UK Royal Mail 'at last dragged into 21st century' postal services

Royal Mail is "at last being dragged, kicking and screaming into the 21st century" with post office customers finally able to use debit cards to pay for stamps, envelopes and other mail services.

David Mills, chief executive of the group's Post Office business, is not afraid to characterise the institution as one that is enduring a painful introduction to the modern world.

The jovial former HSBC personal banking chief firmly intends to encourage modernisation. He joined in January last year with the aim of making the loss-making network profitable within five years.

The Post Office, which has 17,000 branches across the UK, should exploit more fully its position as one of Europe's, and Britain's, largest retail outlets, he says.

A post office today "is a pub, it's a club, it's a church hall", says Mr Mills, adding that he would like to see more "pensioners with a pint in a post office-pub".

The division he runs is the human face of the Royal Mail Group, which Allan Leighton, chairman, has vowed to make more user friendly and profitable by 2005.

Mr Mills' pet issue is the promotion of diversity, both in customer services and for employees. "We are one of the largest employers in the land. We should be a leading light on diversity in this country."

He must also save rural post offices, which two years ago were closing at the vertiginous pace of 400 a year.

In some rural areas they are the only shop and, for some customers, the only contact with the outside world. Last year the pace of closures slowed to 100 a year and the government will be pouring Pounds 450m into the rural network over the next three years to ensure the remainder survive.

Mr Mills says the funds will help, but that he will need to maintain the momentum for change. So far 1,250 head office staff have gone; a further 1,250 jobs will be cut this year.

One of the main problems, he says, is the difficulty in replacing rural postmasters. There are 400, but many are retiring, and with the job a labour of love, there are few willing to take on their role.

"The wretches, they die on us," says Mr Mills, adding that he has assigned 31 rural transfer advisers "whose sole purpose is to keep rural post offices open".

He also wants to make post offices more attractive retail outlets and service providers.

In that spirit, he last month convinced Postcomm, the industry regulator, and Postwatch, the consumer watchdog, to drop one of the targets they had imposed on Royal Mail – that post offices should aim to deal with 97 per cent of customers within five minutes.

"We want people to spend as much time as possible and use more services – not leave in a hurry."

As a former personal banking manager, Mr Mills thinks the provision of basic banking services will be the key to the Post Office's recovery.

However, post offices should not become banks, he adds, because they have their own identity and brands – "it's much better than a bank – people like us".

But a large proportion of customers may desert the network now that benefit payments can be paid directly into other bank or building society accounts, as well as the new post office card account – part of the new technology that has enabled the introduction of debit card payments. Take-up of the post office card account has also been slowed by the Department for Work and Pensions, which has made them complicated to open.

Mr Mills says these problems are symptomatic of government departments working at cross-purposes.

The DTI wants Royal Mail's restructuring to succeed and post offices to stay open; the DWP wants as many people as possible to use mainstream banking services.

"It's unfortunate but I'm not really angry with the DWP. Government departments don't always think in a joined-up way," Mr Mills says.

None of these problems will stop the man who founded First Direct, HSBC's online banking service, from turning post offices into the high-tech efficient places they should be.

Debit cards will only be used from today, but post office branches are already fitted with pin-pads and have pioneered the use in the UK of "intelligent" cards with chips.

Post offices could become the "smiling ATMs" at each street corner. But Mr Mills recognises this will not happen overnight.

And tomorrow he may face resistance from the largest union in the industry – the Communication Workers Union – which meets in Bournemouth for its annual conference. www.ft.com/uknews

Copyright © 2003: Financial Times Group