Post offices have progressed from merely serving the unbanked in developing countries to becoming serious contenders in the financial services stakes. Wendy Atkins reports.

Post office-based financial services play a major role in bringing poorer members of society into the formal economy. But they offer much more than the chance to normalise the economies of the developing world. Many of today’s post offices, aware of their eroding market positions, are teaming up with major finance providers to provide an alternative to traditional High Street banks. In some markets they are becoming a formidable force, with an expanding product portfolio that includes mortgages and loans in addition to traditional banking and savings services.

According to the Universal Postal Union (UPU), around two-thirds of the world’s postal organisations provide postal financial services, through a network of more than 660,000 outlets handling 10 billion transactions each year.

Significant revenues

While many post office bank outlets do not have the glossy, corporate branding of their High Street counterparts, their importance to the post office system should not be underestimated. According to the UPU, financial services can generate as much as 50% of a country’s postal revenue.

However, in some emerging markets, their importance is even greater, as Edouard Dayan, director general of the UPU, points out: “All north African countries are particularly strong on post office financial services. Of note is Algeria, which gets 90% of its post office revenue through financial services.”

Changing business models

Banking services are also becoming an important part of postal organisations’ business models. A UPU spokesperson says: “Faced with the liberalisation of the postal market and increased competition on all fronts, governments are adopting growth models better adapted to the postal administrations in which they generally have a financial stake.

The Japanese Post is expected to be completely privatised in 2007, and the Danish Post has seen 22% of its shares go to an investment company with which it has also formed a strategic alliance aimed at managing part of the Belgian Post’s operations. Germany’s postal service is now listed on the stock exchange, as is the Dutch Post, which has been a private enterprise for some time now. Investors are showing a growing interest in the postal sector, where new technologies and sound management structures have helped to improve both financial results and customer satisfaction.”

In Europe, the momentum towards forming partnerships with financial services companies is building. Dutch-Belgian financial services group Fortis has signed a memorandum of understanding with An Post, the Irish post office, to create a joint venture with the aim of providing financial services in Ireland through the 1450-strong post office network.

The final agreement has not yet been signed, so neither party is able to comment in any detail on what may be offered. However, Fortis has said that the venture is part of an overall strategy to expand into growth markets. Jos Clijsters, CEO of Fortis retail banking, says: “An Post is a well-known brand with a large network, a dynamic management and a customer-oriented organisation. We’re confident that we can jointly strengthen the offer, increasing the choice of bank and insurance products for the Irish customer.”

It is believed that the joint venture will be similar to the one that Fortis has with the Belgian post office bank, Banque de la Poste – an arrangement dating back more than 10 years (see below).

Customer base expands

In Germany, Postbank, the banking arm of Deutsche Post has reported good results for 2005. Its record earnings for the year were driven by above-expected customer recruitment and a significant rise in contributions to its pensions offerings. Its pre-tax earnings were €719m, up 11% on 2004. Its net income improved by 13% to €492m – an increase it attributes to an expanding customer base and steady costs.

The organisation reported that its financial performance was in line with industry expectations, but it exceeded its own customer acquisition target for the year by 100,000. Furthermore, its retail banking division was aided by a dramatic increase in the take-up of its Reister pension scheme, for which new business grew by 270% in 2005. The bank’s overall savings division increased its market share by 0.2% to 5.3% with a total volume of €42bn.

While post office banks in Europe are getting on with the business of developing marketing structures, segmenting customers, creating corporate profiles and attracting investors, postal organisations in the developing world must continue to create services that empower individuals and boost local economies, while remaining competitive.

Helping economies

“In Africa, only 5% of the population has access to financial services, which is a weakness for African economies. So the growth of financial services through the post office network could help the growth of the continent’s economy,” says UPU’s Mr Dayan.

“Postal services in all countries are not yet equally business-orientated. In developing countries, there is a challenge to orientate money towards areas that could help build a country’s economy. For example, micro credit is a hot topic. The UPU is currently developing ideas with the World Bank and regional development banks to address this challenge.”

Like operators in many emerging markets, South Africa’s post office banking service, Postbank, is facing increasing challenges from competitors in the mainstream banking industry. Initiatives aimed at encouraging ‘black economic empowerment’ include the Financial Sector Charter, which has targets for improving access to banking and financial services through simple insurance, savings and deposit products, as well as low-cost loans for housing, agricultural development and for black small and medium-sized enterprises.

Traditionally served by Postbank, these marginalised groups now have a choice of simple banking products (often known as Mzansi accounts) from all the major retail banks, delivered through channels as diverse as ATMs, bricks-and-mortar buildings and mobile banks.

A spokesperson for the post office says: “We’re seeing other banks going into rural areas, putting up structures and trying to lower barriers to entry. Banks are going after our clientele, so we have to offer better products. We still have the advantage of maintaining a reputation for low-cost products and high quality of service…and we have more outlets than all the banks combined [2600 outlets throughout the country], but this does not mean we are resting on our laurels.”

Boosting outlets

South Africa’s Postbank has a postal outlet for every 50,000 people but says it aims to have one outlet for every 10,000 people. It says it is on target to achieve its goal of establishing 55 new outlets this year.

Despite the pressure from new market entrants, Postbank’s customer base has improved from two million to 3.4 million over the past year. The growth in the number of customers increased assets to more than R2bn ($288bn), a 13% improvement on the previous year.

“We realise that we have an integral role to play in the economy and, as such, we will do all we can to stay ahead in the race for Mzansi accounts,” says Khutso Mampuele, Group CEO of the South African Post Office, of which Postbank is a subsidiary. Postbank continues to be the main provider of Mzansi products, with a 40% share of the market for Mzansi accounts, according to statistics from The Banking Association South Africa (the representative body for domestic and foreign banks in the country).

High-tech efficiency

Technology is also playing a part in Postbank’s offerings. It has conducted a pilot using smart cards and biometric fingerprint technology for pension payments in the north of South Africa. And in May 2006, in conjunction with Visa International, it began replacing its existing ATM cards with Visa Electron cards. “For a rapidly developing and progressive economy like South Africa, efficient payment systems are vital for economic modernisation and growth,” says Rob Clark, general manager and senior vice-president, sub-Saharan Africa at Visa CEMEA.

“We are looking forward to attracting more customers and bringing card payments to everyone, wherever they live and whatever the challenges,” says Totsie Memela-Khambula, managing director of Postbank.

There are many reasons for operators of post office financial services to be optimistic: they have enviable images; positive brand and price perceptions; plenty of opportunities to sell; and an established branch network. However, they do face significant pressures: strong competition; outdated branch equipment; a shortage of skills; a decreasing number of postal branch visitors; and greater competition from new market entrants. Postal organisations are aware of these challenges and are establishing partnerships with major names to ensure they remain relevant for the 21st century. It looks as if the battle has only just started.

BELGIUM'S JOINT VENTURE MODEL

Banque de la Poste, also known as Bank van De Post (BPO), was established as a 50/50 joint venture between Générale de Banque (now Fortis Bank) and Royale Belge (now AXA) in 1995. The same year, a savings account was launched. Between 1996 and 1998, the range of products grew to include cash bonds, credit cards and government bonds.

The move towards a more corporate approach became evident in December 2002 when Banque de la Poste repositioned itself from pull to push marketing. Internet banking was launched in 2003/2004.

Also in 2004, the co-operation with AXA ended and a new convention was established between BPO and Fortis for the insurance market. In October 2005, mortgage loans were introduced.

At the end of 2005, BPO had 1.2 million customers; 882,616 Postcheque current accounts; 93,000 people enrolled in internet banking; 560,600 debit cards; 70,200 MasterCard credit cards; 616,932 savings accounts. It was ranked ninth in Belgium with a 2.5% market share of assets in savings accounts.

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