Post office organisations are the ultimate hybrid businesses, combining retail and financial services. With an enviable branch and logistics network at the heart of many communities, financial services via the post office are undergoing a reboot. But this is not without growing pains…
The internet was a hammer blow to post office organisations. It enabled e-mail, which hit the core letter business. But at the same time, it enabled e-commerce, which boosted the parcel business. Post offices had to adapt — and quickly. They faced competition from flexible new entrants, targeting their most profitable lines of business. They had to modernise.
FAMILIAR AND TRUSTED
Post offices have a familiar brand and trusted reputation established over decades. They deliver daily to the door for the price of stamp, so have a relationship with every household nationwide. They also have an unrivalled branch network. 99.7 percent of the UK population, for example, lives within three miles (4.8 km) of a post office.
Post offices have capitalised on these strengths. They have diversified, developing creative, new propositions and partnerships. For example, Swiss Post offers delivery and installation of household goods, next-day cargo delivery for companies, and an intercity bus service. In France, the postie now makes regular home visits to elderly relatives as part of the ‘watch over my parents’ service.
Postal organisations have also expanded into government services, offering a range of passport, driving licence and visa services. Many provide identity-related services for banking, government and private sector partners. Post offices are evolving their financial services proposition and leveraging distribution agreements with financial providers to offer a full range of services.
ROOT AND BRANCH
“Postal organisations have two advantages compared to traditional banks. They have the presence in the community due to their service obligations, and they have people in the branch,” says Philippe Groddeck, EU postal sales leader, Glory Global Solutions.
Post offices that offer financial services are in a strong position – on paper at least. One-in-five Austrians has a financial relationship with the post office, according to BAWAG PSK, the financial services arm of the Austrian Post. Meanwhile Postbank, now owned by Deutsche Bank, boasts on its website of being the largest financial services provider in Germany with total assets of €147 billion.
The branch network will continue to be critical to the future success of the post office and its financial services offering. “Unlike banks, post offices are not seeing the same migration of customers to online self-service channels,” says Francesco Burelli, managing director, Accenture Payment Services. “This gives the post office more resilience in terms of holding on to their branch franchises.”
In the UK, the post office has become the de facto community bank. Nearly all personal and three-quarters of business customers can now do their day-to-day banking at 11,600 post offices nationwide. This follows a deal between the UK Post Office and banks, described by the UK business minister as the biggest expansion in branch banking in a generation. The tie-up comes amid increasing bank branch closures. More than 1,000 bank branches have been axed across the UK in the last two years, according to consumer association Which?
This community presence and appeal will enable post offices to offer a valid alternative to customers. Either because they prefer an alternative provider to banks. Or because they value the convenience of a local, face-to-face service, Burelli maintains.
In emerging economies, the context is somewhat different. The post office is often a key channel for the provision of government subsidies and for basic financial services. With the increasing drive to migrate paper disbursements to electronic solutions, the post office is still well-positioned. Its network and perceived friendly brand positioning among financially under-served demographics continues to make it a valuable partner.
A DOUBLE-EDGED SWORD
“The major challenge for post offices is to optimise their branch network, balancing cost optimisation, utilisation and geographical reach,” says Burelli. However, an extensive branch network and high footfall can be a double-edged sword.
BAWAG PSK operates a 410-strong branch network through the Austrian Post. There is footfall of around 50 million per year. However, 90 percent of people are not financial services customers. They come in for postal services, said Markus Gremmel, head of marketing and products, BAWAG PSK, speaking at the RBR Branch Transformation Conference 2016.
Some Austrian post offices have a financial advisor in-branch. BAWAG PSK also retains advisors to sell into large companies via their historic trade union link. However, they mainly use post office staff to sell financial products. Naturally, this impacts how the products are designed. They have to be simple enough for non-financial staff to sell, hence the development of propositions in a box.
The KontoBox (account box) comes in various sizes (small, medium, large etc.) depending on the customer’s expected transaction volume. Savings, loan and card propositions are also presented and sold in similar boxes. This makes them easy to explain and understand face-to-face, but also in a self-service environment via the BAWAG PSK website.
OPPORTUNITIES AND CHALLENGES
“It’s important for postal organisations to enhance their income by extending and expanding into the payments area,” maintains Michel Stuijt, CEO of Eurogiro, a membership association for the postal, banking and wider financial community. “Most of the post banks and savings banks still have very limited licences, meaning that they can do pensions and accept deposits into savings accounts. Some can initiate transfers, namely remittances, postal orders or post cheques.”
There are opportunities for post offices in e-commerce, which go beyond their core logistics business. “If you really want to be a player in e-commerce, you have to engage in the payment and check-out part — that’s the strategic objective,” Stuijt contends.
Many post office organisations also engage in card-related activities as both issuers and acquirers. The interchange fee regulation that came into effect across Europe in June 2015 has impacted post offices as card acceptors, particularly after fee caps were removed.
For example, in the UK where Visa dominates the debit card market, immediate debit interchange rates have moved from a fixed per transaction fee (typically £0.08) to an ad valorem rate of 0.02 percent. More than 90 percent of card turnover at UK Post Office counters is debit. With a full range of savings, insurance and bill payments, including HMRC income tax payments averaging around £5,000, the UK Post Office has seen its interchange bill soar.
To capitalise on opportunities, post office organisations must become more entrepreneurial. “They need to speed up decision-making and attract people who have experience in financial services,” suggests Stuijt. Many are still governmental institutions and the decision-making structure is very slow, Stuijt feels.
For Groddeck at Glory Global Solutions, the number of different post office stakeholders involved impacts the sales and implementation cycle. “The biggest challenge in a postal organisation is if you want to change processes, because it has an impact on employees and different stakeholders. A lot of these stakeholders simply do not want to or are reluctant to change processes, particularly if they are afraid of losing their jobs.”
Winning solutions combine financial, retail and postal services, according to Groddeck. For example, self-service checkout terminals, which combine retail sales with scales for weighing mail and stamp printing. As to further tips for partnering with postal organisations, Groddeck advises being a reliable and flexible partner. Credibility and a track record are naturally also important. “You need to have patience and provide best practice. They need to see that this solution has already been delivered in other countries,” he says.
There is no institution quite like the post office. In terms of service, reach and standing in the community, it is unique. Post offices also differ one from another. However, all face the same digital transformation challenge and the same stark choice.
“My message in many of the presentations that I’ve given to C-level and financial people is: don’t sit back. Act – and do it now,” says Stuijt of Eurogiro. “Don’t think that third parties will step in or the state will save you when things go wrong. If you really want to bank on the gold that you are sitting on, do something and do it now.”