Revitalising postal finance

Editorial, Saturday, June 27, 2015

Two separate news items on postal-based finance have appeared in two different newspapers in two countries -- Bangladesh and India-- within a week.

The Bangladeshi newspaper depicts a sad picture of the country's postal financing. It reports that despite being cheaper, electronic money transfer (EMT) service through the post offices is falling behind the private sector operators. The annual transaction of postal-based EMT has declined to Tk 5.13 billion this fiscal year from Tk 10.74 billion in the previous year.

The Indian newspaper presents an optimistic move in reviving India's postal financing activities. It reveals that Indian post offices are likely to turn into payment banks soon. The Indian government is considering using the massive network of Indian postal services to bring the poor and marginal people under the umbrella of formal financial services, especially the Jana Dhan Programme. The news item also says that the Reserve Bank of India (RBI) may formally provide payment licence to give postal banking a big push. Indian finance minister, in his budget speech for FY'16 budget, disclosed the plan in February this year.

In order to make Indian postal financing widespread, automated teller machine (ATM) was introduced last year with a mega plan to cover 2,800 post offices by 2015. It has also been planned to set up some 135 thousand micro-ATMs in rural post offices.

It is interesting to note that in South Asia, Bangladesh is actually the pioneer in introducing postal ATM service. The country introduced postal cash card service in 2012 and in 2013 this card became eligible for withdrawing money from different ATM booths.  Having co-branded ATM service with Sonali Bank, the largest commercial bank in the country, postal cash card holders have access to ATMs. Moreover, some 3,000 ATMs of 33 commercial banks are also useable for postal cash card through the Q-Cash payment gateway.

Using the wide network of post offices was initially mooted by the Western Union, the international money-transfer company, as an efficient method of dealing with the remittance money sent by Bangladeshis from abroad. In 2008, Bangladesh Post Office (BPO) formally introduced the service with 400 post offices across the country. The network was later extended.

The popular money order system has also been converted into electronic form to make it easier and faster. This EMT of post offices was awarded 'mBillionth Award South Asia 2011' for introduction of mobile money transfer service. Response to this service was huge after introduction. Total transactions jumped to Tk 23 billion in FY'12 from Tk 7.26 billion in FY'11. In FY'13, the amount was around 22 billion. But in FY'14, it came down to Tk 10.74 billion. The downward trend has continued in the current year.

Newspaper reports identified the aggressive marketing of private players as the major reason behind the decline of postal EMT transactions. Bkash, a Brac Bank initiative, is now the market leader while many private commercial banks are also providing the service and in some cases it is a door-to-door service. Bkash has innumerable agents throughout the country and anybody can open an account with Bkash for personal transaction.  This service is available seven days a week and is available for almost 24 hours. There is no need to go to fixed service points as is the case with post offices. Post offices have weekly and other public holidays and so they are not in a position to deliver services 24x7.

Moreover, maximum post offices in Bangladesh have lack of modern facilities and are situated in old buildings or vulnerable premises. These pose a security risk for keeping big cash. There is also shortage of manpower, especially manpower equipped with technology. A large section of the workforce in the postal department is not comfortable with the quick service delivery mechanism. Many of them even find technology-based initiative a threat to their jobs. Typical bureaucracy and unwelcome attitude also discourage people to go and avail EMT service in post offices.

The postal authority is aware of these hindrances. Some initiatives were taken to overcome these but without much success. For example, appointing agent service is necessary to make the EMT vibrant. But postal authority is yet to do so.

The proposed budget for the postal department is Tk 7.30 billion in FY'16 which was Tk 5.84 billion in FY'15. But major part of the budget is revenue expenditure. The finance minister, in his budget speech, however, said that the programme for "transforming 8,000 rural post offices and 500 union post offices to E-centres is underway." He also mentioned that e-centres are being introduced in 174 post offices on a pilot basis in the new fiscal year, and that another 250 post offices would be brought under the process.

Against this backdrop, it is important to take well-planned strategy to energise the postal financing system. Banks and financial intuitions of the  country have some 9,000 branches across the country while the number of post offices is around 9886. Post office network is wider than the banking network. All it needs are some reforms and restructuring which won't cost much.

In India, there are some 1,55,015 post offices while the number of formal bank branches is 85,000. Thus post office network in India is clearly wider than banking network. That's why Indian government is trying to use the post office network which spreads all over the country including rural areas and distant parts.

Bangladesh can take cue from the Indian move in reviving postal finance. Despite Bangladesh Bank's move to encourage mobile banking and other initiatives like 'bank account of 10 taka', there is a big informal and unauthorised network of money transfer across the country. Compared to such informal network, postal network is still believed to be safer and trustworthy. Even the government's budgetary support could be easily transferred through post offices. Post offices have been maintaining postal savings bank system for long and so it should not be very difficult to turn post offices into  payment banks.