Examination of Witnesses (Question Numbers
360-379)
POST OFFICE
LTD
21 APRIL 2009
Q360 Chairman: That is quite a big
statement you just made.
Mr Cook: Yes, I thought I would
slip it in.
Q361 Chairman: How is that being
organised? Do you need a banking licence to deliver that?
Mr Cook: No, we will do that in
our partnership with the Bank of Ireland.
Q362 Mr Bailey: Apropos that, have
you explored the possibility of obtaining a banking licence?
Mr Cook: I have not. I do not
know whether it was looked at before the original deal was done
before my arrival. We are committed to the current model. The
point is to have your own banking licence you would need significant
capital and I do not have that capital. The only place I could
get that capital would be from Government. My predecessors said,
I imagine, "How can we then start a financial services presence
off? Well, we will partner" and that is why so many other
post offices across Europe have partnered. To become a bank in
my own right, to have a banking licence, is not a call that Post
Office Limited can make itself, it is not within its gift, and
you would have to raise significant capital from somewhere. I
have to say, to be successful in financial services distribution,
which is I think what we have the potential to be in, you do not
necessarily have to be either the owner of the banking licence
or the underwriter of the insurance policy. I have been in financial
services, dare I say it, since I was a boy and in insurance there
are two things going on, those who underwrite the risk and take
the financial risk of the event happening and those who sell the
policies, and the latter is a much more secure model. When we
sell car insurance and house insurance we are not vulnerable as
Post Office Limited to a loss of profitability in those marketplaces
because we just earn a commission off of selling the policy. It
is not automatically the case that being an insurer or a bank
in its own right is necessarily good but, if we did aspire to
it, it would require significant funds.
Q363 Mr Bailey: Given the sympathetic
noises that you have made towards Post Bank and working with other
organisations, could you share with the Committee any research
that you have done into the logistics of expanding financial services?
Mr Cook: I will just give you
a few examples of what we have done already. One might say that
I came to the Post Office in order to do this and this was my
career prior to being at the Post Office. In the space of the
last four years we have signed up two million customers. We now
have two million customers who have financial services products
with the Post Office. That is 50% more than the Bank of Ireland
has customers back in Ireland, for goodness' sake. That is a very
material book of business. There are 700,000 car and home insurance
policies. We have rolled out 1,653 free to use ATMs and we are
rolling out eight a week as we currently stand here. We have a
foreign currency business which is turning over £3 billion
a year of sales and we are doing typically a million travel insurance
polices every year. We already have a really, really significant
Post Bank, we just do not call it a Post Bank. It is growing very
fast and it is very significant. It is still in some senses a
bit of a niche player because we do not have every product that
everybody else has and some of the bigger omissions are things
like a current account, but we are addressing them. I have been
here three years and two months now and we have launched 20 products
since I joined, that is one every eight weeks, and you cannot
go much faster than this. It is going well. As I said to our members
of the Post Bank Coalition, although they are representing a slightly
different model than we are currently adopting, I am very supportive
because it is getting the nation talking about the Post Office
as a provider of financial services, and that is what we want.
The precise model that sits underneath is a bit more of a financial
debate. Make no mistake, we have a Post Bank already, what we
want is a much bigger, more successful one that drives income.
Q364 Mr Bailey: We have had demands
for more business banking being delivered through post offices.
Alliance & Leicester do so and others do not. What do you
think the scope is for more business banking?
Mr Cook: I would like to expand
it. I have a couple of comments. We are big with SMEs, and that
was referred to in the previous session. We are big with SMEs
naturally because of the mails business, so we should exploit
that synergy. A year back we launched a surprisingly successful
product which is what you might call "white van man insurance",
just van insurance, and we have sold a phenomenal amount of van
insurance which you would not necessarily have expected because
these people are in with their mails business or their banking.
Our legacy relationship is with Alliance & Leicester and that
was what Girobank was, Girobank was sold to Alliance & Leicester
and that was why we had that link. That is now Santander and we
are working with Santander as we speak about could we make that
a more successful business going forward. It has been a slowly
declining business, business banking, but we see it as an area
of potential growth going forward.
Q365 Mr Bailey: Given white van man's
driving habits I must admit I am amazed that they take insurance,
but I will conclude on that comment.
Mr Cook: As I pointed out earlier,
we do not bear the risk.
Q366 Chairman: Can I ask one detailed
question on banking and one underlying question I want to test
with you one more time as we move on to the last area of questioning.
I forgot to bring it with me but I picked up a leaflet on the
banking services available through other banks in post offices
when I was in the local post office in my constituency last week.
It is an extraordinary patchwork of different products. Surprisingly,
the Government owned bank, Royal Bank of Scotland/NatWest, is
one of the worst at offering the full range of services through
post offices. There are four basic categories: cash withdrawals,
and every one does that for every bank; cash balances; paying
in cash; paying in cheques. There is a range of yeses and noes
across this leaflet and it is very bewildering. Is there any scope
at all for rationalising that patchwork?
Mr Cook: It is not all banks that
do cash withdrawals with the Post Office.
Q367 Chairman: Every bank that offers
the opportunity of banking through post offices, every bank that
offers a banking service, by definition offers cash withdrawal
from post offices.
Mr Cook: No, only if they have
a basic bank account.
Q368 Chairman: HSBC's only offer
is of a basic account, is it not?
Mr Cook: Correct, yes. To be frank,
they are not widely available so it really does not account for
that much. Currently we have 62% of current account holders in
the UK who would be able to cash cheques at a post office counter.
We are slowly adding to that. Last year we added HBOS. We are
close to hopefully signing another bank. It is a matter of negotiation
where we have to persuade the bank itself that they would value
the additional service for their customers of them being able
to withdraw their money at the post office counter. In parallel
to that, you could say we have turned the heat up by rolling out
so many free to use ATMs because by doing that if there is an
ATM in that post office clearly it does not matter who you bank
with, you would be able to get cash out through the ATM and the
sub-postmaster does earn an income off that ATM.
Q369 Chairman: Is it a commercial
relationship we are talking about here? Is there anything the
Committee can do to encourage the banks to be slightly more open
towards pushing services through post offices?
Mr Cook: You can certainly voice
that concern and for those banks that are owned by Government
there is probably more you could do to help there.
Q370 Chairman: Thank you very much
indeed. I formed the very clear impression from listening to your
answers to Adrian Bailey that although you are very grateful for
the support of the Post Bank Coalition driving forward the idea
of more banking services through post offices, at the end of the
day you think your current strategy is going to deliver the goods
and it is the Bank of Ireland relationship that you want to develop.
That is the impression I have formed from listening to your answers.
Mr Cook: That is about it. It
would be feasible to imagine that what the Post Bank Coalition
is proposing could be a more profitable model for the Post Office
to pursue than the current model because we would not be sharing
the proceeds with anybody else, but you do not get to take over
the half of it and do it universally without buying that half,
for want of a better expression, in the form of putting capital
in. It would be very difficult to say that would not work, I am
just saying that given the amount of capital that would be required
I need to carry on pressing the current agenda as hard as we can
because that can deliver the goods. That is nearly what you said,
but subtly different.
Q371 Chairman: I think I will leave
it there for the time being but it is an issue to which I think
we will need to return. You heard me say to Unite and CWU I love
their menu of other services that could be provided and I am trying
to develop this menu of other services, although there is a lot
of resistance from local authorities who say it would cost them
more to do it this way. My own local authority will not pay council
tax through post offices because it costs more, although it is
very supportive of post offices but will not support them with
the business. There was a trawl of every permanent secretary that
asked them what services they could produce through post offices
and some of those responses are very good and constructive and
others show they just have not thought about it. Driving that
up central government's and local governments' agendas is really
going to be important. Do you share that sense of frustration
at that patchwork?
Mr Cook: Absolutely. This is one
of the prime areas where I was looking for support from this Select
Committee. If I could add to your concern. In England there are
450 local authorities and 312 of them do business of some sort
with the Post Office, either council tax payments, rent payments
or other types of payment, but of those 312 only 55 do all three
types of bill payment. Some do council tax payment, some do rent
payment, some do other types of bill payment, but they do not
do all three. Even if they all did all three there are still only
312 out of 450. There is a huge opportunity, and you can repeat
that story in Wales or Northern Ireland or Scotland.
Q372 Chairman: If you could share
those precise figures with us that would be very helpful.[2]
Mr Cook: This would not have us
doing any work that we do not already do today. In the post office
that I worked at, going back to our earlier conversation, you
could go in there with a piece of plastic from your local authority
and hand it over the counter and pay a twelfth of your council
tax, but you can only do that in some local authorities, you cannot
do it in others.
Q373 Mr Wright: Do you have discussions
with the LGA?
Mr Cook: We have and we have presented
our wares at the LGA Annual Conference. What we need to do is
to try and create a much stronger framework that makes local authorities
realise that this would be cost-effective. I go right back to
my opening remark. I am not looking to do this and charge them
more than it costs them to do it themselves today. We have to
make this a profitable proposition for them as well. They will
have their own cost reduction agenda and we can help fulfil that
because logically we ought to be able to do it easier in one organisation
than them doing it in 450 separate ones. On local authorities
absolutely and we are also working our way round the permanent
secretaries and director generals of the Civil Service and reminding
them of the capabilities that we have. I am hoping that in tandem
with your own review in this Committee and the Cabinet Committee
that is sitting looking at additional work for post offices that
we can create an environment where it is much easier to have a
conversation about us taking on a piece of work that is currently
performed elsewhere. As I say, it needs to be done cost-effectively
and we need to tackle, as we have done in the past, exactly what
sort of procurement framework would need to be followed.
Q374 Chairman: That is the question
I want to ask you. If we say we have got to put all of government
business through post offices you will become a monopoly provider
and you can charge whatever you like and that is not very efficient,
and that was one of the reasons you lost the TV licence because
you did not put a competitive bid in. There is a tension, is there
not, between saying you must be the central provider of government
information and services and actually making sure it is cost-efficient
for the taxpayer?
Mr Cook: And not taking advantage
of the situation, correct. It requires us to find some way of
setting benchmarks. If there was a benchmark price that represents
a saving to the customer providing the Post Office was charging
equal to or less than the benchmark it could be okay to provide
the work to the Post Office, but once it goes above that benchmark,
if I were a government department I would say, "I want to
test the market. I want to go out and put it out to competition".
Q375 Chairman: Would there be any
capital costs in providing these services that you would not be
able to afford, do you think? Are there any issues of investment?
Mr Cook: No. For example, on those
local authority points, we do all those transactions already,
it would just be doing them in more places.
Q376 Chairman: And the new Horizon
system would give you more flexibility as well.
Mr Cook: Correct. I guess the
one area which was explored earlier is probably the biggest opportunity
for us on the government services front is on identity services
management. We have done the driving licence deal, which is only
750 branches, but that kit can be used for passports, ID cards
for government and even in the private sector if you needed some
form of ID card for something or other. That is quite expensive.
Clearly the more business we win, the easier it would be to extend
the range of branches that have it. That is one area where there
would be significant investment.
Q377 Chairman: One last substantive
question. You are not keen on the Essex model of buying out your
franchise and operating post offices?
Mr Cook: There are many ways for
local authorities or organisations to support the Post Office
network and we have seen a variety. We have seen one model in
Devon and another model that has particularly worked well in Wales
where there is a Post Office Development Fund that has been set
up by the Welsh Assembly.
Q378 Chairman: Which we found very
attractive.
Mr Cook: It works fantastically
well and we have a very collaborative relationship with them about
working out which sub-postmasters are entitled to how much. If
a body were prepared to invest in the Post Office Network I would
prefer the Welsh model to the Essex model. That is not to say
the Essex model is bad, but I think at the end of the day the
benefit of the Welsh model is it will still retain a consistent
proposition across the nation. The danger is that you would have
an overprovision in one area of the country and an under-provision
somewhere else if you localised the funding too much. One of the
good things that came out of that closure programme is we have
a very uniform network now evenly spread across the country.
Q379 Chairman: We may need to return
to you when we have looked at the evidence, we may not, we will
see what the situation is in the light of our wrap-up exercise.
We got through a whole hour and a bit with you without me mentioning
Bengeworth once, you see, so it is possible.
Mr Cook: Or, indeed, Bolton Road.
Chairman: As the Member for Chorley returns,
I will say thank you very much indeed, we are very grateful to
you and we may see you again. Thank you.
2 Footnote by witness: The figures
being submitted will show 446 local authorities in England, and
266 local authorities in England doing business of some sort with
the Post Office, of those 266, 41 doing all three types of bill
payment. The figures being submitted will show also the situation
in Wales, Scotland, and Northern Ireland. Back
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