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Last updated: April 10, 2013 11:56 pm
Britain’s high street banks are set to face a new competitor – and one with no shortage of trust or well-located outlets. The Post Office announced on Wednesday night it is to offer current accounts in its nearly 12,000 branches across the UK.
The move will greatly expand the Post Office’s presence in financial services, on top of its existing reputation as a trusted savings provider, with holdings of £17bn. Its entry into the current account market will increase pressure on established lenders given the sheer size of its high street network. Aiming to offer the service in all its 11,800 outlets by 2014, the Post Office is set to become the largest current account provider in the UK by branch size.
The fallout from the financial crisis has spurred a proliferation of new market entrants attempting to take on the biggest lenders including RBS and Barclays, which have also been undermined by a series of mis-selling scandals. Ministers have encouraged greater competition in this area, and will introduce new rules this September to make it easier for customers to switch from one account to another.
Marks and Spencer launched its banking services, including fee-charging current accounts, in summer 2012, and London-based Metro Bank, which promises a return to traditional banking, opened its doors in 2010. Virgin Money and Tesco are currently planning their current account products.
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In joining this market, the Post Office has the potential to reach 20m customers who visit a post office branch each week. The move comes as the 370-year-old high street network is undergoing a £1.34bn modernisation programme intended to halt the decline in customer numbers in recent years.
The number of people using Post Office branches has fallen by nearly a third in the past decade, following the closure of more than 6,500 branches since the year 2000.
Around half of the remaining branch network is due to be refurbished and will offer extended opening hours to customers. Small branches which operate in the same premises as another retail business, such as a newsagent or village shop, may have traditional counters replaced with service at the checkout.
Recent efforts to increase the services available in post offices have included a pilot scheme to provide mortgage specialists, which has recently been expanded. The Post Office management is also in discussions with police about whether to open mini police counters as the service closes its front counters in order to meet government austerity targets.
Post Office current accounts will start to be rolled out in a small number of branches this spring, ahead of the faster current account switching service which is being introduced later this year. The accounts will be run in collaboration with Bank of Ireland, which already offers savings accounts, insurance products, credit cards and mortgages through the Post Office.
Nick Kennett, director of financial services at Post Office said that the move to provide current accounts was part of a significant transformation to provide more services. “The introduction of the current account is a further statement of this ambition,” he said.
Gary Greenwood, banking analyst at Shore Capital, said that the Post Office would have an advantage over rivals because of its existing branch size. However he noted that the current account market was notoriously “sticky” and that customers will often only move for an incentive.
The Post Office reported a £5m increase in profit in the six months to September 23, 2012. However the increase was more than accounted for by a rise in government subsidy.
Additional reporting by Brian Groom.
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