would be able to be trusted to take the money
and whether it would get to the utility company. Businesses, of
which we are one example, have proven to be very good at taking
on new ideas and adapting new technology and processes compared
with traditional ways of doing things and creating very strong
and viable businesses out of it. The Committee will be aware that
we were part of the Post Office card account tender process. That
process was cancelled but we were very confident in our ability
to be able to provide an answer and distribute money across a
whole network of agents. That would have been a modern way of
doing things that business in that case would have delivered.
All sorts of opportunities are presented to business.
Q11 Chairman: We have had quite long
questions and answers. What we are trying to focus upon is what
is unique about the Post Office that can be provided by business.
You provide only one limited service at present within the total
panoply of services offered by post offices.
Mr Watkin Rees: It really depends
upon what you regard as the unique service. Thinking back to before
PayPoint started, there were three main areas of business within
post offices that were regarded as distinctive: bill payment,
the benefits system and the mail and parcels aspect. In terms
of bill payments, we have succeeded as a business in providing
a service that is comparable; indeed, it is a high-volume, successful
business. In terms of the benefits we believe that we could have
played a role in the solution but unfortunately we were denied
that opportunity. In terms of mail and parcels, I recall Mr Crozier
saying to this Committee that to perform their universal role
they needed a network of only some 3,000 or 4,000 outlets.
Q12 Chairman: Commercially.
Mr Watkin Rees: But I am not entirely
sure that the scale of the network is necessarily the answer to
a universal postal service in terms of accepting mail. You need
stamps, which are widely sold, and an ability to weigh items to
know the correct tariff. But all of these situations can be delivered
through alternative businesses and we believe that we are an example
of how that can be done.
Q13 Mr Binley: From that answer I
do not think you understand rural post offices at all. I go on
to ask the million-dollar question: how much, if at all, should
the state subsidise services offered by the Post Office?
Mr Bowdler: We would seek a post
office business that is viable. That is what we seek in our own
post offices if they are co-located in our shops. We accept that
in certain locations, perhaps deprived urban areas, the service
cannot be seen to be viable on a day-to-day basis and therefore
subsidy probably comes into play. We do not seek to run businesses
that just need subsidy, but realistically there are some locations
and types of post offices where you need that.
Mr Taylor: As you will know from
our response, we have advocated no subsidy at all. Part of the
reason for that is that we are not experts on subsidy. All we
do is run our business and understand the environment. From the
way we run it we are talking about colossal sums of money in terms
of the level of subsidy. The total operating cost of our business
is £27 million a year in contrast to the subsidy level which
is five times that for a certain number of post offices. As a
fundamental premise I fully accept that there may be some remote
locations in which without subsidy a necessary service will not
be provided and it could warrant a level of subsidy. My main concern
about the subsidy is that from where we sit it does not seem to
be transparent; it is quite difficult to understand exactly where
the subsidy is going. That causes us significant concern. It does
not seem to be targeted to specific outlets. I welcome the visible
targeting of exactly which locations warrant a subsidy. We could
have a point of view as to whether we could provide a similar
service at our cost in that business. It is very important to
ensure that subsidy does not get in the way of other providers
who could provide a similar service on a properly commercial and
viable basis.
Q14 Chairman: I think you have made
your point. If we are to get through it in time the questions
and answers must be shorter. Your answer is that it should be
considered case by case?
Mr Taylor: Yes.
Q15 Mr Clapham: In its submission
PayPoint says it believes that subsidies have a negative impact
on consumer choice and social inclusion. Why have you come to
that conclusion bearing in mind what you said a few minutes ago
about the need in certain circumstances for post offices to be
retained by subsidy, presumably in rural communities?
Mr Watkin Rees: We are probably
combining two subjects here: one is subsidy and the other is the
protected business that the Post Office enjoys, such as the benefits
arrangement. We believe that the continuation of protected businesses
creates an ongoing need for subsidy. Without that protection those
services could be provided in a number of other ways that would
reduce the need for subsidy, and it is a direct consequence of
confining the services to the Post Office network that they are
not available through other channels, for example cash machines.
That could be an alternative source of service for consumers in
the Post Office card account scenario. I think that is where we
are coming from in making that point.
Q16 Mr Clapham: It comes down to
the question: which is the greater negative impact? Is the negative
impact of removing a post office from a rural community because
it does not have a subsidy greater than the provision of subsidy
which you suggest distorts the market in some situations?
Mr Taylor: I accept that point,
but in our terms there is a distinction between the services that
the Post Office provides and the institution of the Post Office
itself. We believe it entirely possible for service to be retained
in a local environment without necessarily a full-scale Post Office
providing it; indeed, in its latest strategy the Post Office itself
seems to agree with that perspective.
Q17 Mr Hoyle: What services and products
does the Post Office network currently provide that PayPoint could
not?
Mr Taylor: From where we sit we
believe that we have the potential to provide most of the services
provided by the Post Office.
Q18 Mr Hoyle: Mr Watkin Rees, do
you feel that the Post Office network should be broken up?
Mr Watkin Rees: I am not sure
that I fully understand the context of the question.
Q19 Mr Hoyle: It is a pretty easy
question. Do you want me to explain it?
Mr Watkin Rees: I am not exactly
sure what you mean by "broken up".
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