Postal banks – the ‘real’ competition is on its way
In France, the transfer of La Poste's financial services activities to a newly created postal bank next July is a major victory for the postal operator and a setback for France's banking lobby. However, France is not alone in seeing postal organisations moving into retail banking.
China's government is expected to pursue reforms, perhaps as early as this year, that will result in the conversion of the Postal Savings and Remittance Bureau into a postal savings bank. Meanwhile, Swiss Post has lobbied unsuccessfully for permission to obtain a banking licence to expand the range of products and services it can directly offer through its PostFinance financial services division, especially products such as consumer credit and housing loans.
While some postal operators are offloading their postal banks, others are returning to the sector by setting up financial services or banking subsidiaries.
Some 12 years after it sold its Post Bank to Australia and New Zealand Banking Corporation, New Zealand Post re-entered the retail banking market when Kiwibank was incorporated as a subsidiary in May 2001. In November 2001 it was registered as a bank. By November 2004, Kiwibank was offering savings, transaction, credit card and home loan accounts.
As examples in various countries show, when the legal, regulatory or political climate limits their ability to offer certain financial services directly, postal operators can pursue partnerships or alliances with financial institutions.
Public postal operators in Belgium, Poland and the UK all operate postal financial services joint ventures, enabling them to offer a wide range of financial products to their customers via post office networks and other channels. Other postal operators have expanded their financial services offerings through alliances with one or more financial institutions.
Ireland's An Post established a wholly owned financial services subsidiary, An Post Direct, in April 1999. The company, which trades as One Direct, is regulated as a financial services intermediary and offers a wide range of products and services through alliances with various financial institution partners. One Direct markets its products and services through An Post's network of over 1,500 post offices and postal agencies and via a dedicated website, but it handles applications and insurance claims over the telephone.
One Direct started by offering car and home insurance with Hibernian General Insurance in 1999. In 2000, it launched credit cards through MBNA Europe Bank, personal loans via Bank of Scotland (Ireland), which was replaced by GE Capital Woodchester Finance in February 2003, and life insurance plans with the Bank of Ireland Group's New Ireland Assurance. One Direct launched its first savings and investments products in association with Friends First Life Insurance in 2002. In the following year it added mortgages via ICS Building Society and personal retirement savings accounts through AIB Group's Ark Life Assurance.
By 2004, One Direct was offering about 15 different financial products and had over 100,000 customers.
An Post offers other financial services, including bill payment and money transfers and agency banking services via AIB. It also operates the Post Office Savings Bank and other national savings services for the National Treasury Management Agency, which is run by the Ministry of Finance. Total investments in savings accounts had reached 5 billion (euro) ($6.22 billion) by the end of 2003.
Maximising profitability
The legal and organisational structure of the postal operator can have a significant impact on the type of financial services offered. These structures may need to change if postal operators hope to maximise their potential in financial services.
Many other legal, regulatory or cultural barriers may restrict the role of postal operators in financial services. However, as postal operators expand their range of services and target more sophisticated financial products and services, such as investment funds and loans, they will be more likely to seek partnerships and alliances with established and experienced financial institutions.
As postal operators extend their financial services ranges beyond the traditional basic services of payments, savings–and in some Asian countries simple life insurance–they are looking for financial institution partners possessing the expertise and experience necessary to make the services a success.
Many postal operators offer payments of state pensions and other benefits through post offices and are heavily influenced by trends in such payments. The UK's Post Office expects to lose about 400 million (pounds sterling) ($733.2 million) a year in revenue as a result of the switch from payments via order book and giro to electronic credit transfer.
Estonia's state-owned postal operator, Eesti Post, reported financial services revenues of 4.9 million (euro) in 2003, a 10 percent drop year-on-year. Related profits fell to l.8 million (euro) over the same period, representing a 26 percent decline. This was due to the increasing popularity of internet banking and changes to the system for pensions and benefits payments by the Social Insurance Board. Financial services revenues shrank from 13.2 percent of total revenues in 2002 to 11.7 percent in 2003 and to less than 10 percent in the first half of 2004.
The Social Insurance Board's changes resulted in a significant decline in the total number of pension and benefits payments disbursed and a large, one-off decline in related financial services revenues, but the rise of banking via remote channels is expected to continue this drain.
Postal payments and remittances
Public postal operators handle an estimated 10 billion money orders and financial transfers annually, according to the Universal Postal Union (UPU). The popularity of traditional paper-based postal orders and postal money orders for domestic payments has waned in many countries, especially industrialised nations, as consumers increasingly make payments and bank via remote channels such as the internet or telephone. Many postal operators and postal banks offer remote financial services themselves.
The focus of postal payment services has shifted towards facilitating international money transfers, remittances and bill and fee payments.
Recognition of the links between remittances, savings and microcredit and their contribution to economic growth in developing countries has focused attention on facilitating international remittances. However, postal operators face tough competition from both bank and non-bank payment companies attracted by the international remittances market.
Postal operators and postal banks have taken concrete steps towards making remittances more accessible, both in terms of geographical reach and their cost to users. These steps include developing electronic money transfer services, which were offered by about 50 postal operators by September 2004.
Scandinavian market
Eurogiro Network, the Denmark-based organisation owned by a consortium of European postal operators and post and giro banks, which counts postal operators throughout Europe, Africa, Asia and the Americas as members, exchanged an estimated 24 million cross-border transactions over its Eurogiro System (ELS) in 2004. It agreed a number of alliances and partnerships to develop its range of low-cost, cross-border payments during 2003 and 2004.
Eurogiro signed a new five-year co-operation agreement with Western Union Financial Services through which its members would continue to offer Western Union urgent cash transfers through the Eurogiro System. It also sealed a deal with the Federal Reserve Bank of Atlanta to open a gateway for payments between the United States and Europe, enabling fired transfers between all account holders on the two continents. The deal will enable payments initiated by any US bank to Europe to be handled as domestic automated clearing house transactions, while Eurogiro members would be able to send payments to all US banks as if they were exchanged with another Eurogiro member.
In June 2004, Eurogiro Network also signed an agreement with the payments association, Visa EU (now Visa Europe), to extend the reach of the Visa Direct money transfer service, enabling Visa Direct customers to send money to bank accounts in any Eurogiro member country, not just to Visa card accounts.
Eurogiro and the UPU joined forces in 2004 to modernise the money order payment instrument used by many postal operators. The two organisations agreed to connect their electronic money transfer networks–Eurogiro's ELS and the UPU's International Financial System (IFS), which was used by 22 postal operators in June 2004–for the exchange of the Tele Money Order (TMO), a payment solution developed jointly by the two organisations.
The TMO is expected to become available on both networks in mid-2005, and will offer customers a speedy, secure and competitively priced international payment instrument. Eurogiro's managing director, Henrik Parl, said the TMO would be "a faster, more reliable and more efficient way to exchange money orders, thereby facili-rating a competitive edge for posts offering the service".
Postal operators provide agency services to financial institutions and other organisations, such as telecommunications companies and government departments, enabling customers of agency partners to access their services at post offices. Many postal operators offer agency banking services, often through exclusive agreements with postal banks and sometimes on an open basis with a range of commercial banks. Postal operators have exclusive agency banking agreements with fully privatised postal banks in Austria, the Czech Republic, Denmark, Hungary and other countries.
Under Norwegian law, Norway Post is obliged to provide access to basic banking services through its sales network with a financial institution partner. The law defines basic banking services as opening accounts, deposits, withdrawals and payment services. Norway Post's agreement with the DnB NOR banking group to provide basic banking services through DnB NOR's Postbanken expires at the end of 2005 and rather than simply renew the contract, the postal operator invited Norwegian and international banks to compete for the agency banking agreement.
Sweden's Posten offers agency banking services at post offices through its Svensk Kassaservice subsidiary. Services such as account deposits and withdrawals, account-based payments, and money orders and transfers are offered alongside a number of banks, including Nordea (and its subsidiary Postgirot) and ForeningsSparbanken and its network of savings banks.
In November 2003, Thailand's central bank, the Bank of Thailand, issued a notification enabling a commercial bank to designate Thailand Post, or a joint venture between the bank and Thailand Post, as a deposit agent. This allows customers of participating banks to make deposits, withdrawals, and transfers at post offices, as well as document receipt and delivery between customers and banks. However, the agreement may not cover the opening of new accounts or the authorisation of loans. The first banks to sign up to the new agency banking service were Siam Commercial Bank and Bank of Asia.
Postal savings and postal bank accounts
Many postal operators offer postal savings and postal bank or giro accounts, although these may be managed or held by other organisations, such as the government ministry or department responsible for finance or the economy, or the national savings bank. According to the UPU's then director general, Thomas E Leavey, some 85 postal operators offered their own account-based financial services or had established partnerships with banks, microfinance institutions and money transfer companies by 2004. Over $3 trillion was deposited in over 700 million accounts at postal banks worldwide.
Postal savings schemes have long been offered in European countries, and in many African and Asian countries, such schemes are legacies of colonial times. While postal savings schemes and postal banks have been in existence in many countries for decades, the World Bank Group and other organisations are keen to exploit the role of postal operators and post office networks to mobilise savings in developing countries, especially by capturing remittances from workers abroad.
"Postal cash-transfer systems give users access to services such as loans, insurance, and investment products," said Leavey. "This could have a positive effect on savings mobilisation aimed at capturing the wide base of small savers that are all too frequently forgotten."
Large postal banks or postal savings agencies have developed in Europe, North Africa and some parts of Asia.
Postal operators in the North African countries of Algeria, Morocco, Tunisia and Egypt managed over 26 million postal savings and bank accounts in total by the end of 2003. Algerie Poste offers its own postal cheque or gio (cheques postaux) accounts and acts as a deposit collection agent for the state-owned housing finance bank Caisse Nationale d'Epargne et de Prevoyance (CNEP). Algerie Poste operated about 6.1 million cheque accounts by the end of 2002 and its centre des cheques postaux accounts had deposits of DZD3.877 billion ($50.5 million) by the end of 2003, according to the central bank, the Bank of Algeria.
Egypt's National Postal Organisation (Egypt Post) offers a range of postal payments, savings and bank accounts, including a current account product. According to the UPU, by 2003 Egypt Post had over 10 million postal savings accounts. The Central Bank of Egypt states that post office savings deposits soared from EGP4.382 billion ($749 million)–or 2.4 percent of total savings–in June 1997 to EGP22.8 billion (5.8 percent of savings) in June 2003. These funds are held by the state-owned National Investment Bank.
Postal banks have been particularly successful at targeting and serving underbanked or unbanked sections of the population.
In October 2004, the South Africa Post Office's Postbank and major banks in the country co-operated to launch the Mzansi account, targeting the estimated 13.2 million unbanked South Africans. This is part of the banking industry's commitment to improving access to banking services. Some 155,000 Mzansi accounts were opened in the first month.
This new low-cost account enables customers to make limited deposits, withdrawals and point of sale purchases through a Maestro or Visa Electron debit card. Customers do not have to pay monthly account fees. They can use other banks' ATMs for cash withdrawals at no extra cost and they have access to about 10,000 ATMs nationwide through the Saswitch network. Cardholders also have access to about 2,000 post office branches. As part of the 2003 Financial Sector Charter, banks also pledged to improve the availability of banking services to poorer South Africans. In 2004, banks committed to providing an ATM service within 10kin of low-income earners, and a full banking service within 15km of 80 percent of low-income earners.
