17 February 2015
An unfair advantage?
The Post Office has spent a considerable sum promoting its financial services business over the past few months. Its high profile ads, fronted by Peep Show's Robert Webb, seem to be everywhere.
It's fair to say that it has some decent products too. The Post Office is rarely out of the best rate tables in the savings market. And its credit card has long been a top pick for anyone who travels abroad regularly and doesn't want to pay the high exchange fees that most other cards charge.
But like National Savings & Investments, the Post Office has one huge advantage over its competitors: it's owned by the Government. In fact, Post Offices have been around for some 370 years - it's a brand that has almost universal spontaneous recognition amongst the public. And while most of us may associate the Post Office more with long queues than great service, it's a public institution and feels like a safe bet when it comes to your finances - even though the reality is slightly more complicated.
The Post Office, in fact, outsources its finanical services business to the Bank of Ireland, and if BOI's UK subsidiary was to collapse, it would be the Financial Services Compensation Scheme that came to rescue, just as with any other private financial services business. Nevertheless, this distinction is not clear in most people's mind - so the Post Office continues to benefit from the Government's halo effect, even though it isn't formally backed by it. There is also something of an implicit guarantee that sits behind the Post Office's financial services business - as it would be a political scandal were the government to let people lose money if the BOI were to go bust (which it nearly did a few years ago).
The allure of a Government backing
In these times of relative financial insecurity, a company that is backed by Government has an incredible allure, which is hard for other banks and insurers to compete with. Security and dependability won't be top of every customer's shopping list. But for those who it is, the Post Office and NS&I have a massive head start on the competition.
This is not a new phenomenon of course. But the climate of economic insecurity that has prevailed over the past few years has played in the Post Office and NS&I’s favour. And as these two well known institutions continue to press their advantage, it feels as though they should be doing much more to lead the way when it comes to service and transparency in financial services.
As became evident in the rush for the pensioner bond, NS&I is held back by clunky IT systems, and continues to dish out lengthy terms and conditions to customers when they sign up for new products.
The Post Office also offers an incredibly mixed experience. Bank of Ireland, which delivers most of the Post Office's financial services, has a patchy record on customer service, to say the least - having been towards the bottom of the customer satisfaction tables produced by Which? for several years. In insurance, it scores below average in Fairer Finance's transparency analysis - and its insurance partners Budget and Axa both have a below average record on complaints at the Financial Ombudsman.
Don't get me wrong, the Post Office is not a terrible business by any stretch. But as one of the few brands that comes with an association to Government, I believe that it should be performing much better.
Over to you Andrea
To some degree, the buck needs to stop with the Treasury here. As the Post Office's owner, it should be ensuring that the service level agreements it issues for Post Office financial services contracts are tougher. As always, when services are outsourced by Government, the private sector company has a strong incentive to cut costs so that it can turn a bigger profit. In financial services, cost cuts almost always come at the expense of service levels and transparency - and when you're pulling the strings for a brand as powerful as the Post Office, it's likely that you can get away with more liberties than your competitors might.
So I guess this is a call to Andrea Leadsom, the Economic Secretary, to take another look at the terms of the Treasury's joint venture with the Post Office again - and also to put more pressure on those at NS&I to lead the way in financial services. With the right direction, these could be two brands which lay the foundations for rebuilding trust in this much maligned industry.