Policy
Response
BIS CONSULTATION ON POST OFFICE BANKING
A response by the Building Societies Association|
Contact: Brian Morris Date: 24 Feb 2010 |
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Introduction
The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 52 UK building societies. Mutual lenders and deposit takers have total assets of over £390 billion and, together with their subsidiaries, hold residential mortgages of almost £260 billion, 21% of the total outstanding in the UK. They hold over £250 billion of retail deposits, accounting for just under 23% of all such deposits in the UK. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
The BSA welcomes the opportunity to participate in the Consultation launched in December 2009 by the Department for Business Innovation & Skills on developing the banking and financial services available at the Post Office.
The consultation paper cites three reasons why banking and financial services offered by the Post Office should be expanded:
- The need for more local provision of financial services – via branches and by a trusted provider
- The Post Office’s continued local presence, while some other providers are reducing their face-to-face contact with customers, makes it well placed to help those who are - or are at risk of becoming - financially excluded.
- Growing its financial services business would enable the Post Office to make up for the decline in its traditional revenue sources.
The first two of these might equally be applied to building societies. Building societies, which are mostly regionally and locally-based, operate predominantly via branches. To the extent that economic conditions have led societies to close branches, they have done so at a much slower rate than the banks or post offices. Between 1995 and 2008 the number of building society branches reduced by 15%, whereas the decline in branch numbers at both banks and the Post Office was 30%. Like Post Offices, building societies are trusted institutions: societies offer high levels of service which are valued by customers[1] .
The Government has, in other forums, acknowledged the important role of building societies and other mutual lenders and the trust in which they are held; for example, in a speech in December 2009[2] , the Minister for the Cabinet Office, Tessa Jowell MP said:
“In banking, where trust has been severely hit, co-operative banks, mutual institutions and building societies stand out as ethical, values-led businesses, behaving responsibly in an industry where too many have not”
Fair competition
Our members welcome competition. It is good for consumers to have effective choice and, provided it is fair competition, societies have no problem with it. So, in principle, the BSA does not object to the Government’s ideas to expand the scope of financial services offered by the Post Office.
There are financial services products that the Post Office is uniquely positioned to offer. The Post Office Card Account is one such product, the Saving Gateway may be another (depending on the level of interest among potential private sector providers of that product). Other products suggested in the consultation paper, such as a possible weekly budgeting account would also appear to play to the Post Office’s strengths.
However, the Government needs to be careful that it does not assume that there are no effective alternatives to Post Office financial services. In many situations, building societies and other mutual lenders offer a viable alternative and, in some of the key product areas identified in the BIS consultation paper (for both new and existing Post Office services) - most notably savings accounts and mortgages - will be direct competitors of the Post Office. Accordingly, it is essential that the Government has regard to the impact which an expanded Post Office banking function could have on private sector competitors, such as building societies, that are already providing the products and services envisaged. We consider there is a strong case for the Post Office to concentrate on products and services, such as the Post Office Card Account, which are supplementary to those offered by other financial services providers – rather than expanding its provision of savings and mortgage products, where the consumer is already more than adequately catered for by building societies and other mutual providers.
Transparency
Consumers need to be clear about who they are dealing with when they buy financial services from the Post Office. Financial services firms that sell their products via the Post Office benefit from the ‘halo’ effect of being closely associated with what BIS itself acknowledges is one of the most trusted brands in the UK. Part of that trust derives from consumers’ perception that the Post Office is owned and underwritten by the UK Government and that the same is true of the products it offers. Many Post Office customers will be unaware that most of the financial services products currently offered by the Post Office are not the Post Office’s own products, but are third party products which are branded by the Post Office.
Very significantly, far from being underwritten by the UK Government, Post Office savings accounts and ISAs are not even protected by the UK deposit guarantee arrangements – the Financial Services Compensation Scheme - but, by virtue of being provided by the Bank of Ireland, are subject to the Republic of Ireland scheme.
Such opacity about who is the provider of Post Office-branded financial services needs to be addressed in order that consumers are not misled into believing that they enjoy a better level of protection than is in fact the case; and to ensure that private sector providers of Post Office-branded products do not enjoy unfair advantage over competitor institutions.
Areas where the Post Office can add most value
The agency arrangements that the Post Office has with a range of banks and a building society are helpful in assisting customers to access their accounts when their own bank branch may not be as conveniently located. This is clearly a valuable role for the Post Office to perform - particularly where it is the “last [bank] branch in town” - and is one that might usefully be built upon.
In similar vein, the significant financial support it receives from the Government, means the Post Office can legitimately be expected to take a wider social view of its operations in areas of financial deprivation.
Further expansion would also seem appropriate in regard to Post Office Card Accounts (POCAs). Increasing the functionality of the POCA would enhance its utility to POCA users, many of whom are understood to be people who are at the margins of financial inclusion. The proposed change to enable the use of a POCA as an ATM card is a step in the right direction; and further enhancements might include debit card facilities that would enable users to access online discounts (such as from utility providers) and allow point-of-sale card payments. If the Post Office is to become a provider of current accounts, it would seem appropriate that they should also be required to become a major provider of basic bank accounts, and an enhanced POCA would be a suitable vehicle to deliver such a commitment. In this way the Post Office would be sharing in the contribution to financial inclusion that existing basic account providers have carried for many years. Equally if the Government has specific objectives to bring certain excluded social groups (such as ex-offenders and those reaching the end of a prison term) into holding a current account, it would be appropriate for it to look, in the first instance, for the Post Office to make a major contribution to any such aims.
The Saving Gateway account also is an obvious product for the Post Office to offer – it is in tune with the proposed values of the Post Office, ie “universal, accessible, trusted and sustainable”. Also, since it is currently unclear whether any private sector provider will be willing to offer Saving Gateway accounts, concerns about unfair competition would be unlikely to arise with this product.
Conclusion
The Post Office has a valuable role to play in the provision of financial services. Many of the strengths of the Post Office are also the strengths of our members, the building societies and other mutual lenders. Both enjoy high levels of consumer trust and both have a tradition of face-to-face delivery, at the heart of local communities.
The increased competition the Post Office brings is welcome and is in the interests of consumers. But this must be fair competition, and it should concentrate on products and services in areas in which the Post Office is better qualified than its private sector counterparts, such as the POCA and the Saving Gateway.
Moreover, there is a need for the Post Office to be more transparent about the provenance of its product offerings, so as to ensure that consumers do not mistakenly assume that its products are backed by the UK Government, when they are not.
