Postal Banks Have Potential to Open 1 Billion Savings Accounts

Toward the end of the 19th century, postal services began to contribute to the development of a savings culture in many of today’s industrialized countries. And they are playing a similar role in developing and emerging countries at the dawn of the 21st century.

A number of postal banks meet several of the key elements needed to effectively mobilize poor people’s savings: proximity, trust, simplicity, broad network, affordable services, and state-of-the-art communication technologies. And very important, postal banks in developing and emerging countries have significant scale. Thanks to a network of more than half a million post offices throughout the world, trusted postal financial institutions have around half a billion deposit or savings account holders – in many cases, people who were previously excluded from formal banking services. There are 1.5 billion users of some sort of postal financial services – payments, remittances – and the potential to open a further billion accounts.

Note: CAGR is the compounded annual growth rate of the number of accounts held in the abovementioned postal financial institutions for the period 1999 to 2008 Source: UPU estimates (2010)

More work, however, is needed to further enhance postal offices’ ability to offer quality savings to poor people. Of course, there is no one-size-fits-all solution applicable to all countries, but there are a number of common ingredients necessary to implement or accelerate these postal transformations.

Postal financial institutions need to adopt and leverage technologies that have proven most accessible for the poor, such as mobile phones. And this is starting. Postal enterprises are building extensive information networks and connecting to one another at the global level. Far from seeing the growth of modern electronic communications technologies as their nemesis, today’s Posts are exploiting information and communication technologies, and distributing or developing new service lines such as e-commerce. Sometimes, means developing partnerships with private sector actors. In some case, postal companies are even acquiring mobile network operators.

Linkages to new partners offer exciting possibilities and position postal banks well to be a partner of choice for previously excluded populations eager to save. The distribution of mutual funds by India Post in rural India (which received an award from CNBC), the establishment of a biometric authentication system in Namibia, and the set-up of an easy export system for micro, small and medium-size enterprises in Brazil are just a few examples of innovative developments originated by postal banks and enterprises in the South. Some postal banks succeeded as banking agents (e.g. Brazil); some have built their own offer (e.g. China); others will also contract their own agents. The recipe for success depends on each country’s circumstances.

Innovation is not only coming from industrialized countries, but increasingly from developing and emerging countries – where most postal banks remain public institutions. Better, safer, more technologically advanced access to savings for the poor is an opportunity in and of itself; it will also complement other postal services in the future.

So why are some postal services still lagging? In a number of countries, postal banks have been overlooked as a key infrastructure for economic and social development; they have not been included in the poverty-reduction strategies of these countries. Without investment in these institutions, the quality of their services has deteriorated. Little or no dialogue has taken place between financial and postal authorities.

There are marked differences between countries that have encouraged their postal services to play a role in financial inclusion through savings, and those that have given up investing in postal financial infrastructure. Historical evidence shows significantly lower levels of financial exclusion in Japan, home to the largest postal financial institution in the world, than in the United States, where almost 60 million Americans remain under-banked, according to FDIC. In Europe, for similar levels of development, financial exclusion is lower where there are double bottom-line institutions like savings banks or postal financial institutions.

¹Brazil, India, China, and South Africa have developed greater access to financial services and savings relative to their peers thanks to the use of their postal networks. For instance, in less than a decade, the Brazilian Post has eased access to savings to more than 10 million Brazilian citizens. It processes a larger share of transactions related to savings than any other bank agent such as pharmacies, groceries, or lottery shops.

Successful transformation of postal institutions can deliver surprising outcomes thanks to their scale. Furthermore, best practices are becoming widely available across emerging and developing countries. What other institutions but Posts can achieve the same efficiency in terms of inclusion and integrating several dimensions, while increasingly converging to the most advanced and accessible means of communication for the poor, such as mobile telephony?

If all of this sounds to you like pie in the sky, then pay a visit to Bangladesh, where the Post has created a ground-breaking system combining mobile phones with the postal network. After little more than six months of operation, the Post is now processing hundred of thousands of mobile payments a month, and has established itself as one of the most prominent players in mobile money. The next step is savings.

As Princess Máxima of the Netherlands said during the United Nations Inter-Agency Meeting on Inclusive Finance in New York, “I hope perhaps we can agree that inclusive financial systems are critical infrastructure, just like roads.” Nearly two centuries after the birth of the modern post in Britain, it promises to deliver this critical infrastructure in developing and emerging countries.

“L’Union européenne et l’exclusion financière”, Odile Pilley, in “Exclusion et liens financiers – L’exclusion bancaire des particuliers” Georges Gloukoviesoff – Rapport du Centre Walras – Préface de Jean-Louis Borloo, Economica, Paris, 2004.