Postmasters divided on restructuring offer

Post offices and credit unions are a readymade network of branches with deep roots in their localities, says Michael Clifford.

Any plan to introduce community banking here would have to at least consider the two staples of financial and social life in rural Ireland in particular — the post office and the credit union.

Both offer a network of branches with deep roots in local communities. In the case of the post offices, this network is linked under one umbrella organisation. Credit unions are, to a greater extent, independently run.

Both are also undergoing serious restructuring at the moment as a result of the fall-out from the recession, its causes, and the failure of rural Ireland to match the extent of recovery in the cities.

An Post is engaged in a major rationalisation programme. Last April, the company announced a plan in which around 690 of the 1,022 post offices in the State would be offered a new contract. The remaining postmasters are to be offered an effective redundancy package or the prospect of remaining on the existing contract. Most observers believe that the existing contract is unsustainable into the future.

The new contract will effectively guarantee an income for the first two years of a seven-year term. The deal includes the investment of €50m in the network and expanded services on offer. An Post says the deal will see 95% of the population living within 15km of a post office.

The guaranteed income is largely from the social welfare contract which will be up for tender at the end of 2020.

The Irish Postmasters Union welcomes the contract offer. The closing date for acceptance from individual postmasters is the end of September, according to a spokesperson for An Post.

However, the new deal has not been welcomed by all. The Independent Postmasters Group is opposed to the deal, claiming it will signal the death for certain rural communities.

Tom O’Callaghan, a postmaster based in Limerick City, who chairs the group, points out that apart from anything else, the new contract stipulates that there can be no criticism of An Post from any of the postmasters. Legal advice on the contact obtained by Mr O’Callaghan describes the provision as “draconian”.

“Where there is a post-master who believes there is no viable business, they should be given an exit package, I have no problem with that,” says Mr O’Callaghan.

“But what happens to that community? How will it be serviced? It’s being suggested that over 300 postmasters want out, but that’s a lot of communities.”

It is in this vein that Mr O’Callaghan believes there is a role for post offices in any attempts to introduce a form of community or public banking. The model to provide the full range of banking services through a post office network is long established in New Zealand (see section below).

An Post made a submission to the Local Public Banking in Ireland with what could only be described as lukewarm interest.

“An Post is currently providing a significant range of financial services to more than 1.7m customers through its network of over 1,100 post offices and online channels,” its submission stated.

“An Post will continue to add new products such as our current account and other propositions outlined through partnership models. In doing so An Post is providing similar services to consumers and businesses as Kiwibank is doing in New Zealand, without expending significant capital investment and maintaining flexibility in product design.”

The lack of enthusiasm is certainly understandable in the context of the transformation programme currently in train in the company, but Mr O’Callaghan believes that there is a major opportunity to be harvested for post offices.

“You have to ask whether it’s an option that has been fully embraced,” he says. “We’re propping up the pillar banks, but doing so will inevitably take out the post office network.

“If you’re looking at using existing structures for community banking, one advantage we have over the credit union movement is that we’re all linked, the network is already there and the people are already there.” Seamus Boland of the Irish Rural Network is more sanguine about An Post’s lukewarm response to his group’s proposal based on the Sparkassen model.

“They probably want to do it their own way and I have a feeling it’s nothing more than that,” says Mr Boland.

“There are a number of models that can be used if we’re to do this thing. I’m sure An Post could be part of any stakeholders’ group.”

The credit union movement is coming from a slightly different place. It also is going through a period of transformation.

There are now 286 credit unions in the state, down a third since 2015. A report by a credit union research body, The Centre for Community Finance, issued last January, warned that it is a case of adapt or die for many of the unions. It pointed out that half of the credit unions are on course to make a loss this year.

One of the major problems facing the institutions is a collapse in lending. This is largely due to the reality that more people are now going to the pillar banks for loans despite the lower interest rates being offered by credit unions.

The report said the credit unions need to offer more than loans or “their long-term future is in doubt”.

As such, the credit unions are anxious to widen their appeal to the general public and small businesses.

The Local Public Banking in Ireland report did acknowledge that “the credit unions are seeking to play an increasing role in the Irish retail financial landscape”.

This, according to a spokesperson for the Irish League of Credit Unions, “provides some acknowledgement that we are being listened to and gives us hope for the future.

“We envisage a future where credit unions will be providing home loans for families, credit for small business/agri sector, current accounts and micro-credit to compliment the range of savings and loans services already offered.”

How these ambitious goals can be met in the context of current government policy remains to be seen.

Kiwibank uses chain of post offices in New Zealand

At the turn of the century, the New Zealand government felt compelled to do something about an imbalance in the country’s banking system.

Most of the retail banks were Australian-owned. Notwithstanding excellent relations between the two countries, this was an unpalatable situation for most Kiwis.

Around 87% of retail and commercial banking in the country is controlled by four banks, ASB, ANZ, BNS, and Westpac.

In 2002, Kiwi Bank was launched to provide an alternative. The bank is a subsidiary of New Zealand Post and uses the network of post offices throughout the two islands of the country.

Consequently, the bank is state-owned. It was established with an input of NZ$72m (€41m) from the government and another NZ$8m from the New Zealand Post. The company has a 53% share in Kiwibank.

There are around 300 branches of Kiwibank and it caters for more than one million customers, but this still represents just 4% of the market.

According to the New Zealand Treasury, Kiwibank has an “ethos of sustainability and social responsibility, aiming to assist communities, help customers take control of their finances and support the environment”.

“Kiwibank is state-owned and there are no reports of plans for it to be privatised at any point in the future,” says the Treasury.

“While it has an ethos of sustainability and social responsibility, it is ultimately a profit-making organisation.”

An Post referenced Kiwibank in its submission to the Report on Public and Local Banking pointing out that it offers many of the services and products that are sold through the New Zealand post office network.

However, if the post offices here were to take a role in community banking, the range of services would be much wider.

Whether or not such a move would be in the best interests of An Post, the network and the communities it serves is likely to be examined in the forum to discuss community banking to be convened in the Autumn.

Tom O’Callaghan of the Independent Postmasters Group feels the New Zealand model is tailor-made for this country.

“Why has the Kiwi model not been embraced,” he asks.

“Think about it. The post office network is interlinked so there is no reason why we cannot roll out a bank within the post office that is for the benefit of the public. We need to create the debate as to whether there is a viable option put in place to better serve our communities.”