Banking on POL (Part Two)

I wrote the original part of this blog post some months ago.   Over the weekend the media reported an imminent agreement between High St Banks and POL that would cover the likely closure of bank branches and their replacement by services at a nearby Post Office Branch.

I wonder though if POL have thought this through?   History suggests not.

Consider the problems with this type of arrangement that I highlighted in my original post (below):

  • The financial risk involved to SPMRs/Operators
  • The suitability of the Operator or SPMR to take on this type of work
  • The real possibility that the PO branch closes resulting in loss of service not only of the PO but the bank branches it has replaced
  • Lack of Control over Assistants
  • Reputational Risk to Banks

There is of course an excellent opportunity here for POL but it needs a different strategy.

First of all they must recognise the cost saving to the Bank that closing their branch will provide them with.

They must realise that without a ready replacement in a Post Office, Banks will face real community and media pressure to keep their branches open.

Banks have to accept that currently SPMRs/Operators take the front line financial risk of performing banking transactions and that should be unacceptable to them as their relationship will be with POL and not the individual Post Office.    Banks will need to be able to exercise some individual control over who represents them.

I think the best way to look at a possible solution is to take it on a case by case basis and most certainly not on a generic network wide basis.

So a bank wishes to close one of their branches and advise their customers to use the Post Office instead for basic transactions.

They advise POL of the likely number and type of extra transactions that may be required.  POL check with the branch to see if they want to take on this extra business and if they have the necessary staff and space.   The branch may need a dedicated space or even a fortress position to be able to handle large amounts of cash.   They may also require to take on additional staff.

More importantly, there needs to be some legal documentation, contract etc including service level agreements, warranty and limitation of liability to cover all eventualities – not least the reliability of the Horizon system.

POL then work out a fee for providing the services through their branch to the Bank.   This has to be passed on to the SPMR in such a way to ensure that they receive a suitable proportion of the cost savings of the Bank in compensation for the additional work and risk involved.

This fee structure could be altered as and when other local bank branches close and there should be special mention of the circumstances surrounding the closure of the last bank branch in that location.  This would certainly need to ensure that the SPMR/Operator is compensated to the level that would make their branch viable without income from their retail side.   Surely a bank does not want to be as dependent on the future provision of its services on shop retail income as POL seems to be.

Another problem for the banks and POL to deal with is competitive products.   POL seriously upset the NS&I when they released competing products and in my opinion that was the beginning of the end of that relationship.  POL will need to be more careful with Banks and they may have to put into perspective their long term relationship with Bank Of Ireland.

There is no doubt in my mind that the need for High St bank branches is fading fast.   More and more will close and POL are ideally suited to pick up the pieces.  They just need to make sure they don’t use the existing network to subsidise the huge cost savings these banks will make when passing over their work to POL.

Have a great festive season.


……. Original Post

With High St banks now closing more and more rural branches it has fallen to the Post Office Network to pick up the pieces and provide banking services in the places no longer served by banks themselves.

So the question is, is POL up to it?

It is a multi faceted question so requires several different approaches to answer it in full – I’l give it a try.

The Economics

SGEI = Service of General Economic Interest.   This is a term used to distinguish between services that companies such as POL provide to the general public that the Government ascertains to be of sufficient economic importance they are worthy of subsidy should they not be economical to provide in their own right.   Banking is one such service.

In other posts I will write about the Network Subsidy that POL receives annually from the Government but for the moment let me explain that the PO Network consists of 11500 branches, 3600 of which are deemed to be commercial and require no subsidy while the remainder do not make money for POL.   All Post Office branches provide all of the products listed as being SGEIs including banking (with some restrictions here or there and yes the application of the subsidy rules is slightly more complicated than this)  Therefore the amount of subsidy POL receives for providing banking services could, should and probably is, calculated.

In passing – an interesting anomaly (I think) in the 2009 Report The Social Value of the Post Office Network –  It contains some detail on the value UK Households and SMEs place on having these services available at their local PO.   Total Households attribute a value of between £60m and £280m while total SMEs place a value of NIL!

So POL get subsidised to provide a banking service to the masses and most High St banks have signed up to allow them to do this although it seems some services are now being withdrawn (more on that later.   The banks and the services POL provide on their behalf are published annually in the Post Office Network Report ( The 2015 report seems to have been mysteriously delayed!  Have a look at the 2014 report and you will see what a complicated mess it is – one bank allows this another this, one PO branch can accept deposits over £1000 while another can’t.  With so many periodic changes to the grid of acceptable banks and the transactions they permit even the Reference Sheet POL provide to SPMRs is nearly always out of date.

Back to the Economics.   The Basic Banking Services consist really of Cash Withdrawals using Card, Balance Enquiries, Cash and Cheque Deposits.

Let’s think about cash provision for a moment.  Without a local ATM or other form of Bank, the local community surrounding a Post Office is totally reliant on the Post Office for cash availability on demand (at least during opening hours)  Speaking from experience (I had a fee paying ATM in my shop in the Highlands) folk don’t appreciate the cost of providing this service and demand their cash free of charge;  On the other hand the real source of cash deposits these days are SMEs and they do accept that they have to and do pay to deposit cash.  The provision of cash cannot be underestimated when evaluating its importance to the local community particularly in remote areas.

This cash requirement across the network not only results in the need for a Working Cash Facility (provided by the Government of about £1.5b) but it needs dedicated Cash Centres plus Cash in Transit (CIT) Secure delivery services capable of picking up and delivering cash holdings to and from the 11500 strong branch network.   Obviously there is a cost to this but more importantly without the fixed cost of the CIT delivery mechanism banking services could no longer be maintained at unprofitable branches.  I do not know the current CIT cost for POL but my guess is it is far in excess of the £60m that Households are prepared to pay for it!

Of course POL receive remuneration from the banks for providing this service but I believe (and I might be wrong here) that this is on a transactional basis i.e. they get paid per transaction and not for making the service available.

But the costs don’t stop at CIT – staff training, compliance testing, computer services (and POL management Bonuses 😉 all need to be paid for.

There is no doubt that providing Banking Services through the POL Branch Network is a huge logistical and costly task.

Risk and Reward

Inherent in dealing with such large amounts of cash on a daily basis comes a large amount of risk through robbery (most often of the armed variety), fraud and errors.  While POL do of course own and operate several hundred PO branches for their own account (Crown Offices) the remainder are owned privately.   With that ownership comes the risk.   Under their contracts, owners are responsible for all of the risks associated with operating what is for all intents and purposes a mini-bank.   While POL will retain liability for losses through robbery this is only on condition that strict (and barely practical) security controls are in place.  If an error occurs in processing a transaction – say a cash deposit is entered as £1000 instead of £100 the owner is responsible for the missing £900 unless he can determine what happened and there is no insurance policy that can cover him for this.   Meanwhile his reward for taking the deposit (under the new Mains Model) is a mere 26p per transaction regardless of the amount.

In smaller branches under the Local Model – the owner is even responsible for the provision of cash.  I haven’t actually kept up to date with developments here but the original concept was that Locals would provide much of the cash for the operation of their PO side by using the cash generated by their retail operation.   There are many (too many) reports of these Post Office Locals restricting withdrawals due to cash shortages – clearly as every Bank branch closes the cash requirements for nearby PO Locals increases.

The demise of the fixed proportion of the SPMRs salary has resulted in many PO Locals providing Post Office Services for as little as £1000 per annum – yet these branches must provide staff that are as competent and able as the largest  and busiest in the network.  The staff in these branches must be able to process without mistake each and every banking transaction that the system is capable of processing – on demand.  You cannot run a bank in this manner.   Totally ludicrous.

The transaction payments for most products if accounted for under a time and motion study would surely not meet the minimum wage requirements and that is before you add in the overheads and risk element.


Recent media attention has been on the Horizon system and the accounting practices that have resulted in many SPMRs being jailed (falsely) for the crime of False Accounting.  This is where they declare to POL that they have so much value stock (including cash) in their possession but it is not physically there when the Auditors turn up.   This can’t happen in the new PO Locals as the cash in the till belongs to the operator and not POL.   POL do the accounting themselves and either take or deposit on demand from the operators bank account.  This of course works for POL but unfortunately doesn’t help the local operator who in many cases doesn’t record all retail sales (nudge nudge wink wink) through his till.


Whether it be a Mains, Local or Traditional office, POL have never required of the prospective new owner of a Post Office branch to demonstrate their competence to do so before being appointed.  In this day and age this is truly unbelievable.  You can’t even get to the interview stage for stacking shelves at B&Q without doing an online test yet here are POL appointing what are in effect Bank Branch Managers based on their ability to ask their accountant to draw up a business plan.   This is not a new problem solely relating to the NT project it has being going on for years.  While I respect that the great majority of SPMRs and Operators are indeed more than capable of performing the tasks they are paid for I am sorry for the few who find it impossible to cope and who as a result of their lack of competence lose money as a result.

Authority and Control

So an operator of a post office branch could be described as bank branch manager.  But which bank branch manager does not have a line manager themselves to which they report?   In POLs case the vast majority of offices do not have a directly appointed line manager with which they can correspond freely.   Instead they can only leave a message with the help desk and hope that someone will contact them in due course.  This is a major weakness of the current system enforced no doubt by the cost.

There is also a major weakness in the Horizon system that allows all users to perform all transactions up to the system limit and not to a user defined limit i.e. a trainee should not be allowed to perform a transaction over say £100 without supervisor authorisation.   The ‘branch manager’ then is without the tools necessary to control his staff.


This is getting too long so to end — POL no doubt rely on the fact that they ‘successfully’ provide a banking service throughout the network despite the shortcomings I have pointed out above particularly with the new branch models.   But the strain is beginning to tell.  If more and more High St Bank branches close their doors then it results in greater pressure on the network.   From increased cash provisioning requirements and associated risk to the likelihood of more and more lower paid branches handing in the keys.  The reward for providing banking services is not worth the risk nor the time involved.

And that leads to the underlying concept of the NT model that the retail side of the business is paramount and that the only economic benefit of having a PO Outlet in the store is the footfall and additional retail sales it brings.   As PO footfall declines so does that benefit so ultimately POs will start to be thrown out and one would have to question the business acumen of anyone offering to replace it.

This wouldn’t be one PO Branch closing it would in effect be every High St Bank Branch that it replaced.

The Year in Review and some Predictions

No blog posts for the last couple of weeks as I have been totally immersed in the transcript of the Misra trial.   I have finally completed my review of this and released my report to interested parties and the Criminal Case Review Commission.

So let me have a look at the past year in PO land and express my thoughts on what has transpired and what might happen next year.

Network Transformation

As Liam Byrne, the outgoing Chief Secretary to the Treasury wrote, “There’s no money left”.   In April of this year, POL received the final NT payment taking the total spend by the Goverment on POL over the last 4 year to close to £2b pounds.   In the land of austerity, that is an incredible amount.

NT Started in 2011.   Transform the network they said.  Make it ready for the digital age they boasted.   This is not a closure plan they espoused.    6,000 offices would be converted by March 2015 they declared.    Crown losses would be eliminated they shouted.

Well the facts are all there to see.   Targets were not met but bonuses had to be paid so change the targets.   SPMRs didn’t like what was on offer so they increased the compensation by almost 50%.   Still they failed.   In late 2015 they almost declared a national holiday when the finally reached 5,000 conversions still less than half the network.

With all the money gone and a significant portion of it having to be paid back at some stage according to EU State Subsidy rules, they became desperate Dans and a closure program it became.  SPMRs who didn’t want to realise the capital loss they have incurred on their investment in a PO wanted to stay as they were.  Not so said POL, leave voluntarily or compulsory – doesn’t matter – we need to ring fence the money we need now because Osborne’s not giving any more to us.

There is no more stark reminder of the failure of the NT program than what became of the original vision of moving the network into the digital age.  I know there is new technology in the pipeline but 5 years down the line of NT the Horizon system is still running on antiquated PCs and an operating system that was out of date in 2004.  (Did you know that the technology in the branch is so out of date that it cannot even run Internet Explorer?)

That new technology – brand new PCs – is I believe being leased – no purchase required out of the £2b and I hear, but can’t believe it, that they are sticking with the original Epson receipt printers which were purchased on a 5 year agreement from Epson last CENTURY.

No doubt there are some new operators and even some old SPMRs who have embraced NT and profited from Paula’s ‘vision’ but sadly there are more that have not.    There are now a significant number of ‘stuck’ offices who have nowhere to go with rapidly diminishing income.   NT has failed them completely just as we warned right at the very start.

Those of us who left and received copious amounts of compensation for doing so have done quite well but the fact is we were replaced by operators whose motivation was footfall and increased retail revenue, not with providing PO customers with a better service.   The fact is that in the desperate rush to meet targets, unscrupulous deals were done and the quality of these new operators, as was highlighted in this year’s CAB report, leaves a lot to be desired.

There has to be a parliamentary inquiry into this project.   Those responsible for its failure must be held to account because, understandably there is no more money and the future of the Post Office network will now be decided on that fact alone.

The Horizon Scandal

I have used this blog, hopefully, to lay the foundations of the problem in order that more people can come to realise that it really does exist and affects probably every subpostmaster that has used this system since its inception.  Those at the centre of the JFSA struggle have been affected more than most – losing everything because in their cases large amounts of money were at stake.

I end this year more in awe of Alan Bates and his team than ever before.  I cannot understand how he saw this problem right from the very start and nobody else did.  Years and years of fighting has brought him and others to the point of vindication and I trust restitution in due course.   At the start of the year even I still believed that there were a few of his members that probably were guilty of their original offences.  I end it knowing for certain that that is not the case.   We have all suffered at the hands of POL and there desperate efforts to portray the Horizon system as being robust and reliable.

Of course the media publicity this year on the Horizon case was brilliant and really helped to raise the profile of the JFSA members.  Nick Wallis and Karl Flinders deserve special mention.  I am sure when all this reaches a conclusion, Karl will write the screenplay and Nick will direct the movie.

A special mention must be made also of the Panorama program and the investigative journalism that went on behind the scenes.  It resulted in the Post Office, reaching out, grabbing hold of a shotgun, and blowing their feet to smithereens.

Towards the end of the year, Mr Stephen Mason , who has an interest in Computer related Law, managed to publish the full transcript of the trial of Mrs Misra – who was seen explaining her circumstances on the Panorama program.   I have subsequently reviewed that transcript and reported my findings to the Criminal Case Review Commission.   Here is an extract concerning the rebuttal of the Panorama program by POL.

I would like to refer to a quote from the document published by POL in rebuttal to the BBC Panorama program (

* The Post Office does not prosecute people for making innocent mistakes and never has

* There is no evidence that faults with the computer system caused money to go missing at these Post Office branches

* There is evidence that user actions, including dishonest conduct, were responsible for missing money

If POL were to make good on these assertions then they would have to make sure they investigated the causes of all the losses that occurred at West Byfleet (and of course any of the other branches that resulted in prosecution).

First of all they would have had to investigate the transaction logs over the entire period of Mrs Misra’s tenure at West Byfleet to ensure that common mistakes had not been responsible for the losses. They produced no evidence in court to prove that they had done this. Even then, from new evidence emerging at Oxford, it is clear that even POL cannot track down these errors in the way that experienced sub postmasters can, so they should really have called in an experienced sub postmaster to investigate.

The third line is frankly absurd. “User actions INCLUDING dishonest conduct” suggests that some of the user actions that resulted in losses were not dishonest. “There is evidence” – in the case of Mrs Misra no evidence was submitted that she had committed any crime only a theory. Finally they refer to “missing money” and as I have pointed out user actions can lead to losses that are not the result of physical cash going missing.

The second line is just as absurd and reflects I think on POL’s lack of comprehension on this matter. I hate to be facetious, but computers can do many things but one thing they cannot do is steal physical money. They can, and do, however give rise to discrepancies in the accounts of sub postmasters.


Revelations continued throughout the year as more Horizon errors came to light culminating in the Dalmellington error which I have documented on this blog.   What really gets my goat though is some of the obnoxious replies I have had from a few SPMRs who continue to assert that the Horizon system is perfect because they have never had any losses.   Really?  They would happily pay over £24k because the computer couldn’t possibly have entered those transactions by itself.   Good luck to them.


I don’t really like commenting on this one man show (it was a two man show up until yesterday when Mervyn resigned) but every member of this once proud organisation has been sold down the river.   What price independence?  A merger with the NFRN or the CWU would have provided far more bargaining power than they ever had yet the chance was spurned in favour of a package from POL that only one person stood to benefit from (well two up until yesterday).


So what will 2016 bring.  It is clear that the JFSA saga will reach the end game.   The CCRC are currently reviewing other cases that involve criminal convictions and I am certain that Mrs Misra’s case will be returned to the Appeal Court and her conviction overturned.   That case alone will have severe repercussions on POL management and I expect many heads to roll.  What Tim Parker brings to the table as the new Chairman remains to be seen but if it is a brush then I hope it is associated with a door not a carpet.

A clear out of POL management will also have repercussions on the arrangement with the NFSP – that would not be able to continue with the management of the NFSP so closely tied to the failings of POL through NT and the Horizon scandal.  What replaces it I do not know but whatever transpires it can only be a better arrangement for the protection of the Subpostmaster community.

The future of POL will be questioned.   A new ‘vision’ will be required.   I suspect that past mistakes such as the separation of POL from RMG will be revisited to see if there is another way forward in which both organisations can work together.  One thing is for sure though, in its present shape and size, with the current management team and the prospect of no further Government investment into the network, POL cannot survive.

Seasons greetings to all of those of you who have read this far.   A prosperous New Year?  I do wish it for you but it may take longer to get there if you still own a PO.