Banking on the Post Office

Banking on the Post Office.(England)(Brief Article)
From NEW STATESMAN (1996), March 26th, 2001

COPYRIGHT 2001 Information Access CompanyBy Hinde, Simon The government is pressing ahead with its Universal Bank, despite minimal
enthusiasm all round. Banking sits awkwardly on the cusp of business and public service. Most of us
need a bank account to function properly in the world, but banks are
businesses, with profits to make and shareholders to please. Why should they
spend money recruiting customers who are going to cost them money? The government has been worrying about this. If the excluded are to be fully
part of society, giving them a bank account must be part of the deal. There is
another, less philanthropic, reason for concern: the government's desire to
cut its social security bill by paying benefits and pensions straight into
bank accounts by 2003. The current system of paying benefits over Post Office
counters costs [pound]400m a year. The government's first solution was to instruct the banks to offer "basic"
accounts aimed at the socially excluded. These would be highly simplified
current accounts, allowing holders to write cheques, use cash machines, get
access to reasonably priced loans and set up direct debit transfers. NatWest was the first to deliver a government-approved basic account. The
Step account doesn't allow customers to get into debt, but it does permit the
bank to monitor the behaviour of account holders to build up a credit profile.
When the customers have proved that they can manage their money, they can move
up to a standard current account and credit card. Other banks followed suit,
though there remains a question mark over their commitment to these accounts.
It is one thing to make them available; another to advertise and promote
them. Last June came another initiative. A Universal Bank, based in post offices,
would be set up to provide a "no-frills" account. There are thousands of post
offices all over the country, with sub-post offices in the inner cities and
villages from which the banks have long since withdrawn. Many of the
"unbanked" already use the Post Office to cash their benefit cheques. The Universal Bank is the baby of Stephen Byers and Alan Johnson at the
Department of Trade and Industry. It is seen by some as a source of friction
in the government: the Treasury, it is said, is keener on basic bank accounts,
not least because there is little cost to the public purse. The Universal Bank account has the working title "Clear" and will allow
customers to receive benefit cheques and draw out money. To many, the scheme
is reminiscent of the National Girobank, the Post Office-based bank that was
sold off by Margaret Thatcher to Alliance & Leicester and now run as a
commercial operation. The banks have regarded the Universal Bank with a mix of weariness and
suspicion. Weren't basic bank accounts supposed to have solved the problem of
the unbanked? The suspicion grew that the Universal Bank had more to do with
throwing a lifeline to sub-post offices, which will be badly hit by the move
to pay benefits directly into bank accounts. The banks also feared it would
become a competitor– and one they were obliged to fund. The government
initially demanded that the banks stump up [pound]150m to make the Universal
Bank a reality. The big four have agreed to pay around [pound]30m each over
the next five years to fund the scheme. Halifax and Abbey National will pay
between [pound]4m and [pound]5m each, while the Nationwide Building Society is
getting away with much less. Plans have already slipped behind schedule. Originally intended to be in
place before a general election, the Universal Bank is now pencilled in for
2003. Sub-postmasters will need training and additional equipment. They will,
for example, be expected to provide customers with advice on which bank
account to open. Some may be reluctant to take on these additional
responsibilities without extra pay. The Post Office is negotiating with Link, the cash machine network, to
connect all 18,000 branches to banks and building societies. Security will be
an issue. At the moment the Post Office provides only the most basic security
features in branches — a safe — but if the sub-postmaster wants, for
example, an improved screen to protect people, he has to pay for it. Colin Baker of the National Federation of Sub-Postmasters admits that his
members could be targeted by criminals. "These are social exclusion accounts.
There is a possibility that the Post Office could be seen as an easy place to
con." There are also fears that government estimates of the running costs —
[pound]125m annually — may prove too low. Some bankers believe the figure
could be closer to [pound]400m, with the extra burden being shouldered by the
taxpayer. Then there are the objections of those who say that the bank will be shunned
by its target audience, who will see it as a second-class institution for
second-class people. A lot is riding on the Universal Bank. If it succeeds, it will do much to
stem the politically awkward tide of post office closures. There are many
hurdles to overcome, though, and the DTI's relentless optimism could yet prove
misplaced. Simon Hinde is Comment editor of the Daily Express Page viii;Volume 130;Issue 4530 THIS IS THE FULL TEXT: COPYRIGHT 2001 New Statesman, Ltd. COPYRIGHT 2001 Gale GroupNEW STATESMAN (1996),
26th March 2001