Post Office makes no profit from providing banking services, MPs told

The Post Office has admitted it makes no profit from its agreement to provide high street banking services and is negotiating the deal with lenders.

In a hearing with the Treasury Select Committee on consumer access to financial services, the Post Office told MPs it is holding talks with banks in an effort to turn around the performance of the service.

This comes despite the Post Office processing 130 million transactions last year for cash withdrawals and deposits.

The Post Office has committed to offering banking services through every one of its 11,500 branches across the UK as a way to offset the swathes of bank branch closures in recent years.

Lloyds Banking Group told the Committee it has now shut 23% of its branch network, while the industry as a whole has closed about 30%.

The committee’s chairwoman Nicky Morgan said the Government was “effectively subsidising banks” by having to invest in the Post Office to pick up the slack left by branch closures.

Martin Kearsley, banking director at the Post Office, said the group was facing a surge in cash-handling costs.

Its 50,000 postmasters are also forced to carry out cash counting on a greater scale as consumers and small businesses are increasingly forced to pay in at local post office branches.

Asked if the service was profitable, he said: “Not currently. We are in discussions with banks to change that position.”

When pressed by MPs on why the service is loss-making, he added: “If you put the entire cost of supporting our cash infrastructure related to the banking agreement that we’ve got, it is not profitable.”

Tom Blomfield, the chief executive of smartphone-based challenger bank Monzo, also revealed in the hearing that the group was in talks with the Post Office to offer transactions through its branches.

This would offer customers a service to pay in cash, for a small fee, through the Post Office, Mr Blomfield confirmed.

But he added: “For the vast majority of other services, our customers prefer to use a mobile app which is open 24 hours a day.”

It comes after rival mobile-only player Starling Bank recently announced a partnership with the Post Office for cash deposits and withdrawals.

But one MP questioned why the Post Office was content with being a glorified ATM and not looking to offer its own financial services, such as mortgages and insurance.

Mr Kearsley said it would cost the Government “billions” of pounds in investment to allow the Post Office to office a full banking service.

The Post Office does offer financial products from other providers, but said it would render branches “utterly inoperable” if post masters were expected to act as financial advisers and deal with these inquiries.

When questioned by MPs on the increasing number of IT failures in the banking industry, Mr Kearsley added the Post Office was ensuring it had enough cash available to act as the “last line of defence”.

The Post Office is “actively planning” to have more cash available in its network to support banks in the case of IT meltdowns, acting as a “human ATM”, he added.