Post Office looks at ecommerce realities

The UK government published a report last week looking at the future of the Post Office and how it could be revamped to create a successful business for the 21st century.

But while press reports primarily focused on recommendations to create a 'Universal Bank', through which the administration would pay benefits and pensions to the two million people in this country without a bank account, it also set out a series of proposals for making the organisation a hub for ecommerce.

The Post Office made a loss of £264m in the last financial year, and on the face of it, the results suggest that a company dedicated to shuffling envelopes around the country is bound to be threatened by the explosion in email.

But the report - Counter Revolution: Modernising the Post Office Network - which was written by the Performance and Innovation Unit, a Cabinet Office think-tank, predicts that mail volumes will remain steady.

It also suggests that the Post Office should follow the example of the US Postal Service by adopting the apparent paradox of selling online postage stamps that customers can print out. After all, it remains a challenge for the average customer to send perfumed love letters electronically.

In reality, however, a bigger threat to the Post Office's income actually comes from a slightly older technology: electronic money payments.

The Post Office Network, the subsidiary with 18,500 outlets that runs the largest retail network in Europe, generates 36 per cent of its income from handing out benefits and 15 per cent from collecting bill payments. Delivering mail makes up a further 23 per cent of revenues.

But the government now wants to pay all benefits directly into bank accounts by 2005, saving the taxpayer £400m a year. It claims that by using the new system, each transaction would cost a penny to process compared with the 49p needed to cash an order-book payment or the 79p required to process a giro.

Utility companies also prefer their customers to pay bills through direct debit for the same reason, and often offer a discount if they are prepared to do so.

But this would threaten half of the Network's revenues, and poses the question of what the government's ecommerce proposals would offer to rectify the shortfall?

Return to sender
One of the report's key suggestions is that local branches should handle two essential parts of the retailing process: collection and returns. Post offices have provided a returns service to home shopping retailers for years, despite most other firms using couriers or other services for their deliveries.

The organisation's popularity among home shoppers is down to convenience: 99 per cent of people in rural areas live within three miles of a post office, with the distance falling to a mile or less for 99 per cent of town dwellers. The Post Office Network has more outlets per square mile than any other developed country, barring a few densely-packed island states such as Hong Kong and Singapore.

The report also suggests that the Network would be ideal for shoppers wanting to collect packages that cannot be delivered if they are not at home, or if they are looking for a cheaper delivery option.

Martha Bennett, a vice president at analyst firm Giga Information, said the idea was a good one in principle, because many people hold back from buying goods online owing to concerns over delivery and the difficulty of returning any unwanted packages.

Post offices would need to extend their current opening hours, said Bennett, adding that commuters would need access from 7am to 9pm to take advantage of the service.

While such suggestions are compatible with what the Post Office provides already, the report does warn that the organisation will have to move quickly if it wants to get involved because other networks, such as the UK's 13,700 petrol stations, could also seek to compete in this space.

A second government proposal would require much more work, however. This recommends that post offices be fitted with web terminals, and that staff provide customers with advice and help on how to conduct their business online.

Here, the report suggests that the great trust which the UK public has always had in the Post Office brand could be used as a guarantee for web retailers, and that payment for online goods and services could be made across the counter. This would give consumers without a credit or debit card facility access to services which would otherwise be denied to them. Goods could also be collected from a post office, making it, in effect, an ecommerce gateway.

The concept is already on trial in Gloucestershire, with 10 branches currently offering a self-service web access and word processing service.

La Poste, the French postal service, has installed 1000 web terminals in its offices, and customers access services at a price of 10FF (96p) an hour using a rechargeable smart card. They also receive an email address, and staff are available to offer help and advice.

Craig Richman, business development manager at ecommerce consultant Hyperion, said such concepts, particularly in relation to payment services, were worth exploring. "A large proportion of society doesn't have credit cards, and there are smaller amounts for which cards are not applicable," he said.

Benefits for all
The opportunity to process benefit payments for under-18s could be particularly valuable to the Post Office, he claimed, as could acting as a registry authority for digital signatures. "Training sounds like a natural extension, but how that would work in terms of space in smaller post offices, I'm not sure," he added.

But Giga's Bennett said there was another barrier to offering training. "There would be a tremendous staff training requirement. It's a bit like the £100 on-the-spot fines for hooligans - compelling until you think it through. The Post Office should concentrate on what it's best at - delivery and collection. If it can work on a more flexible and function-rich service, it could be on to a winner," she said.

But while it all sounds fine in theory, there is one important obstacle to making the dream a reality - the Post Office's record on implementing IT.

While the organisation has been profitable for the last 24 years, and paying the government a dividend, the only reason it made a loss last year was because it had to write off £571m on the Pathway part of its Horizon project to automate its branches.

The Pathway scheme would have enabled customers to claim benefits using magnetic swipe cards rather than have the money paid directly into their accounts. But the government cancelled it last year because it was over budget and behind schedule.

The £1bn rump of the Horizon programme to provide outlets with 40,000 touch-screen terminals is now being implemented by ICL at the rate of 300 post offices a week. More than 8000 are already online and the project is due to be completed by early in the summer next year.

It would seem, however, that if the Post Office wants to provide the range of IT services that the Cabinet Office report suggests, it must implement what remains of the Horizon initiative successfully.

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