Ministers announced plans this week to turn the Post Office into a People's Bank. It's a role that's needed. There are millions who prefer to visit a branch to sort out their financial business but, with the mainstream banks cutting costs and pushing people online, there are fewer places for them to turn. There are also the million or so financially excluded who think they have nowhere to turn for basic banking facilities.
An effective Post Office bank would be an ideal solution for both. With almost 12,000 branches, and a firm commitment not to cut more, most people should be able to find a branch reasonably close at hand. With an improved and wider range of financial products, plenty of people could find that turning to a Post Office is a good idea. The details of the new products to be offered through branches are still to be firmed up but, in short, we have been promised a new current account, a new children's account and a mortgage aimed at first-time buyers with a deposit of 10 per cent.
Launching the scheme, Lord Mandelson, the Business Secretary, said: "The Post Office is a well-loved community institution and this move will bring more banking services back to the heart of those communities."
The Business Minister, Pat McFadden, added: "The Post Office can provide a range of good value, simple financial products for everyone. These are the clear messages that people have given us and we are acting on them – a major step towards making the Post Office a sustainable neighbourhood banking service."
This all sounds too good to be true but I gather that the 90 per cent mortgage could be launched within a matter of weeks. The Post Office signalled its intention to launch a current account last year, so it is possible that that could be on track pretty soon too. And when that does become available, the network will be able to offer full banking facilities to its 21 million customers.
The Post Office are keen to make this happen. A spokesman says: "We welcome the opportunity to build on our growing range of financial services and we'll be working closely with the Government."
Andy Burrows, of Consumer Focus, is also enthusiatic, saying: "This could change the way millions bank. Our research shows many people on low incomes do not trust banks but they do trust the Post Office. Up to a million people could be lifted out of financial exclusion by a Post Office basic bank account."
Helping the financially excluded is a key part of the Government's strategy. It has commited £180m of new funding for the Post Office to maintain its network at its current size. It has also already announced plans for the Post Office to oversee the new Savings Gateway, an account for people on low incomes to receive 50p from the state for every £1 saved.
There have been serious talks between the Post Office and utility companies to launch a weekly budgeting account, which would help people on low incomes to manage their household budgets. Crucially, it will help them save money by taking advantage of the discounts for using direct debit to pay bills. Yet not everyone is convinced the Government's plans are a good idea.
Part of the problem is that the Post Office is not going to be a bank in its own right. Instead, the services will be offered in conjunction with the company's existing financial partner, the Bank of Ireland, which supplies the Post Office's saving and insurance products. However, to the critics the Post Office points out that its partnership with the Bank has helped it to gain 2 million customers, making it one of the UK's fastest-growing financial institutions.
That aside, what do banking experts think of the new range of products planned to be sold through the Post Office? "It's always good news for consumers to have new competition for their custom," says David Black, a banking analyst at Defaqto.
The Savings Gateway is perhaps the only really different proposal and it is a good move, says Andrew Hagger of Moneynet.co.uk. "It may appeal to a section of the community who would otherwise not even consider putting money aside, particularly in this low-rate environment."
The weekly budgeting account gets the thumbs up from Black. "The availability of direct debit payments being set up through the Post Office should allow more of those on low incomes to access the discounts available from the likes of utility companies."
What about the 90 per cent mortgage? "We'll have to see whether the rate is competitive," adds Black. Hagger warns that the Post Office will have to offer extremely fine rates to attract much business.
The current account could be a major attraction for many. "If the Postt Office launches a competitive current account in terms of both rates and charges, they are in a strong position to pick up substantial market share," says Black.
But Hagger warns of the danger of the Post Office not being able to cope with the added demand. "How many branches have the capacity and trained staff to handle current account and mortgages with their already limited resources?" he asks.
That's a question the Post Office will have to address.
The Post Office: From National Giro to mortgages
We have been here before. People with long memories will remember National Giro later Girobank – which was launched in the 1960s with the aim of offering low-cost banking through the Post Office's then 22,000 branches. That experiment ended with privatisation in 1989 and it was sold off to Alliance & Leicester, which is now owned by Santander.
The modern Post Office launched into the financial services market 15 years ago, offering foreign currency. It is now Britain's largest foreign currency provider, with almost one in three customers buying their holiday money at a branch.
In 2004, the Post Office linked up with Bank of Ireland in a joint venture to offer a wider range of financial services including savings, insurance and lending. Personal loans were the first to be offered in April 2004, followed by credit cards in 2005. That has grown rapidly and more than 600,000 people now have a Post Office credit card. It says it is issuing cards to new customers at a rate of 3,000 a week. Meanwhile, a range of savings options began in October 2004 with a growth bond, followed in 2006 by an instant saver account. The deals have led to more than £9bn being invested in Post Office savings products.
Insurance was next with motor swiftly followed by home, pet and business leading to around 550,000 people signing up for Post Office cover. Last October came a push into mortgages with the launch of a range of fixed-rate and tracker loans and staff at large branches available to help borrowers.
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