The Post Office could become a full bank after business secretary Lord Mandelson opened a public consultation on...
new financial products and services that could be offered by the organisation.
These services include current accounts, children's savings accounts and business accounts.
If the idea becomes a reality, the Post Office will need to invest heavily in IT systems to compete with existing banks and new players such as Tesco, which recently announced it had bought a core banking system, an essential system for any organisation that wants to offer banking services.
"Growing financial services at the Post Office will help secure the future of the network and give people access to a full range of banking products at an institution they trust and value," said Mandelson.
Rather than increase self-service to cut costs like many banks, the Post Office will benefit from more face-to-face contact.
"At a time when some banks and financial services companies are seeking to reduce face-to-face contact with customers, the Post Office stands out. It offers a trusted brand, and has more branches than the high street banks combined. It is ideally placed to bring banking services back to the heart of people's communities," said Mandelson.
The post office/bank model is already used in Japan and France, where the postal banks have been successful because they have a large market share.
"In Japan, the postal bank has the single largest IT infrastructure of any organisation apart from IT infrastructure supporting the taxation system," said one industry commentator. "Unless the Post Office can get a 20% share of the population it will not be able to benefit from economies of scale."
A two-tier system is developing in UK banking, with one set of banks harnessing technology to serve customers and more traditional banks blending technology and branch networks.
The Post Office could benefit from face to face relationships with its customers. "There is a lot of evidence that states the more a bank sees its customers the longer they remain a customer," he said.
Existing banks and new entrants such as Tesco are introducing new technology to attract customers, including mobile banking and social media.
The proposed new services
- Post Office Current Account - a current account accessible from any of the more than 11,500 branches across the country.
- Post Office Children's Savings Account - an account designed to encourage children to save through visits to their local Post Office.
- Post Office Business Bank Accounts - the Post Office currently offers access to business accounts from a few high street banks, but does not have its own.
- A weekly budgeting account - this simple account for people on low incomes could ringfence a proportion of income each week so they can benefit from the cheaper bill payment schemes associated with direct debit payments.
- A closer link between the Post Office and credit unions - the local nature of post offices make them ideally placed to allow credit union savers to access their accounts across the country.
- Working to ensure all banks' current accounts can be accessed at a post office - currently 60% of current accounts (around 25 million) can be accessed at Post Office branches. The government wants more banks to allow their current accounts to be accessible at the Post Office.