Postal Banking - Financial Services and Post Offices

Financial Services and Post OfficesFinancial Services and Post Offices

Inter American Development Bank,

Washington D.C.,

Brown Bag Lunch,

11 September 2003

Hans Boon

PostalPostalBankingBanking

AgendaAgenda

Origin and History

International Overview

“Best Practice” profile

Rationale

Development Scenarios

Partnership Models

Stakeholders’ Approach and Financing issues

Origin and HistoryOrigin and History

1800 1860 1880 1980 2002

Postal

Money Orders

Postal Savings

Postal Giro & Cheques

Postal banking

Reform and Revival

OriginOrigin

Government motives to establish postal savings and giro institutions:

to provide secure and solid deposit and money transfer instruments widely and easily accessible to the public, government agencies and companies

to mobilize and pool national financial resources and utilize the resources for economic development

OriginOrigin

Typical product features

State Guarantee on Deposits

Tax exempt

Low minimum deposit requirement

Available at all post offices

Limited fragmented product approach

Typical operational features

Owned by Ministry of Finance or specific fund

Operated and managed by Posts

Not supervised by Central Bank

Resources invested in State Treasury / Gilt-edged titles

Bypassing Capital and

Money markets

Europe in evolutionEurope in evolution

As a phase in the transformation,Swiss and Italian Posts have

established alliances for specificproduct lines (mutual funds,

insurance)

Transformation ofFinancial Services into a

bank or an alliance with abank is being considered

Creation of alliancewith banks in

consideration orpreparatory stage

Postbank is asubsidiary of the

Posts

Post Offices are 50%owned by Postbank (ING)

Partnership Post- Bank PFS Division of Posts

PFS Subsidiary Company with >50% ownership by Posts

Originally organized within the Post

Trend towards ‘partnership’ between Post and (Post) bank

–Alliance/ Contract/JV

–Subsidiary

Significant market share in payments and savings

Europe in evolutionEurope in evolution

Co u n tr ie sP FS

Di vi si o nPF S

SubsidiaryP FS

P a rtn e r

PaymentsAcccounts/C a

rdsS a vi n g s

Co n su m e rCre d i t

M u tu a lFu n d s

In su ra n ce In te rn e t

Au str ia

Be lg iu m

D en mark

F in lan d

F ra n ce

G e rma n y

G re ece

Ice la n d

Ire la n d

Ita ly

L u xe mb u rg

Ne th e r la n d s

No rwa y

Po rtu g a l

Sp a in

Swe d e n

Switze r la n d

Un ited K in g do m

Postal Financial Se rv ices in the European Union/Weste rn Europe

Central and Eastern Europethe leap forwardCentral and Eastern Europethe leap forward

Postal Financial Services Overview in The Central and Eastern Europe

Bosnia & Hercegovina

Postbank in Restructuring; Raiffeisen Zentralbank acquired Hrvatska poštanska banka- Mostar

BulgariaBulgarian Postbank (Alico+ EFG-Eurobank) has been privatised

CroatiaHrvatska Poštanska Banka (in rehabiltation process)

Czech RepublicPoštovni Sporitelna (a division owned by CSOB-KBC)

EstoniaPostipank operated as brand allliance between Eesti Post and Eesti Uhis Pank (Sampo-Finland)

HungaryPostabank in privatisation process; bids have been submitted

LatviaPostal Giro Accounting Centre (PNC) as a part of Latvia Posts and partnership with Hansabank

LithuaniaContracts with various banks for a limited scope of services

MacedoniaPoštenska Stedelnica (limited banking license, majority privately owned )

Poland Bank Pocztowy (66% owned by the Post)

Romania Banc Post (70% private, EFG-Eurobank)

Slovak RepublicPoštova Banka (11% owned by the Post, share of State Consolidation Fund for sale)

SloveniaPoštna Banka (45% owned by the Post and 55% by a State Fund, earmraked for sale to NKBM

YugoslaviaPoštenska Stedionica- recently licensed as a full-fledged bank

Central and Eastern Europethe leap forward (Continued)Central and Eastern Europethe leap forward (Continued)

Countires PostBank Cash PaymentsPayments Accounts/

CardsSavings

Consumer Credit

Mutual Funds

InsurancePension

PlansInternet

Albania no postbank

Bosnia & Hercegovina

Bulgaria

Croatia HPB

Czech Republic

Estonia

Hungary

Latvia no postbank

Lithuania no postbank

MacedoniaPostenska Stedelnica

Poland

Romania

Slovak Republic

Slovenia

Yugoslavia

Bank Branches in CEECs provide 30% of the level of access compared to EUBank Branches in CEECs provide 30% of the level of access compared to EU

Source: Statistical data from: ECB years: 2000 for EU countries and 2001 for CEE countries, UPU year 2000, BIS year 2000; and ING own research year 2000

In Central and Eastern Europe Bank Branches provide an infrastructure for access to the financial system that compares with 30% of the physical points of access into the financial system in EU countries. IN EU Countries 30% of the infrastructure is provided by post offices.

Points of Access for Financial ServicesBank Branches- Post offices

71%

29%

CEE Countries EU Countries

Region

% Points of Access - Post Offices

% Points of Access - Bank Branches

4298

1309Avg. N of People per Point

Access to Financial Services through Post Offices would bridge the gap in the financial infrastructure in CEECs considerably

Access to Financial Services through Post Offices would bridge the gap in the financial infrastructure in CEECs considerably

Source: Statistical data from: ECB years: 2000 for EU countries and 2001 for CEE countries, UPU year 2000, BIS year 2000; and ING own research year 2000

In the cash economies of Central and Eastern European Countries In the cash economies of Central and Eastern European Countries the Post Offices could constitute more than 50% of the physical the Post Offices could constitute more than 50% of the physical infrastructure for access to the financial sectorinfrastructure for access to the financial sector

Points of AccessBank Branches- Post Offices

45%71%

55%

29%

CEE Countries EU Countries

Region

% Points of Access - Post Offices% Points of Access - Bank Branches

1309

1922

Avg. N of People Served by 1 Point of Service

CIS; reform issues ahead CIS; reform issues ahead

Posts: revenues strongly dependent on cash payments services

State Savings Bank still dominant position and pursuing network reduction

Large amount of cash under the mattress

“Postbank” concept would trigger reform for the Post and Communication and the Financial Sector. Lead products:

–international remittances

–savings mobilization

–mail order credit

Africa; reform initiatedAfrica; reform initiated

For many Africans, Post Office only accessible point of entry into communications and financial services

Postal savings and remittance service have strong social role

Modernization of postal financial services and reform efforts need to be continued

Cross-border cooperation ?

PFS in partnership with Postal (Savings) Bank orNational Savings Bank

3 Post(Savings) bankshave established analliance for further

development

PFS or POSB structured and (de facto) managed within thePost

Africa: postal savingsAfrica: postal savings

Postal savings banks tend to develop ‘dual’ channel policy; branches and post offices

Synergy opportunities may be missed

Postal ICT programs, Telecenters and reform, privatization of Posts and Postal Banks underway

Asia, different modelsAsia, different modelsModel/Typology Countries

Bureau of the Ministry of Posts andTelecommunications

State Postal Bureau

Japan (Privatisation in 2007 ?)

Korea

China (IPO under preparation ?)

Post Office Savings Bank (as agency of theMinistry of Finance), operated by the Posts

India, Pakistan

Jordan (Post incorporated in 2003)

Taiwan (Post incorporated in 2003,privatisation under preparation)

Agent of the National Savings Bank and other Sri Lanka; Malaysia (Privatised postaloperator)

Postbank, as a licensed bank andsubsidiary/partner of the Post

Philippines, Iran, New Zealand, Mongolia

Postal Giro and Money order service (as part ofthe Post)

Turkey (Per 1 Sept 2003 Postbank JV withCitibank)

Postal Money Orders and other cash basedservices

Thailand (Partnership with a bank underpreparation)

Lao PDR,

Bangla Desh

Sales of (account-based) financial products andtransaction (processing/routing) agent for manyor all banks

Australia

Overview of Latin American Postal OperatorsAlthough postal markets feature strong private players,

private sector participation in public postal operators is very limited.

Colombia

• Administration Postal National (National Postal Administration) (ADPOSTAL)

• 100% Govt. owned

• Reform options being considered

Ecuador

• Empresa Nacional de Correos

• 100% Govt. owned - Domestic Monopoly

• Privatisation plans stalled

Guyana

• Domestic Monopoly


Venezuela

• Instituto Postal Telegrafico (IPOSTEL)


Brasil

• Empresa Brasileira de Correios e Telégrafos


• public enterprise connected to the Ministry of Communications; incorporation proposed

Uruguay

• Administración Nacional de Correos

• a decentralized commercial service

• 100% Govt. owned; reform underway

Argentina

• Correo Argentino S.A. is a fully privatized company

• concession holder Grupo Itrón S.A (GI)

• Ownership: – GI 86%; employees 14%.

Paraguay



• No privatisation plans

Chile

• Empresa de Correos de Chile (Postal Corporation of Chile)


• Incorporated, privatisation under consideration

Bolivia



• Privatisation plans stalled

Surinam



• Commercialisation underway

Peru



• No privatisation plans

L im ited P ay m en t S er v ic es s tr u c tu r ed w ith in th e P o s t

A s p a rt o f t h e 'B a n c o P o s ta l'p ro g ra mme , a p a rtn e rs h ip w ith a lo c a l

b a n k h a s b e e n c o n c lu d e d fo r p a y me n t sa n d s a v in g s

P ay m en ts s e r v ic es a r e o p er a ted b y th e C o r r eoAr g en tin o w h ile ad d it io n a l f in an c ia l s e r v ic es a r e

s ep ar a te ly s o ld b y Ban c o d e G alic ia( c o - s h ar eh o ld er in th e Ar g en tin e P o s t C o m p an y )

P F S p ar tn er s h ip w ith a lo c a l Ban k

Administration % of revenues from letter mail

% of revenues from parcels and logistics

% of revenues from financial services

% of income from other services

Brazil 44.0 23.0 5.0 28.0Mexico 95.9 1.1 2.8 0.2Colombia 64.8 24.2 7.8 3.1Argentina 89.0 7.0 1.0 3.0Venezuela 75.1 0.0 0.0 24.9Chile 90.6 3.8 0.0 5.6Ecuador 95.1 0.1 0.0 4.7Dom. Rep, 42.0 5.0 3.0 50.0Bolivia 21.4 2.9 4.9 70.8El Salvador 70.0 10.0 0.0 20.0Paraguay 61.0 11.0 0.0 28.0Uruguay 96.0 1.0 1.0 2.0Costa Rica 78.0 2.0 0.0 20.0Trinidad & Tobago 73.0 4.0 2.0 21.0

71.1 6.8 2.0 20.1Source: UPU Statistics 2001

Traditional letter mail presents the main revenue source, exposed to the risk of decline. Diversification into financial and retail service is a major challenge Revenues from financial services represent only 2% from total postal operator revenues in Latin America.Practice in Europe, Asia and Africa shows that financial services through the post offices provide a revenues stream between 30% and 50% of total revenues, and up to 80% of revenues generated through the retail counters

Latam Posts: heavily dependent on revenues from traditional mail

Post Offices: nationwide networksPost Offices: nationwide networks

Administration Population (mil.)

Post Offices

Nr of inhabitants

per Post office

Brazil 172.4 12520 13,769Mexico 101.8 9882 10,296Colombia 42.8 1332 32,132Argentina 36.2 5363 6,754Venezuela 24.6 424 58,090Chile 15.4 574 26,829Ecuador 12.9 125 103,040Cuba 11.2 1044 10,757Dom. Rep, 8.5 209 40,813Bolivia 8.3 142 58,239El Salvador 6.4 239 26,778Paraguay 5.6 281 20,071Uruguay 3.4 1134 2,963Costa Rica 3.9 126 30,714Trinidad & Tobago 1.3 197 6,599

454.7 33592 13,535Source: UPU Statistics 2001 36835

Post Offices provide nationwide coverage also in rural areas and poor

communities and offer low-threshold access.

Latin America: limited to postal money orders?Latin America: limited to postal money orders?

CountriesPFS

DivisionPFS

SubsidiaryPFS

Partner

PaymentsMoney Orders Savings

ConsumerCredit

MutualFunds

Insurance Internet

Postal Financial Services in the Latin American and Caribbean Region

Argentina

Brazil

Canada

Mexico

US

Cuba

Venezuela

Uruguay

Peru

Nicaragua

Netherlands Antilles

El Salvador

Colombia

Chile

Aruba

Costa Rica

Obstacles in development of financial services through post offices in Latin America

Obstacles in development of financial services through post offices in Latin America

on:

History

Regulatory framework

Consumer behavior

Postal Reform

–Most Latin American countries lack a tradition in Postal (Savings) Banks; in many cases Postal savings banks have failed at an early stage in the last century;

–The (interpretation of the) legal framework prohibits the post offices to provide financial services, or to act on behalf of banks;

–Successive economic crises and hyperinflation have undermined the incentive for the middle and lower income groups to save; Latin American consumers, also those with limited financial means require up-to-date financial products supported by modern technology; –Although postal markets in Latin America have been de facto liberalized, few countries have determined the course of postal reform, liberalization/privatization

Finance

–Postal operators face declining revenues streams, high fixed costs, and difficulties to access finance; high initial investments seem necessary to implement financial services

Drivers for Postal Banking ReformDrivers for Postal Banking Reform

Customers• Increasing sophistication (cards, travel)• International remittances • Older, wealthier (wealth accumulation)• Reliability, Solidity• Convenience and One-Stop Service• Microfinance

Impact:Need for a cost-efficient,

transparent financial services concept for the

mass consumer, supported with a dense physical infrastructurePOSTAL BANKING

Technology• Transparency: margins down• Automated channels: lower costs

possible • E-Commerce/Internet; cross selling

with logistics, transport and communications viable

Financial Sector:•Focus on wealthy consumers through urban branches•On-line banking too sophisticated/expensive•Cheque and credit card based payment systems too costly•Need for alternative channels to reach out to rural areas

Macro economic environment• Different growth and maturity rates• Stability• Open economy

Postal Sector

•Commercialization

•Privatization

•Globalization

•E-Commerce concepts

•Need to optimize RoA on Post Office Network

•Diversification into Financial Services

Banco Postal, BrazilBanco Postal, Brazil

Policy ideas 1996-1997 Feasibility Study 1998-1999 including nationwide

market and opinion research) Pilot with 36 Post offices (April 2000-April 2001) Change of regulatory framework allowing post offices

to become “correspondent”of a bank (March 2001) Public auction “Banco Postal” (July 2001 Bradesco won all 15 licenses (Sept 2001) Contract negotiations and preparations for

implementation Launch of services in 1,000 Post Offices in March

2002; Product offer includes VISA electron card, and current account and deposit account

Subsequently expansion to currently 5,000 post offices

>600,000 accountholders, previously unbanked;average deposit > US$ 600;

Micro finance offered since August 2003; within 2 weeks more than 6,000 contracts

Expansion to pensions, life insurance as “Seguros Postal” expected to be launched in next 6 months.

Further product diversification...

Other initiatives underwayOther initiatives underway

:

Uruguay

Costa Rica

Nicaragua

Cuba

–CorreoBanc; objective to expand from bill collection into offering account based services (payments, savings, ..); 88% of the population does not have a savings account or payments card;

–Costa Rica and Nicaragua have implemented web-based electronic remittance services on-line through post offices; expansion meets legal/institutional obstacles;

–Correos de Cuba have introduced chipcard payment solution and web-based on-line remittances; expansion into deposit-taking and credit prohibited by Central Bank.

Exciting opportunities for Post offices in the LAC regionExciting opportunities for Post offices in the LAC region

On the basis of remittances flows and account-based relations, Postal banking would have the opportunity to offer efficient micro finance solutions providing (micro) finance to foster economic development trough small enterprise developmentAn estimated 60% of the Latin American do not have access to bank accounts, cards. Through their nationwide networks, post offices can complement the existing financial infrastructure and provide access to the unbanked, including rural areas and poor communities.

More than US$ 30,000 million international remittances flow into the Latin American and Caribbean region. The 37,000 post offices across the region currently process less than 0.8% of this flow. With cost-efficient solutions and advanced technology, this clearly presents an opportunity for most of the postal operators through cost-efficient solutions such as Eurogiro and UPU-IFS.

Bron:

PFS Reform DynamicsPFS Reform Dynamics

AUSNZ

IRL

D

NL, B D , N

DK

I

Cash transactions at counters Account based servicesGiro or Savings

Credits

no

Yes

State Intervention/Social Obligations

yes

no

RUS

P

Full range of consumer bankingat post offices

CH

J

CEEPL, CZ, SKROM, BUL

YU

A

US

Brazil

EGY SA

F

GR

AgendaAgenda

Origin and History



Rationale

Development Scenario

Partnership Models


Profile of the Financial Services offered through the Post

Profile of the Financial Services offered through the Post

Customers:Focus on local consumer market and large corporates (employers, utilities, retail chains)

Products:Full range of standard financial products and services

Distribution:Direct marketing approach via multichannel distribution

Institutional:Various options/model, trends towards partnership with fully licensed financial institutions

Consumer: Post (bank) is Different!Consumer: Post (bank) is Different!

Traditional bank

Segmented

High entry

Personal selling

Broad range ofspecialist products

Intransparent

Own branches

Short opening hours/ 5 days

Post(banking): a viable solution for mass financial services

Post(bank)

Mass scale

Low entry

“Anonymous”

Broad range of standard products

Transparent

Post Office with multichannelLong opening hours/ 6 days

Direct Bank

Segmented

High entry

“Anonymous”

Broad range of standard products

Transparent

Internet/Phone

24 hours/ 7days

Growth inaccounts

accountholders

Postal cards/accounts: the gateway Postal cards/accounts: the gateway

Mortgages

Consumer credit

Investment fundsand discount broking

Savings

Payment products

Insurance

Retail Concept Retail Concept

Convenience• Easy access and

low threshold• Standardized

productsCompetitive price• Free (basic) payment

package• Value for money

Credibility• Good, efficient

service• Decent (no fine

print)• Reliable (mail and

IT)

Crystal clear products

• Full basic range• Transparent product

rangecontinuous communication pressure

excellent service qualityintegrated customer approach

++

+

... The account is our ‘shop’ without thresholds, accessible for everybody

Multichannel DistributionMultichannel Distribution

Mail

Mass media

InternetPC Based Banking

ATMs

Post offices

Telephone

Post OfficesPost Offices

Multi-purpose service and information shopping “centres”

High technology

Universal counters

Omnipresent, long opening hours

AgendaAgenda

Origin and History



Rationale

Development Scenario

Partnership Models


Rationale for PFS ReformRationale for PFS Reform

In spite of significant obstacles and barriers, there appears to be a strong rationale for developing and introducing the financial service through the postal networks in the Latin American and Caribbean region.

Why ?

Postal Financial Services:

a “hybrid” issue impacting:

• Financial Sector Development

• ICT Infrastructure Development

• Postal Sector Development

Financial Sector DevelopmentStabilization and CohesionFinancial Sector DevelopmentStabilization and Cohesion

PFS Reform can help to strengthen and deepen the financial sector; the use of the wide post office network can help to support financial sector stability;

Channelling the international remittances in a cost-efficient way

Pooling small savings into funds that can be used for national development

‘Banking the unbanked’- Providing access to the financial sector in rural areas, poor communities and senior citizens

Promoting efficient resource mobilisation and resource allocation

Efficiently supporting international payments and trade flows

Promoting efficiency in the payment system, especially for small-value payments and bulk payments

Information Infrastructure Development; Social CohesionInformation Infrastructure Development; Social Cohesion

By building a modern financial service technology infrastructure through post offices, the infrastructure stands a better chance to become economically viable way.

PFS can help and facilitate the e-program undertaken by the government

Linking the population(including the poor, the rural communities, senior citizens) into the global economy and international (financial) systems;

“Closing the digital divide”;

Promoting e-readiness ;

providing public access to Internet and the communications infrastructure;

–e-mail, e-commerce, e-government, e-learning;

–other e-services ;

Postal Sector DevelopmentPostal Sector Development

Most public postal operators strongly feel the impact of global integrators in the express, logistics and mail market. To ‘survive’ postal operators need to improve quality of services, and diversify and broaden the range of services to be able to offer One-Stop-Shopping and to generate alternative sources of revenues

PFS Reform contributes to:

Commercially viable and economically sustainable post office network - providing open and affordable access to basic financial services, information, communication and other consumer services;

Enhanced competitively of the post office network in retail (financial) services delivery

Improved turnover at post offices, optimised utilisation of the fixed assets and staff, and thus improving the RoA ration

Enriching and sustaining the employment at post offices Creation of cross-selling opportunities between postal, retail and

financial services Attracting investments into the development of the post office

network

AgendaAgenda

Origin and History



Rationale

Development Scenarios

Partnership Models


Existing situation – High-end focusExisting situation – High-end focus

High-end marketProfile: payment account with savings accountcredit card and investment account

Poverty line

B&C market Profile: some have savings account,no payment account

D marketProfile: no savings account,no payment account

Competition increasesCompetition increases

Volume

Value

Low

High

Low High

Bank A

Bank D

Bank B

Bank C

Bank E

Challenge – Post Office entering competition from a different segmentChallenge – Post Office entering competition from a different segment

Volume

Value

Low

High

Low High

Bank A

Bank D

Bank B

Bank C

Bank E

Opportunity Opportunity

Volume

Value

Low

High

Low High

Bank A

Bank D

Bank B

Bank C

Bank E

PostOffice

Challenge = Capturing the unbankedChallenge = Capturing the unbanked

High-end marketProfile: payment account with savings accountcredit card and investment account

Poverty line

B&C market Profile: majority has savings account,no payment account

D marketProfile: no savings account,no payment account

Opportunity - “Overlay network”Opportunity - “Overlay network”

Physical network

Electronic network

Services Financial services