Bank closures a boon for post offices
THE BOTTOM LINE:THE NEED for Irish banks to slash costs and the resulting demise of the traditional bank branch has created opportunities for An Post to take on more business at 1,147 post offices.
The opportunities also show the potential for an Irish postbank – similar to the working models in Germany, Italy and Belgium – and the dreadful timing of An Post’s Postbank, the joint venture with Benelux bank Fortis that was taken down by the global financial crisis.
Both State-controlled Allied Irish Banks and Danish-owned National Irish Bank are using arrangements with An Post to conduct lower-value banking transactions through post offices rather than high-cost branches.
AIB is closing 67 – or one in four – branches, while NIB is closing all 27 of its branches in the Republic. An Post’s arrangement with AIB dates back a decade, while the deal with NIB is only two years old.
Both banks are looking to greater use of technology including phone apps, internet banking and online video to deal with customers that will generate cost savings.
This will only add further pressure on branches. As more and more products are sold over the internet, the cost of supporting a branch network will become harder to justify as sales volumes through branches decline.
Bank of Ireland is taking a different approach. Chief executive Richie Boucher said last week the bank has no plans to close branches as it was “very hard” to sell investments, mortgages and products to small and medium-sized business over the internet.
But the bank still sees merit in a tie-up with a network of post offices. Bank of Ireland’s joint venture with the Royal Mail in the UK has proven highly lucrative for the bank.
Deposits collected through 11,500 UK post offices rose 44 per cent to £16 billion (€20 billion) at the end of last year and the joint venture was extended by three years to 2023 in a deal announced earlier this month.
Boucher said that 25 million people visit a post office in the UK every week, a mouth-watering figure for any struggling banker looking for footfall to raise more deposits and sell more loans.
About 1.8 million customers use an Irish post office every week. For An Post, offering new products and services makes sense as 1,090 of its outlets are run by contractors who make more money based on the number of products they sell and services they offer.
The days of buying just stamps at a post office counter are long gone. You can pay a bill, lodge a cheque, sign up for a life and pensions product (through a post office where a former Aviva branch staff member now works), buy a mobile phone or birthday gift voucher, and even pay for a gun licence.
An Post is continuing to look at new banking-related products. It is planning to extend the sale of US dollars and sterling by offering a new foreign exchange debit card.
The loss of confidence in the Irish banks as the financial crisis deepened over the past five years prompted many concerned depositors to lodge cash in their local post offices.
The post office where the resident postmaster or postmistress is more often than not a familiar face locally was seen as a safe sanctuary during the banking run of 2008.
This brought in a windfall. The sale of State savings products through An Post has also helped increased deposits at post offices.
An Post savings are not counted in the Central Bank household deposit figures but if they were, they would have represented an estimated 6 per cent of the deposits in 2007, or about €4 billion. This increased to 13 per cent or in excess of €12 billion last year.
It is impossible to quantify how much of this relates to the public trust in a community post office but it has certainly been a factor.
An Post ranked highly in the Reptrak survey of most trusted brands by the PR firm Corporate Reputations and international consultancy Reputation Institute in May, in stark contrast to the distrusted Irish banks.
The troika-blessed push to encourage unbanked customers to open accounts may create further opportunities for post offices. Almost 17 per cent of Irish households didn’t have a current account in 2008; only Italy and Greece scored worse out of the EU15 countries. The failed entry of Bank of Scotland (Ireland) into retail banking through Halifax showed the high cost and risk of setting up a high-street bank, even in an economic boom.
For that reason, and particularly after Postbank, An Post is unlikely to become a standalone player in banking in the near term but offering profitable services for the slimming banks will offset losses on declining postal services. In a crisis comes opportunity.