End of line for UK Post Office giro queue

One of the biggest banking changes for decades will creak into life on April 1 this year. For the people involved, over fifteen million of them, it is definitely not an April Fool.

The Universal Bank, which is scheduled to click into place when the Government phases out the payment of benefits and pensions using order books and giros, is no joke for the Post Office either. These transactions represent over a third of the total income for the network, which is already making a loss.

David Mills, chief executive of the Post Office network, says that despite various reports to the contrary, his organisation is ready for the "soft launch" of the scheme. "Fingers crossed," he says. "We have all of the system up and running. That's pretty good going, we've had to get 12 banks to link to us, it's like putting 16 screwdrivers on one screwdriver head."

However, there is concern that the people who will use this new system, some of the most vulnerable in society, do not have enough information.

A spokesman for Postwatch, the consumer watchdog for postal services, says there is "anxiety" about what is about to happen. Information about the Universal Bank is supposed to come from the Department for Work & Pensions, but Postwatch says that it has been "rather slow". "They've not got a proactive information campaign going," Postwatch says.

The consumer organisation has already started a process of 'mystery shopping' in the areas where the new service is being trialled, but the results of this are not yet clear.

So what will happen on April 1? Not a lot, actually, says David Mills, because the new scheme is being phased in over the next two years. Gradually, pension books and giros will become a thing of the past and customers who currently queue at the post office to receive cash will be offered three different ways to receive their benefit.

For customers who already have their own bank accounts, the change will be simple. Their benefits can be paid directly into their current account. What Postwatch is worried about is the large number of customers who currently do not have their own account, either because of poor credit rating or illiteracy.

Under the new scheme, all benefit claimants will have to have a pin number, which will be a first for many of them. The Post Office has set up key pads at all of its counters in order to facilitate this.

Banks have traditionally shunned the vulnerable customers who collect benefits at the post office counter, but the Government's plan has forced them to offer a basic bank account through the post office, which customers can apply for through their local postal branch.

The Post Office says that it has a deal with the banks, which include Barclay, HSBC, Lloyds TSB, Royal Bank of Scotland, Abbey National and the Co-operative. This will allow it to charge 40p per transaction to the banks, allowing it to recoup the millions of pounds it has spent setting up the scheme.

There is concern that even this very basic level of bank account will be too much for some customers. The Government has also set up a post office card account, which does not allow direct debits, meaning that customers would not be liable for unexpected overdraft charges, but subpostmasters are concerned that this is not being promoted sufficiently.

The Federation of Subpostmasters told MPs in December that savers were being discouraged from signing up to the accounts, which it said was "potentially disastrous".

Mr Mills, at the Post Office, added that as many customers as possible were being pushed into the commercial sector. To open the Post Office card account you have to complete a separate telephone interview, a much more complicated process than opening one of the basic bank accounts with commercial banks.

Some critics have argued that this is because the cost of the basic bank accounts has been pushed onto the banks, and the Government doesn't want to foot the bill for the card accounts.

The effects of this could be disastrous for the Post Office, as well as some customers. Footfall in post office branches, which rely on the revenue generated from benefit payment, could decrease dramatically, causing even larger numbers of rural branches to close.

The organisation is already in the throes of a major closure programme in urban areas, which is provoking furore among MPs. In rural areas, it cannot find enough people willing to take on the increasingly unprofitable small offices, which are a lifeline to pensioners living in out-of-the-way places.

The Post Office fears that with customers no longer having to come in to collect their pensions, they won't come in at all. Unprofitable offices will have to close, leaving more people unable to get to a Post Office. Mr Mills says the business needs to adapt to survive.

"We already do travel insurance," he said. "We sold one million policies last year. You've just got to think of a range of products in the financial world and we could do them – after all, we used to own the Girobank." Mr Mills hopes to offer personal loans and life insurance to tempt more people into the stores.

"We've got a great brand," he says. "It is pretty close to Pepsi in terms of awareness and acceptability. That's amazingly high. There's lots to do, and at this stage trade secrets are better kept.

"This is going to make a lot of difference," he adds. "This is 40pc of our income we are losing. We keep saying to people, use us or lose us."