Why do Post Office staff ask if you need cash before you leave? It’s because it now makes more money from banking than letters and parcels!

• Post Office has moved into banking in a big way and all 11,500 branches do it
• Institution makes more money from banking than from letters and parcels

Do you need cash today? If you visit the Post Office now, you are likely to be asked that question by the cashier before you leave, no matter what task you are undertaking – from renewing a passport, to sending a parcel.   

Many Post Office customers may not realise it, but the ancient institution is well on its way to being the UK’s largest banking network – with more than 11,500 branches.

In fact, the ancient institution has moved so far from its traditional roots in sending letters and parcels that most of its income now comes from financial services.

This fact is not lost on our readers, who have emailed to ask why their local Post Office staff have asked every customer if they want cash, regardless of the reason they visited the branch in the first place.

So why is the Post Office so big on banking, and what does this all mean for customers and the Post Office itself?

Turn the clocks back 30 years, and Post Office banking wasn’t even a speck on the horizon.

People did their banking in physical bank or building society branches, or over the telephone – as online banking hadn’t been invented either.

Then came a wave of high street bank branch closures. In the late 1980s there were almost 15,000 physical bank branches in the UK.

That has fallen to around 6,300 – with 6,000 closing in the past nine years.

Enter the Post Office, which began offering banking services in its branches in 2017.

Today, the Post Office says it has ‘more branches than all the banks and building societies combined’.

The Post Office is paid to provide banking services by the high street banks themselves, under an agreement called the Banking Framework, which is now in its third edition and runs until the end of 2025.

The Post Office is quick to point out that its banking services provide a social good, as high street banks are closing so many branches.

Earlier this month, Post Office banking director Ross Borkett said: ‘Millions of people continue to come to our branches every week as they are frequently the only place where people can do their everyday banking at a time that is convenient for them.

‘Postmasters keep their branches open long hours and customers welcome being able to securely do their banking whilst being served by a friendly and knowledgeable Postmaster.’

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A Post Office spokesman told us: ‘Our partnership with 30 banks and building societies ensures that no-one who relies on cash is left behind, made possible by our Postmasters in almost every community of the country. 

‘This is all the more important following the introduction of the Access to Cash legislation and further highlights the critical role Postmasters play today, and in the future, in supporting customers with accessing their cash.’

There is no denying that Post Office banking does fill an important social role.

Myron Jobson, senior personal finance analyst at Interactive Investor, says: ‘The Post Office has become a cornerstone of community banking in the UK, stepping in to provide critical services where high street banks have retreated.

‘Boasting over 11,500 branches, the Post Office’s caters to those who might otherwise struggle to access banking services, which might include the elderly, the disabled, and individuals without internet access who cannot engage with digital banking solutions. 

‘This is also especially important in rural and remote areas where banking options are increasingly scarce.’

But the Post Office is not just providing banking services out of a sense of social obligation – it’s a money-spinner for them.

The Banking Framework sees banks pay the Post Office for every banking transaction a customer makes in one of its branches, though exactly how much they pay is a tightly-guarded secret.

But the Post Office’s latest accounts reveal that it made revenues of £263million from banking in 2023, up from £230million in 2022.

Post Office top executives are also paid bonuses depending on, among other things, the amount of banking revenue the firm makes.

Hitting targets for Post Office banking revenue is 10 per cent of the 2022/23 short-term incentive plan bonus scheme the Post Office runs for its chief executive, Nick Read, and chief financial officer, Alisdair Cameron.

Individual Postmasters, who run Post Offices, are also paid per banking transaction, but are free to promote this service or not as they say fit.

Last year the Post Office increased banking remuneration to Postmasters by 20 per cent, on top of doubling the payment in August 2022.

The Post Office has three main business areas:

• Mail, retail and government services (sending letters and parcels, selling goods such as envelopes and stationery and helping people access benefits and other government needs)
• Banking, payments and transactional services (such as Post Office banking and providing ATMs)
• Financial services, identity services and insurance (such as selling insurance and savings and providing passports and driving licences)

Banking and financial services are the two major growth areas for the Post Office, according to its latest financial results.

The Post Office made £310million from mail, retail and government services in 2023 – down £46million on the year before, partly due to people sending fewer letters.

But it made £379million from banking and payments (up £50million) and £126million from financial services (an increase of £44million).

Only 41 per cent of the Post Office’s 2023 revenue came from mail and other ‘traditional’ areas – with 57 per cent coming from banking and financial services.

In other words, the Post Office has to keep sending letters and parcels, but that’s not where the money is.

It is no surprise then that the Post Office’s most recent financial accounts single out banking as a big growth area for the venerable institution.

Post Office chair Henry Staunton said in the firm’s 2022/23 annual report: ‘There are also reasons to be optimistic. 

‘We are identifying new opportunities, notably in mails, banking and digital identity and, provided we are as committed to our future as we are to resolving our past, I firmly believe that the business can aim towards a brighter future.’

The major problem with Post Office banking is that it only offers a fraction of the services customers can get in a high street bank.

Customers can only do four things when banking at a Post Office: pay in cash, withdraw it, pay in cheques and check their balance.

Even that limited menu of options is further restricted depending on your bank.

For example, while Virgin Money customers can do all four of the options, Nationwide customers can only do two – withdraw cash and check their balance, although the building society has been vocal on keeping its branches open. 

For anything else, such as opening a current account or sorting out a problem, customers either have to travel to one of the declining number of physical bank branches or rely on the phone or internet.

But even that may change in the future.

Post Office chief executive Nick Read has hammered home the point that Post Office banking is only going to grow.

Read said: ‘Following a three-year-plus campaign which we are proud to have led from the front, government has now legislated to protect free-to-use cash services for people and business across the country.

‘That guarantee should cement the position of our branches as one of the principal channels for accessing cash services in the long term, particularly as we look ahead to the negotiation of Banking Framework 4 due to come into effect in January 2026.’

The Post Office may even move into offering more loans in its branches.

Mr Staunton said: ‘The Post Office’s new financial services partnership with the Bank [of Ireland] is focused on savings but will also, for the first time, also enable the Post Office to strike new deals in the future with other financial providers, particularly with regards to personal loans.’