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Credit unions and the Post Office

The background

  • Credit unions’ simple, trusted and mutual model has demonstrated its ability to bring affordable financial services to people on low and modest incomes around the world.
  • Internationally, around 200 million people are members of credit unions looking after over £700 billion in assets.
  • The credit union sector in Great Britain has trebled in size in the last decade and now serves nearly 1 million people.

Developments in the credit union sector which have helped achieve this growth include:

  • new services available in credit unions including Child Trust Funds, Cash ISAs and the Credit Union Current Account;
  • Financial Services Authority regulation and a Corporate Code of Governance have helped the sector improve its governance and management;
  • over 100 credit unions have been involved in making affordable, responsible credit more easily available by making half a million small, short-term loans through the Department for Work and Pensions Growth Fund.  This fund, which ended in March 2011, saved loan recipients between £119 million and £135 million in interest compared with high-cost alternatives. 
  • new legislation, coming into force in January 2012 will give credit unions much greater flexibility to reach out to new people and develop new services.

The major missing ingredient which would see credit unions grow to play the significant role they have in many parts of the world is the introduction of ‘back office’ integration. When credit unions work together to provide behind the scenes services on a central basis it has a dramatic impact on their scale.

For example, if a number of credit unions in Britain shared one banking platform it would enable them to offer shared services through the Post Office network and each other’s branches. It would also allow for a telephone helpline giving credit unions much longer opening hours and easy internet access to accounts

Crucially, this would allow a tie in with the Post Office network which would vastly increase access to credit union services, including affordable credit and safe savings.

What would a credit union back office mean?

A one-off capital investment in a credit union back office would deliver a significant step change in the scale of the sector. By allowing a simple, tried and tested integration with the Post Office network, millions of individuals would gain convenient access to credit union services.

  • individuals would be able to walk into any one of 11,500 Post Office branches and join a credit union and/ or carry out a wide range of transactions in real time.
  • individuals would be able to respond to Post Office advertising and join a quality credit union locally. The Post Office is a trusted brand for low income people. It would be able to help individuals comply simply with off-putting identity regulations for opening a ‘bank’ account.
  • Post Office staff would be able to view details of a credit union members’ account, check balances, accept and pay out savings, and forward information and requests to the credit union.
  • where appropriate Post Office staff could provide instant responsible loans. Credit union staff could pre-approve very small lines of credit (£30 - £400) that were affordable and convenient.
  • making small sum affordable credit accessible through the visible and trusted Post Office network has the exciting potential to transform the financial services market for low income people. It would challenge the high cost credit market which currently takes hundreds of millions of pounds in interest from those on lower incomes.
  • each transaction carried out by the Post Office would produce a transaction fee creating a new revenue stream for the network. And the general increase in footfall would mean more sales for the Post Office.
  • A greatly scaled-up credit union sector would meet the Government’s commitment to promote greater competition in financial services and to support a greater role for mutual’s as part of a diverse sector.
  • Cautious estimates demonstrate that 1.4 million new loans in a five year period would save consumers £336 million in five interest payments

And of course an investment in the scale of the credit union sector will result not just in better credit options for millions but also:

  • an increased supply of convenient friendly and safe savings;
  • budgeting advice and money guidance;
  • cost effective insurances and
  • fair banking.

Conclusion and recommendations

It is widely accepted that the banks do not meet the needs of low income consumers for affordable, small sum credit. This leaves millions of people who are paying far too much for loans. Meanwhile the Post Office network has unrivalled access to those most in need of fair financial services through the Post Office Card Account. Apart from the POCA, however, Post Office financial services are directed at the mainstream market.

A small one-off investment in the credit union sector working with the Post Office can transform all this.

ABCUL calls on all political parties and the Government to support investment in the infrastructure of the credit union sector in Britain and the tie in with the Post Office network that this would allow – boosting the availability of inclusive financial services, increasing revenue for the Post Office and bolstering Government efforts to inject diversity and competition into financial services.  We welcome the commitment that the Government has shown to this by earmarking £73 million for credit union expansion and modernisation and look forward to the results of their ongoing feasibility process.

This cost-effective and simple solution will demonstrate to the public that politicians of all parties care about the dearth of affordable financial services for people on lower incomes. Given the impact of the banking crisis it will also address the growing appetite from the public for mutual alternatives to commercial banks.

For further information, please contact enquiries@abcul.org