BIS - Building a Mutual Post Office
For many years ABCUL has promoted the possibilities presented by a close partnership between the Post Office and the credit union sector. There is a significant weight of evidence of and growing support for the natural synergies between the credit union sector and the Post Office and the potential that a partnership might present.
In this respect, we welcome the Government’s acknowledgement in the consultation that proposals for a closer relationship between credit unions and the Post Office are a key strategic development for the Post Office network’s future.
The proposal for the Post Office to be mutualised does not directly affect the credit union sector’s proposal for closer partnership working except for the fact that there would be an even more obvious synergy between credit unions and the Post Office post-mutualisation given credit union’s co-operative ownership structure. One of the founding principles of co-operation is ‘co-operation between co-operatives’, something which is evident in the co-operative movement of today and which could potentially be reinforced by a mutual Post Office.
Despite the credit union sector’s obvious support for mutualism, we will limit our comment on the proposal to mutualise the Post Office to this. Instead we would like to take this opportunity to briefly highlight, once again, the opportunity for credit unions and the Post Office to work together more closely, how this might work and what it could achieve.
Synergies between credit unions and the Post Office
- The Post Office has unrivalled access to the ‘financially excluded’ through its role in the benefits system – primarily through the Post Office Card Account (POCA). In 2008/09, 6.5 million people used the Post Office to access their POCA – 20% of all visits. Research has shown how POCA holders under 65 are 28 times more likely than the average to be unbanked. Those without a bank account are the key demographic likely to be suffering financial exclusion.
- Meanwhile, the Post Office’s financial services offering – apart from the POCA – in partnership with the Bank of Ireland is targeted at the mainstream. The minimum personal loan, for example, is £2,000 compared with the average home credit loan of between £500 and £600 and the average Financial Inclusion Growth Fund loan of between £400 and £500. This problem is exacerbated by the recent announcement that NS&I will no longer provide their services through the Post Office.
- The Post Office’s network is unrivalled in its extent and scope – as the consultation document points out, more than 90% of the country’s population live within one mile of their nearest Post Office branch. The 11,500 branches are more numerous than all the bank branches in the UK combined. The Post Office, therefore, allows people to transact face-to-face (the preferred method for many of the financially excluded) and also provides branch access in rural communities which face particular problems of exclusion.
- Credit unions, on the other hand, are heavily involved in providing services designed for the financially excluded. The vast majority of the Financial Inclusion Growth Fund loans were made via credit unions and they were targeted specifically at those at risk of financial exclusion and without access to affordable credit – the fund successfully saved people between £119 and £135 million in interest compared with high cost alternatives. Similarly, credit unions – with ABCUL and the Co-operative Bank – provide the Credit Union Current Account which is offered by 25 credit unions with more than 30,000 active accounts. The Accounts charge a regular transparent fee and therefore avoid the excessive penalty charges that ‘free-when-in-credit’ banking relies upon and which often puts those on a low income off transactional banking.
- But credit unions struggle to gain accessibility and visibility. Even the best developed are restricted in the number of branches they can afford to operate and face the same challenges as other organisations in servicing rural areas.
- Finally, both credit unions and the Post Office represent trusted brands, predicated upon service for the customer or member and not upon profit. Similarly, they are committed to being inclusive and providing a service to the whole of their communities not simply the most profitable.
How a link-up might work
- Currently, the Bank of Ireland partnership and Post Office financial services offering represents around one third of its revenue. Meanwhile, analysis by the OFT estimates that the high-cost credit market is worth £35 billion and the Home Credit market alone stood at £1.3 billion generating £700 million in turnover in 2005 . There is therefore significant scope to sustainably expand the Post Office’s financial services offering into the financially excluded market.
- To enable this link-up to happen, a central shared banking platform for credit unions would be required which would then provide the conduit through which credit unions could link to the Post Office’s Horizon platform.
- For a relatively small investment, all sorts of possibilities could be opened up such as the ability to join a credit union at the Post Office, pay in and withdraw funds, and even the possibility for pre-approved credit lines to be advanced from Post Office counters. Even more sophisticated products could also be developed along the lines of the “Jam Jar” budgeting accounts that Social Finance Ltd has researched but, with a sufficient level of automation, we believe could be delivered much more cheaply whilst greatly enhancing low income people’s ability to manage their money independently.
What the link-up could potentially achieve
The availability of credit union services through the Post Office could potentially have the following impact:
- Significantly boost the visibility and accessibility of the credit union sector enabling a step-change in its scale, scope and growth. Membership levels comparable to those in other parts of the world – where more than a quarter of the populations of the US, Canada, Australia and Ireland are members – would become a more realistic prospect over the medium-term. This would both greatly boost the availability of services for the financially excluded and provide new competition and diversity in financial services as is Government policy under the Coalition Agreement.
- Potentially create a new source of revenue for the Post Office complementary to – and not in competition with – the Bank of Ireland partnership with the effect of extending the universal service obligation in that, those POCA customers who are currently underserved by the Post Office despite representing a significant proportion of its income, will be able to access fair, inclusive and affordable financial services at their Post Office.
- A significant boost to the Government’s Welfare Reform agenda by supporting those on a low income to better manage their money independently with a reduction in levels of indebtedness. Could address some of the concerns expressed by, amongst others, the social housing sector where direct, monthly payments of benefit could cause significant payment problems. This is already being explored by housing groups.
- A new deal for consumers of all backgrounds who are both looking for an alternative ethos for financial services since the beginning of the ongoing financial crisis and for those on the lowest incomes who will be able to access fair financial services more readily than at present where many still have only high cost services to draw upon.
The full response is available to download on the right hand side of the screen.