Last week the Social Market Foundation published a report entitled “Balancing Bricks & Click: Understanding how consumers manage their money”. (http://www.smf.co.uk/wp-content/uploads/2016/01/Social-Market-Foundation-Balancing-Bricks-and-Clicks-Understanding-how-consumers-manage-their-money-FINAL-Embargoed-0001-280116.pdf)
This report was sponsored, unsurprisingly, by Post Office Ltd, keen to show that they are best placed to take advantage of further expected closures of High St and Rural bank branches.
As we know, I am a critic of POL management therefore it will be no surprise to learn I have a few comments to make on the findings and conclusions of this report.
First of all, while the report does mention from time to time to age related statistics, it goes into no detail of the underlying data nor examines any age related trends in the use of face to face banking. And that is not surprising because often with POL related research material and self promoting publications it is not what is said it is what is not said that is most relevant.
You don’t need to do any market research to know that for the last 20 years or so, computer technology has been taught at all our schools and further education institutions. Computer literacy is growing to the point that eventually 100% of our population will be accustomed to using IT in their daily lives as a matter of course. The oldest person in the UK with an excuse not to have been exposed to computer technology is now in their mid thirties and has only thirty or so years to go before they retire.
That fact is of course linked to another trend that is slowly beginning to appear – and a trend most likely to dominate how customers interact with technology over the coming years – and that is that businesses, including some utility companies – are now insisting that bills are paid electronically. They offer no choice to pay cash, cheque or debit card over a counter.
There is no better example of this than the Government’s very own Universal Credit who are insistent – to the detriment of POL and their POCA card – that beneficiaries of UC utilize direct debits for bill payments and such like.
So personally I would not bank on a continued supply of customers keen to use Bank or Post Office branches simply because they are not computer literate. That is a rapidly declining market and will reach zero sooner than any of us imagine.
Technology will Advance
This research looks at what banking may look like in 2020 just a mere 4 years away. That is too short a period in my opinion. Banks, even POL for that matter, already have a fair idea what their offering will be in 2020 as strategy, planning and budgets all have to be submitted this early for implementation across the network 4 years hence. That is why we study history, so we can compare what existed say 10 years ago to today’s technological environment in order to project what is likely to be in place in ten year’s time. It is after all only 8 years since Barclaycard introduced the UK to contactless payment cards.
Better minds than me will be able to project the future of technology in retail banking but I submit that much of what the research in the SMF report concludes is likely to happen in 2020 is shortsighted.
Where does the Post Office fit in to all of this?
I have just spent much of my weekend looking at the closure program recently announced by POL of many of their Crown Offices. Trying to evaluate that in terms of their strategy to focus on Financial Products as their major source of income growth in the future is relevant to the conclusions of this report. The SMF report, and other Government reports, suggest that the Post Office network is ideally positioned to take up the space in the market vacated by High St bank branches closing. What could be further from the truth?
First of all the Crown Post Office network is pretty much doomed. The only reason they have survived so long is through Government subsidy. The costs involved in operating a Crown Post Office in the High St are exacerbated by the type of premises they occupy. Huge monoliths with unbelievably high rentals. It is my impression that the current round of closures has been brought about by the end of the leases on these properties and no other reason. More closures will be announced I assume when the leases on the premises they occupy come up for renewal.
That leaves the rest of the network, privately owned, to take on the additional banking work, and to continue to promote POL’s financial products. Sadly though the ability of the network to do that has been decimated by the Network Transformation program. Several thousand Post Office branches have now been modernized. The Post Office counters moved to open plan and within a larger retail unit. The Post Office is a small, insignificant part of these businesses now with counter assistants paid the minimum wage and POL have no control over their employment and therefore their ability to service these new banking customers. Add to that bundle is the ridiculously low transaction fees that are paid to Post Office franchisees for handling banking transactions and you can see the problems that lie ahead.
Of course I am critical of POL on many matters but I believe that there are ways around these problems. I want POL to succeed not fail. I wrote recently to Mr Kennett with a suggestion but of course it was not acknowledged. It was a simple suggestion that providing replacement banking services for High St Banks closing their branches should not be done on a network basis but rather on an individual case by case basis. After all High St banks are closing for the very same reason Crown Offices are closing and that is the high rentals involved, staff costs as well as rates. I heard recently of one small bank branch closing where the rental was £100k per annum and the rates bill was £30k! The expected increase in income to the local PO taking on increased banking work was about £1k per annum!!
Get Used to It
There is one very pertinent point raised in the SMF research – they find that Older Scottish Men tend to do everything on line these days! A category I belong to and I can understand why having lived in Rural Scotland for so long. I have been with the Bank of Scotland for Decades. My business banking branch is in Inverness. The only time I ever visited it was when I opened the account. I just have never needed it – all communication with them over time has been by phone or email. So when a branch closes down – that’s it. People get used to the fact pretty quickly and come up with alternatives – and I don’t mean the Post Office. When the Local Bank of Scotland branch in Duns closed last year on Tuesdays and Thursdays our retail sales slid on those days as well. They didn’t increase on the other days the bank was still open. For many banks, a High St presence is merely retained for marketing purposes. Closing them leads to a public outcry but try revisiting the streets where they have disappeared from a year on, and you will find no one cares or remembers.