SPECIAL REPORT: Post office banking, a company overview
While many banks, including Erste Bank, KBC, ING, Deutsche Bank and Fortis, have been quick to grasp the advantages that relationships with post offices–either through distribution arrangements, joint ventures or acquisitions–can bring, many European banks still underestimate the opportunities that working with post offices present.
According to Carl Holsters, a consultant to Post Group, the Belgian post office, as well as having extensive branch networks, post offices have a strong brand name that banks can capitalise on. Indeed, in some countries in Eastern Europe, this is a distinct advantage as local people often distrust their local banks.
While there are many different models that banks can follow when looking to work with a post office, Holsters believes that Netherlands-based ING Group, which fully owns the banking operation Postbank, which in turn owns 50 percent of the postal services operator Postkantoren, has one of the most successful arrangements with a post office. About 50 percent of the country's population has a Postbank account. Moreover, Postbank and ING Bank in the Netherlands now generate about 15.5 percent of the group's total profits.
In some European markets, post office banks are being transformed into fully licensed banks and many of them now have a presence that is powerful enough to threaten existing market leaders.
Although Swiss Post failed to obtain a banking licence for its proposed PostFinance subsidiary, France's La Banque Postale successfully won its banking licence in January 2006 and is now among the largest retail banks in the country.
In other parts of Europe, banks have linked up with post offices for distribution purposes only. For example, in the Czech Republic, Belgium-based KBC Group operates under two brand names–Stranky Ceskoslovenske obchodni banky, the postal savings bank that is part of CSOB Group, and Postovni Sporitelna (also part of CSOB Group)–and uses the Czech post office's large network to distribute products.
Polish Post offers agency service agreements to financial services providers. The takers here include BNP Paribas for banking and credit cards, and insurer Cardif for the distribution of personal insurance. Both also distribute pension products via the Polish post office.
Working with overseas post offices
In addition to providing access to a bricks-and-mortar network at low cost, post offices offer European banks the opportunity to move into new markets and countries quickly and easily.
Austria-based Erste Bank acquired a post office bank in Hungary and this gave it rapid access to an underdeveloped banking market which is expected to witness huge growth (see "Erste Bank expands in Hungary with Postabank."). Deutsche Bank has ties with post offices in Spain and Italy.
Benelux-based Fortis, having gained ten years of experience in Belgium with La Banque de La Poste, its joint venture with the Belgian post office, has recently formed another joint venture with An Post, Ireland's post office.
France–post office banking dominates
In France, La Banque Postale, a limited company, was launched as a fully licensed bank at the start of January 2006, despite opposition from local banks including Credit Agricole, BNP Paribas, Banque Popular and Societe Generale. These banks took the formation of the French post office bank to the European Commission on anti-competition grounds. They argued that the new post office bank would have "unfair advantages stemming from its relationship with the post office" and that it would benefit from being the only bank in France allowed to offer tax-efficient savings accounts by the government. This, they said, would distort the French banking market.
However, the Commission gave consent for the financial services business of the French post office La Poste to be transferred to a limited company, wholly owned by the post office. Since then, the financial services division of La Poste, and its 28.9 million customers, have been transferred to La Banque Postale.
As La Banque Postale distributes its products through La Poste's 17,025 post office branches, it is already operating via more branches than Credit Agricole, France's largest bank, which has 9,000 branches. La Banque Postale's customers hold 45 savings accounts, 11 million current accounts and 6.6 million life assurance policies. It also offers a wide range of products to business customers. When it was the banking arm of the post office, La Banque Postale was allowed to offer mortgages only to people who held a savings account with it, but this is no longer a condition, meaning that La Banque Postale can grow its mortgage lending business.
La Poste claims it is still committed to keeping its 17,025 post office outlets until 2007. It believes that financial services will continue to provide a profitable income stream, ensuring the branches' future–especially in rural areas.
Germany–a growing provider
Another postal banking operation that has benefited from the distribution capabilities of having a large post office parent is Deutsche Postbank in Germany. It was established as an independent organisation in 1990 following the German Postal Services Restructuring Act and then merged with Deutsche Post Postbank of the former East Germany. It was then acquired by Deutsche Post in 1999. Thirty-three percent of the combined operation was floated on the German stock exchange in June 2004 in the largest initial public offering (IPO) in Germany since Deutsche Post itself was floated in 2000.
At this time, Deutsche Postbank was selling its products through a post office network of about 9,000 offices and the German post office received commission for the products sold via its branches. In 2003, financial services accounted for 33 percent of Deutsche Post's revenue while only 41 percent came from postal services.
As well as savings and current accounts, Deutsche Postbank now offers mortgages, personal loans and share dealing services. At the start of 2005, it expanded its operations by acquiring Hamelin-based BHW Group which, with 2.7 million customers, is the second-largest home loans and savings association in Germany. In addition, Deutsche Postbank bought 850 post offices from Deutsche Post for 986 million (euro). It believes that this will help it to raise its pre-tax profits by about 150 million (euro) a year. The 9,600 people employed in these Deutsche Post branches were transferred to Deutsche Postbank.
The remaining 8,100 Deutsche Post branches have stayed as they are and Deutsche Postbank is selling products through them as well.
Post office customers can still access postal services via Deutsche Postbank's recently acquired post offices, which are set to become Deutsche Postbank units. These offices are mainly in inner city locations and they now generate 87 percent of the post office bank's new business.
According to Deutsche Postbank's chairman Wulf von Schimmelmann, Germany is one of the largest banking markets in continental Europe and offers opportunities for additional growth because it has a lower penetration of financial products than its neighbours. He points out that the recent acquisitions were important steps that had to be taken to strengthen the post office bank's sales operation and to further exploit opportunities to cross-sell products to a total customer base of 14.5 million people.
Deutsche Postbank plans to integrate its two banking operations during 2006, remove duplication and cross-sell BHW Group and Deutsche Postbank products to the two respective customer bases. It also plans to create an integrated multichannel structure.
The combined banks' sales teams of 2,000 advisers in branches, 4,200 mobile BHW financial advisers and 800 BHW service centres will become part of the same business unit later this year. The unit is expected to become the powerhouse behind the post office bank's sales strategy.
In 2005, Deutsche Postbank made a pre-tax profit of 719 million (euro), an increase of 11 percent on the previous year. Retail banking contributed 588 million (euro) to the pre-tax result.
The cost of integrating BHW Group increased the bank's cost-income ratio to 69 percent. It now aims to reduce this to below 63 percent by 2008 and become the number one financial provider for private and business customers.
By the end of 2005, Deutsche Postbank had attracted 700,000 new customers, more than its original target of 600,000, giving it a base of 4.6 million private current account customers. Its share of the savings market rose to 5.3 percent from 5.1 percent and savings volume totalled 42 billion (euro). Mortgages and consumer loans were the strongest growth areas, increasing by 45 percent (5.1 billion (euro)) and 32 percent (1.6 billion (euro)), respectively.
Netherlands–a major force
In the Netherlands, Postbank's origins lie in the 1986 merger of the state-owned postal savings bank De Rijkspostspaarbank and the postal cheque and giro payment service Postcheque-en Girodienst. After privatisation, Postbank merged with Nederlandse Middenstandsbank, which was focused on business and corporate banking, to become NMB Postbank Group in 1989. One year later, NMB Postbank Group merged with insurer Nationale-Nederlanden to form ING Group.
Today, Postbank continues to operate as a subsidiary of ING Group and it holds a 50 percent stake in Postkantoren, which runs the Dutch postal service and offers both postal and banking services.
Postbank uses 800 of Postkantoren's branches as a distribution network for all its products and services including savings, giro bank accounts, money transfers, mortgages, personal loans, and stockbroker and investment services. This distribution network is supported by online services and call centres.
Postbank has been able to maintain a strong position in the Dutch banking market and now has 2.3 million current accounts; one-half of the population has an account with the post office bank.
UK–diversifying its offering The UK's postal services provider, Royal Mail, like many other operations in Western Europe, is a public limited company. Its postal operation Post Office Limited had a post office network of 15,961 branches at the end of end of March 2004, but it is shrinking at an average rate of 305 branches a year. Around one-half of the UK's population–28 million people–are Post Office customers and they make around 45 million visits a week in total to Post Office branches.
In 2005-06, the Post Office made a loss of 111 million (pounds sterling) (162 million (euro))–a reduction of 12 million (pounds sterling) on the previous financial year–largely because of lower income being generated from the provision of government services. The Post Office has tried to offset its financial difficulties by providing new services such as banking and financial services, and this has helped to reduce losses.
Now that its financial position is improving, the Post Office plans to modernise its outlets and expand its range of financial services products. Around only 26 percent of its income in 2003-04 was generated from postal services. The rest came from providing government benefits, financial services products, telecommunications services and other product areas.
The Post Office has a long history in financial services, starting with the provision of postal orders in 1881. These are still in demand and about 29 million were issued in 2003.
The Post Office Savings Bank was opened in 1861. In 1969, it became a separate government department known as National Savings. Today, it is called National Savings & Investments (NS&I) and provides a range of government-backed savings products that are distributed through the Post Office's outlets. At the end of March 2004, 45 percent of NS&I's sales were through Post Office branches.
In October 1968, a separate current account banking and giro payment services division was launched by the Post Office called National Giro (later renamed Girobank). It acquired listed bank status in 1979. The government decided to privatise this bank and it was acquired by Alliance & Leicester (A&L) in 1990. In 2003, it was merged with A&L Business Banking and renamed A&L Commercial Bank.
The Post Office has played a key role in supporting the UK government's Universal Bank Services Scheme, which was introduced in April 2003 to reduce financial exclusion and provide people with access to basic bank accounts. It launched a Post Office card account with JPMorgan to enable pensioners to collect their pension electronically. Around 4.5 million pensioners now use the account, but because of the high cost of running it, the government plans to close the service in 2010.
In addition to offering this service, the Post Office provides other financial providers' banking services at its counters for the financially excluded and for personal current account holders. In 2004, it had arrangements with ten financial services providers including Abbey, Nationwide Building Society and HSBC. Around 22 million current account holders are able to perform transactions at Post Office counters and via its network of 2,500 ATMs.
Although the Post Office has been selling foreign currencies and travel insurance for some time, in 2002 it appointed Bank of Ireland as its preferred partner to expand its range of financial products and increase income. It now offers products such as travel services and savings bonds from Bristol & West, a subsidiary of Bank of Ireland. In 2005, it formed a joint venture with First Rate Travel Services, part of Bank of Ireland, to sell travel services. In 2005, the Post Office handled 14 million foreign currency transactions and claimed to be the largest provider of foreign currency services in the UK. In the same year, it also sold 1 million travel insurance policies. The Post Office extended its partnership relationship with Bank of Ireland in 2003 by forming a joint venture called Post Office Financial Services to provide credit products, a prepaid traveller money card and savings accounts. It also sells general insurance, including Budget's home and motor insurance.
* POST OFFICE NETWORKS
Post offices bank on financial services
With a network of about 700,000 outlets worldwide, post offices provide mail services to around 85 percent of the world's population.
Traditionally, they have provided basic services such as funds transfers and bill payments. Each year, 10 billion financial transactions go through post offices, according to the Universal Postal Union (UPU).
However, as electronic mail takes over from traditional mail and the huge networks get more and more expensive to run, many post offices are looking to generate additional revenues from other types of business, such as the provision of financial services. At present, around two-thirds of post offices offer financial services, according to the UPU.
The UPU also estimates that around 14 percent of post offices' revenues are now generated by financial services and anticipates that this figure will rise substantially in the future to about 50 percent or even more. Poste Italiane, the Italian post office, is well on its way to generating about 50 percent of its revenues from financial services, but in most other European countries the average is only 13 percent.
* POST OFFICE BANKING
Erste Bank expands in Hungary with Postabank
Austria-based Erste Bank Hungary (EBH) acquired Hungary's postal bank Postabank in October 2003 from the local post office Magyar Posta. EBH then merged Postabank into its own banking operation, making it the largest bank in Hungary.
Although it had 171 of its own branches, EBH formed a co-operative arrangement with Magyar Posta in 2004, which enabled it to start selling its products through Magyar Posta's 320 post office branches, 330 ATMs and 650 point of sale terminals. It is now selling its products through what is Hungary's largest branch network. The arrangement it has with Magyar Posta runs until 2012. Each partner shares in the revenue generated and is fully involved in the development and marketing of new products and services. In the future, a new brand is to be introduced for post office customers.
According to EBH, the distribution agreement it has with Magyar Posta has not only improved its geographical coverage, but also enabled it to address a target customer group, which to date has been largely distrustful of banking services delivered through bank branches.
In Hungary, hundreds of thousands of customers visit post office branches every day and this creates huge potential for EBH to grow its customer base. EBH claims that it is also benefiting from the post office's opening hours, which are much longer than those of bank branches.
Some 320 of the largest post offices in Hungary now have direct online connections with Erste Bank's account management system. This provides customers with access to the same level of service made available to them in EBH branches. Automated services are growing in importance, and more than 1,000 clients (10 percent of its banking client base) use EBH's NetBank online service.
The post office branches distribute EBH's entire product range–current accounts, investments products, loans, credit cards, mortgages and personal loans. Home loans are the only omission.
Since the agreement was first entered into, the Hungarian post office channel has generated around 88,000 current accounts for EBH. In 2005, EBH focused on network development, but this year it plans to focus on sales via the network. In particular; the bank wants to increase the inflow of funds and level of lending.
It also plans to introduce automated bill payment machines so that employees have more time to concentrate on banking and insurance sales. Mortgages and financial services for businesses are to be introduced soon. Overall, EBH plans to win a 20 percent to 25 percent share of the retail banking market and 10 percent to 15 percent of the business banking market over the next three to five years.
* PROFILE
Fortis develops its post office business
Benelux bancassurer Fortis, which has a market capitalisation of 37.34 billion (euro), is one of a growing number of banking institutions in Europe using arrangements with post offices to expand into other countries.
After gaining ten years experience of working with the state-owned Belgian post office Belgium Post on its joint venture La Banque de La Poste, Fortis recently signed an agreement with An Post, the post office in Ireland, to create another financial services joint venture. The operation is expected to go live later this year.
The agreement with An Post is part of Fortis's strategy to expand internationally, particularly in recognised European growth markets such as Ireland, Russia and Germany.
While Fortis considers greenfield start-ups right for some countries, it was interested in forming a joint venture with An Post because of the latter's large network of branches and strong, well known brand. An Post has 1,395 post office branches and delivers mail to 1.3 million homes in Ireland. The post office has recently been expanding its range of services to include direct mail for business and also now sells savings products through its Post Office Savings Bank subsidiary.
In Belgium, ten years into the joint venture with the Belgian post office, Stat Miroir, who is La Banque de La Poste general manager, argues that the operation's 6 billion (euro) of deposits in terms of savings and current accounts is a sign of success.
La Banque de La Poste offers simple and accessible products that Miroir claims are better priced than those of the local banks. Its slogan 'a question of common sense' has helped it develop a customer base of 1.2 million people.
A reflection of its success is that, although La Banque de La Poste sells its products via 1,300 Belgian post office outlets, it employs only 200 people. The branch staff and 600 back-office staff are all employed by the Belgian post office, which receives a commission for all sales via its branches.
Miroir adds that in earlier times, civil servants received their salary through the Belgian post office and, as a result, La Banque de La Poste has always attracted civil servants as customers. On the whole, customers tend to be conservative, and this is reflected in the products made available to them.
* POST OFFICE NETWORKS
Scale of post office networks, 2004
Number of Percentage of world
Country branches total
France 16,992 2.6
Germany 13,514 2.0
Italy 13,728 2.1
Ukraine 15,252 2.3
Russia 40,304 6.1
Top 15 456,852 68.8
World 663,983 100.0
Source: Universal Postal Union
* FRENCH BANKING
Figures for La Banque Postale
Clients (m) 28.9
Savings accounts (m) 45.0
Current accounts (m) 11.0
Life assurance policies (m) 6.6
Branches 17,025
Source: VRL KnowledgeBank
* POST OFFICE BANKING
Ownership of post office banks
Name of post
Country office/bank Owner (1)
Austria BSK BAWAG
Belgium La Banque de Fortis (50%)
La Poste
Czech Postovni CSOB (owned by
Republic Sporitelna Belgium's KBC)
Denmark Girobank Danske Bank Group
Finland Postipankki Sampo
Hungary Postabank Erste Bank
Germany Deutsche Public trading 33%
Postbank
Netherlands Postbank ING
Norway Postbanken Gjensidige NOR
Poland Bank Pocztowy PKO BP (25%)
Portugal Banco Postal Caixa Geral de
Depositos
Sweden Postgirot Bank Nordea
UK Girobank Alliance & Leicester
UK Post Office Bank of Ireland
Financial (50.01%)
Services
Note: (1) 100 percent ownership unless stated
Source: VRL KnowledgeBank
* GERMAN POST OFFICE BANKING
Figures for Deutsche Postbank
Q1 2006 2005 2004
Clients (m) 14.58 12.30 12.09
Private current 4.60 4.50 4.40
accounts (m)
Online banking users 2.27 2.22 1.88
(m)
Telephone banking 3.21 3.16 2.89
users (m)
Debit cards (m) 6.14 6.12 5.71
Credit cards (m) 0.99 0.82 0.76
Savings accounts (m) 17.08 17.16 17.36
Savings volume (bn (euro)) 43.29 42.04 40.84
Brokerage accounts 0.93 0.75 0.74
(m)
Overdrafts (bn (euro)) 1.45 1.25 1.15
Personal loans (bn) 1.95 1.57 1.19
Mortgage loans (bn) 52.39 28.95 22.31
Life policies (m) 1.30 0.28 0.26
Accident policies 87.08 88.14 84.12
(OOOs)
Number of cashpoints 1.42 1.42 1.41
(OOOs)
Assets held (bn (euro)) 182.90 140.30 128.30
Source: VRL KnowledgeBank
* POST OFFICE PROFITS
Changing face of postal income, 2004-2008
Area of business %
LETTERS AND POST
Rising 29
Stable 6
Falling 65
POST PARCELS AND LOGISTIC SERVICES
Rising 69
Stable 18
Falling 12
POSTAL FINANCIAL SERVICES
Rising 51
Stable 24
Falling 24
OTHER PRODUCTS
Rising 33
Stable 24
Falling 43
Note: Percentages show proprtion of post offices that
consider these business areas to be stable, falling or rising
Source: Universal Postal Union
* NETHERLANDS
Postbank retail funding, number of accounts
Savings accounts 21,921 29,254
Current accounts 11,560 11,650
Retail deposits 2,964 n/a
Total 36,445 40,904
Source: ING
* POST OFFICE REVENUES
Sources of post office revenues, 2004 (%)
Postal
Letters Parcels and financial Other
and post logistics services products
Eastern Europe and CIS 44 6 26 24
Industrialised countries 60 25 12 3
World 58 23 14 5
Source: Universal Postal Union
* POST OFFICE REVENUES
Income from financial services
% linked to
Country Operator financial services
Denmark Danmark Post 4.6
Germany Deutsche Post 18.5
World Net
Ireland An Post 18.0
Italy Poste Italiane 44.0
France La Poste 23.0
Norway Norway Post 5.4
Poland Poczta Polska 25.0
Portugal CCT–Correios 7.3
Russia Russian Post 45.7
Spain Correos 1.5
Switzerland Swiss Post 20.0
Note: Figures are for post office year-ends in December 2003 and
March 2004
