Do you need cash today? If you visit the post office now, chances are the cashier will ask you that question before you leave, no matter what task you’re doing, from renewing a passport to shipping a package.
Many Post Office customers may not realize it, but the former institution is on its way to becoming the UK’s largest banking network, with more than 11,500 branches.
In fact, the former institution has moved so far from its traditional letter-and-package delivery roots that most of its revenue now comes from financial services.
This fact is not lost on our readers, who have emailed to ask why staff at the local post office have asked every customer if they want cash, regardless of the reason they visited the branch in the first place.
Changing with the times: The Post Office has expanded into other areas, such as banking, in part because it is not earning as much from its traditional roots of sending letters and packages.
So why is the Post Office so important in the banking sector and what does it all mean for customers and the Post Office itself?
If we turn the clock back 30 years, postal banking was not even a speck on the horizon.
People banked at physical branches of banks or building societies, or by telephone, since online banking had not been invented either.
Then came a wave of major bank branch closures. In the late 1980s there were almost 15,000 physical bank branches in the UK.
That number has dropped to about 6,300, of which 6,000 closed in the last nine years.
Enter Correos, which began offering banking services in its branches in 2017.
Today, the Post Office says it has “more branches than all the banks and building societies combined”.
The Post Office is paid by the major banks themselves to provide banking services, under an agreement called the Banking Framework, which is now in its third edition and will run until the end of 2025.
The Post Office is quick to point out that its banking services provide a social good, as big banks are closing many branches.
Earlier this month, Post Office banking director Ross Borkett said: ‘Millions of people continue to come to our branches every week as they are often the only place where people can do their daily banking in the time that is most convenient for them.
“Postmasters keep their branches open long hours and customers appreciate being able to bank safely while being served by a friendly and knowledgeable postmaster.”
A Post Office spokesperson told us: ‘Our partnership with 30 banks and building societies ensures no one reliant on cash is left behind, made possible by our postmasters in almost every community in the country.
“This is even more important following the introduction of cash access legislation and further highlights the vital role that postmasters play today and in the future in helping customers access their cash.”
It cannot be denied that postal banking plays an important social role.
Myron Jobson, senior personal finance analyst at Interactive Investor, says: ‘The Post Office has become a cornerstone of community banking in the UK, stepping in to provide critical services where high street banks have retreated.
‘With over 11,500 branches, the Post Office serves those who would otherwise struggle to access banking services, which could include older people, disabled people and people without internet access who are unable to use digital banking solutions.
“This is also especially important in rural and remote areas where banking options are increasingly scarce.”
But the Post Office not only offers banking services out of a sense of social obligation, but for them it is a source of income.
The Banking Framework provides for banks to pay the Post Office for every banking transaction a customer makes at one of their branches, although exactly how much they pay is a closely guarded secret.
But the Post Office’s latest accounts reveal it made £263m in revenue from banking in 2023, up from £230m in 2022.
Senior executives at Correos also receive bonuses that depend, among other things, on the amount of banking income the company generates.
Achieving the Post Office’s banking income targets is 10 per cent of the 2022/23 short-term incentive bonus scheme which the Post Office manages for its chief executive, Nick Read, and its chief financial officer, Alisdair Cameron.
Individual postmasters, who run post offices, also receive payment per bank transaction, but are free to promote this service or not, as they see fit.
Last year, the Post Office increased bank remuneration for postmasters by 20 per cent, in addition to doubling pay in August 2022.
Correos has three main business areas:
- Postal, retail and government services (sending letters and packages, selling products such as envelopes and stationery, and helping people access benefits and other government needs)
- Banking, payment and transactional services (such as postal banking and ATM services)
- Financial services, identity and insurance services (such as sales of insurance and savings and provision of passports and driving licenses)
Banking and financial services are Correos’ two main growth areas, according to its latest financial results.
The Post Office earned £310 million from mail, retail and government services in 2023, £46 million less than the previous year, partly because people sent fewer letters.
While a door closes: post offices occupy the empty space left by the closure of bank branches
But it earned £379m in banking and payments (up £50m) and £126m from financial services (up £44m).
Only 41 percent of the Post Office’s revenue in 2023 came from mail and other “traditional” areas, and 57 percent came from banking and financial services.
In other words, the Post Office has to continue sending letters and packages, but that is not where the money is.
It is not surprising then that the Post Office’s most recent financial accounts point to banking as a major growth area for the venerable institution.
Post Office chairman Henry Staunton said in the company’s 2022/23 annual report: “There are also reasons to be optimistic.
“We are identifying new opportunities, especially in mail, banking and digital identity and, as long as we are as committed to our future as we are to resolving our past, I firmly believe the business can point to a better future.”
The main problem with postal banking is that it only offers a fraction of the services that customers can get at a major bank.
Customers can only do four things when banking at a Post Office: pay with cash, withdraw cash, pay with checks and check their balance.
Even that limited menu of options is further restricted depending on your bank.
For example, while Virgin Money customers can do all four options, Nationwide customers can only do two – withdraw cash and check their balance – although the building society has expressed its view of keeping its branches open.
For anything else, such as opening a checking account or solving a problem, customers have to go to one of the increasingly fewer physical bank branches or resort to the telephone or the Internet.
But even that may change in the future.
The CEO of the Post Office, Nick Read, has stressed that Post Office banking will only grow.
Read said: ‘Following a more than three-year campaign which we are proud to have led from the front, the government has now legislated to protect free-to-use cash services for people and businesses across the country.
“That guarantee should cement our branches’ position as one of the main channels to access cash services in the long term, especially as we look forward to the negotiation of Banking Framework 4 which will come into force in January 2026.”
The Post Office could even offer more loans in its branches.
Staunton said: “The Post Office’s new financial services partnership with Bank (of Ireland) focuses on savings but will also, for the first time, allow the Post Office to strike new deals in the future with other financial providers. , particularly with regards to personal loans.’
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