Having sold its banking arm 10 years ago, the UK Post Office has engaged in a joint venture to offer a whole range of financial services products to the UK market, Parveen Bansal reports.

With more than 27 million customers visiting its network of Post Office branches each week, and 98% of the UK population said to visit one at least once a year, Post Office Financial Services (POFS) has a massive potential market. Speaking with Jonathan Hewett, head of sales for Post Office Ltd, and Mike Smith, head of marketing at POFS, it is clear that the new financial services operation has purpose and ambition.

Having sold its original banking organisation, Girobank, to Alliance & Leicester, the Post Office has, after roughly 10 years, re-evaluated the market in 2002 and launched POFS, a 50:50 joint venture between Post Office Ltd and Bank of Ireland.

“We went through a fairly intense selection process and chose Bank of Ireland because of the cultural synergies, and because they had the best commercial offer,” says Mr Hewett.

Mr Smith agrees, emphasising the absolute strategic alignment between the two organisations, unlike the defensive stance that might have been taken by any of the larger UK commercial retail banks entering such a partnership.

For Bank of Ireland the joint venture offers the opportunity for it to gain further share of the lucrative UK market. According to Mr Smith, the joint venture was necessary for the Post Office to get fast access to the skills and experience required to embark on such an ambitious project.

Under the joint venture agreement, POFS is in charge of designing the products, Bank of Ireland is then responsible for manufacturing or sourcing the products and using its own back-office systems to process the transactions, while Post Office Ltd manages the marketing and promotion of the products. For example, Bank of Ireland has sourced the car insurance product from a specialist direct car insurance provider. “We feel that we have an advantage in terms of personalising these products versus direct operators,” says Mr Smith.

Creating a storm

With the pedigree of the Post Office positioned as the largest independent vendor of travel insurance, and the number one provider of foreign exchange in the UK, POFS aims to create a storm in the UK market, rocking the boat of the somewhat complacent UK retail banking industry.

Mr Hewett says: “The nature of the business within Post Office branches is changing from basic (government) benefits-based transactions to more diverse transactions.”

This is evidenced by the introduction of the Post Office benefits account for the unbanked population so that the government could directly pay in the benefits to the individual’s account. However, the benefits account is not a POFS product. “Also, there is a clear mandate from the government to make the otherwise loss-making business profitable,” he says.

Ambitious product launch

POFS has embarked on an admittedly ambitious launch programme. “Possibly the most ambitious financial services roll-out ever undertaken in the UK,” says Mr Smith. The first product, personal loans, was launched in March this year, only three months after the joint venture agreement was signed between the two parties. In July, POFS expects to launch car insurance, while home insurance and some of the savings product range are slated for launch in the autumn, followed in spring next year with a POFS credit card.

“The rapid launch of products is important to get the necessary product range and revenue in order to align with the business ambition,” says Mr Smith. According to Mr Hewett the rapid launch is necessary in order to “try and grow the reputation of the Post Office as a financial services provider – and the sooner we can do that, the better”. He adds: “We need to generate success before we can reinvest in the business.”

Branch support

The vigorous launch programme is being supported by extensive training of people working on counters and in sales – shifting from purely transaction handling to a selling business approach. Staff and sub-postmasters are being trained in how to use a “simple yet focused conversational programme to be able to learn of the customer’s needs and how to cross-sell a product and close a sale”. So far, 10,000 of the 66,000 people working in branches, including a large number of sub-postmasters, have been trained. Mr Hewett says: “For the sub-postmasters, this joint venture has been somewhat of a process of reinvention and many have taken the opportunity to get trained to offer these new products and services.”

Sub-postmasters are basically franchisees, and in a sense are the key to success in POFS’s game. Mr Smith says: “The sub-postmasters tend to have a relationship with their local area customers because they know and see them regularly. No direct financial services organisation can ever have this close relationship and most banks don’t have this relationship or the footfall in their branches to establish such a rapport.”

Mr Hewett explains: “We have introduced a +1 incentive and recognition programme for our people to support and encourage a dynamic sales culture within the network.

“We are working hard at customer segmentation so that we can target delivery of all products – as we have a very broad potential market. And we have the mass market distribution capability,” he says.

“The Post Office is one of the most trusted brands in the high street,” says Mr Smith. This together with the brand recognition should help propel POFS in its stance as a provider of financial services in the UK market. Indeed, no bank’s retail network can hope to compare with that of the Post Office which boasts a network of 16,000 branches (more than the total number of branches of all the banks and building societies in the UK), of which they only own and manage 550, the rest are either owned by larger supermarkets or chain stores, or owned and managed by sub-postmasters. Through this network, 49 million transactions are completed each week.

No frills

Clearly POFS is after the volume business that no other single bank has access to and, as both Mr Smith and Mr Hewett point out, they are out to do it differently. However, Mr Smith is keen to clarify that POFS is not a bank as it does not offer a current account (although it is regulated under Bank of Ireland’s UK operations by the FSA).

“Our target is to make customers aware of the Post Office as a no-frills provider of a whole range of financial services products,” says Mr Smith. “We are positioning ourselves very differently compared to the other commercial banks, we are offering simple to understand, convenient to access, good value products with no hidden catches.”

He offers the example of how most of the large commercial banks tend to include the payment protection insurance when calculating the interest on a personal loan, which is wholly unfair to the customer. “Also, we have no early repayment penalty,” he says.

Mr Hewett explains: “We don’t have risk-based pricing – it’s the same product for all.” He says the large banks are focused on maximising shareholder value and are only paying lip-service to their customers.

In a challenge to the other UK retail banks and financial services providers, Mr Smith says: “Beware, there is now a new kind of provider on the high-street looking to provide break-through simple products.”

POFS is in a good position to replace the personal relationship that banks used to have with their customers – and are trying hard to regain. The biggest challenge for POFS, according to Mr Hewett, is one of consistency across the network.

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