The Post Office: Six first-class and £10,000, please
The Post Office has diversified into personal loans. Will it pay off?
FOREIGN currency, travel insurance, tickets to Disneyland, car tax, television licences, mobile-phone top-ups–not forgetting the stamps–are some of the products that the Post Office will sell you these days. A new one has now joined them: personal loans, with motor insurance and a credit card to come.
Personal loans from Britain’s Post Office
The reason for this new-found entrepreneurialism is simple: Post Office Ltd, which runs the counters for its parent, Royal Mail plc, last year made an operational loss of about £15m a month. And, by next April, the government plans to switch all benefit payments from cash at a local post office to electronic payment into any personal account. If all Britain’s 13m benefit-receivers were switched, it would cost the Post Office 40% of its £850m-plus external turnover. Worse, for those outsiders who run nearly 16,000 of its 16,500 outlets, it means fewer people coming through the door. That could be ruin for the sub-postmaster who relies on old Mrs Jones to buy some butter and jam as she draws her pension.
Many small post offices are closing. A two-year programme to shut urban ones is well under way; by its close, in December, up to 3,000 will have gone. The government has pledged £150m a year to save rural ones, but their number too is diminishing. Yet, town and country together, some 14,500 offices will remain. To keep going, they must generate more turnover.
The Post Office has already diversified a lot. It is Britain’s number one in foreign currency for people going abroad: over-the-counter at bigger branches, order online and pick it up later at smaller ones. It sells over 1m travel insurance policies a year. It has arranged with seven banks to let their customers draw at post offices from a current account; and with yet more if the account is one of the new “basic” accounts that the government is encouraging. And of course it has long sold National Savings products.
Yet personal loans are a big step, even with Bank of Ireland, already its partner in foreign exchange, as the 50-50 partner in the joint venture that will run the loans. The bank already does about 30% of its business in Britain, with over 5,000 staff, more at its subsidiaries–Bristol and West, and Chase de Vere, a financial adviser–than its own 24 branches. But it sees great possibilities in the Post Office’s network: more outlets than all the banks and building societies combined, and 29m customers each week, enthuses Patrick Waldron, the Irishman heading the joint venture. He points to the success in financial services won by the postal organisations of several European countries: Germany’s ten-year-old Deutsche Postbank, for instance, has profits of euro500m (£350m) a year.
The loans do not look cheap: 7.9% on £10,000 (say) was this week’s offer, even as a direct mailing from Direct Line talked of 6.2%. Not all borrowers go for cheapness, and with the cost of “payment protection” added the Post Office offer was indeed cheaper. But the real question is whether this is a good way of selling loans. The big successes of recent years have been achieved via mailing, telephone and the internet. The Post Office, too, will be selling its loans over the telephone and the internet, but using its network of little shops to publicise them.
Will this help? The Bank of Ireland thinks so, and it knows its business. Yet, seen from outside, this and other bits of diversification look suspiciously like a heroic effort from the Post Office to keep in being a network which does not make sense commercially. If Tesco had some 500 big stores and 16,000 corner shops, guess what Tesco would do.
Copyright © 2004 The Economist Intelligence Unit
