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Current trends in financial institutions, banks and Post Offices, as relating to small shops


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1) Loss of financial outlets – banks

   1.1) Access to cash via ATMs

2) Loss of financial outlets – Post Offices

   2.1) Post Offices, developments affecting access to cash, and Benefits        payments

   2.2) Post Offices; impact of closures on local retailing

   2.3) Number of Post Offices in the UK

   2.4) Possible ways to keep Post Offices open



1. Loss of financial outlets – banks


Local shopping areas need to have facilities where shoppers can access their cash, a bank or Post Office. If this facility does not exist, shoppers will travel to a town centre or out-of-town shopping centre where cash facilities do exist, and then do their shopping there too. However banks have been closing branches in poorer areas and rural areas, because these generate less profit. A study by Professor Andrew Leyshon of Nottingham University (study reported in the Daily Mail, 23/2/06, p.19), found that inner city areas, student areas, and ‘traditional heavy industry districts’ had lost the most bank branches in the late 1990s. Customers of these bank branches are less likely to have private transport to access a remoter branch, and may also be less likely to have access to alternatives such as on-line banking. Meanwhile, carrying cash on foot or on public transport represents a crime risk, especially for the elderly.


Between 1995 and 2003, the UK saw 4,041 bank branch closures, but only 1,074 new branches opened. In Britain, there were 17,000 bank branches in 1988, but less than 12,000 by 2000 (Guardian, 16/12/02, p.7, ‘Ghost town Britain looms’).


Banks are under pressure to continue delivering increased profits in the face of cheaper banking method such as Internet banking, and the operation of banks by the main supermarkets. Parts of inner east London have seen abandonment by the major banks, leaving them as ‘money deserts’. Under the globalised economy, banks are under intense pressure from shareholders to show good returns on their shares, or else the bank is vulnerable to takeover pressures.


Banks justify branch closures because many customers are switching to on-line banking.


Bank closures adversely affect local businesses directly because they must travel further, or pay someone to do so, to pay in cash takings. They may have to close the shop to do so, if a sole trader, and there is a greater security risk if cash has to be taken further.


1.1. Access to cash via ATMs


Some grocery shops have ATM cash machines. However a significant proportion of these, 12,000 of the 44,000 ATM machines in the UK in 2003, currently make a charge for cash withdrawals (Independent Retail News, 8-21 August 2003). The typical fee is £1.50 (in 2003), but can be higher. Unfortunately for many users of these machines, this is a flat rate. This means the poor and elderly, who may typically withdraw small amounts of just £10 or £20 at a time, may be charged high percentage rates of 15% or more for their cash. The poor may restrict themselves to small but more frequent withdrawals because they fear that if they withdraw more they may be tempted to spend beyond their means. They are also likely to love in areas with higher crime rates, and be less able to bear the loss of some cash through e.g. street robbery.


This would adversely affect small grocery stores, who get a fixed commission per withdrawal, because consumers would likely adjust to make fewer, larger, withdrawals. Some consumers would even conclude that it is now worth paying for travel to a larger shopping centre where banks provided free access to cash; small shops would lose turnover as well as commission.


2. Loss of financial outlets – Post offices


2.1. Post Offices, developments affecting access to cash, and Benefits payments


Post Offices are important as venues to access cash for shopping by the poor and elderly, many of whom do not have conventional bank accounts with the major banks. The UK government is attempting to save money by persuading recipients of Benefits such as Pensions and Income Support to have their payments made via automatic cash transfer (ACT) to bank accounts, because this costs less to process than payment via the Post Office. The Guardian, 29/1/2000 reported that it cost the UK government 79p to process a Giro Benefit payment but only 1p to process an Automatic Cash transaction via a bank. It is therefore much cheaper for the Government if such Benefits are paid directly to a bank or building society account.  However many Post Offices derive up to 40% of their income through such Benefit payments.


In early 2006 the UK Government’s Department for Work and Pensions (DWP) announced it would not extend the £1 billion contract for the Post Office Account card, used by 4 million people to access pensions and other benefits at the Post Office (Guardian 19/1/06, p.25).  The DWP estimated that the 23% of Benefit payments made via the Post Office accounts accounted for 80% of its administration costs.  However in late 2008 New Labour, under intense political pressure, back-tracked and announced that the Post office could retain the £ 1 billion 5-year contract to distribute benefits to 4.3 million recipients   This measure should avert the closure of some 3,000 UK Post Offices (Guardian 13/11/08, p.1).  2.3 million of these Benefit recipients are pensioners, many in rural areas where the rival private company, Pay-Point, has few terminals; most of Pay-Point’s 20,000 terminals are in supermarkets and newsagents.


The spread of online services has also hit the range of extra services the Post had taken on to increase its income. For example, passport applications and car tax renewal could, by 2005, be done online, bypassing the need to visit a Post Office at all.


Even where the local post office does not close, pensioners may suffer because they will be standing in longer queues to draw their pensions.


2.2. Post Offices; impact of closures on local retailing


In rural areas, the Post Office is often also the village general store, and if this closes the village loses its only shop. In 1997, 20% of rural Post Offices were also the last shop in the village (Guardian, 16 December 2002, p.7, ‘Ghost town Britain looms’). The Daily Mail (31 January 2000, p.22) reported that even for a village of just 1,000 people, the costs of closing the Post office amount to £50,000 a year in extra travel costs and lost trade. A grocery shop next door to a Post office that closes loses 15% of its trade; if the shop is in the same premises of the Post Office the trade fall is 25%.


The Times, 4 December 2006, p.29, reported on a study in Manchester which suggested that the presence of a Post office in a local community saved the businesses there on average a total of £270,000 a year.  This represented money saved by the local businesspersons in travel to a more distant Post Office and in longer times spent queuing there when they arrived.  The study calculated that for every 310 of income to the Post office itself, a further £16.20 worth of benefits were enjoyed by businesses in its local area.


2.3. Numbers of Post Offices in the UK


NOTE, due to rounding, definitions of ‘urban’ and ‘rural’ and variable periods to the year, totals may not match exactly.


1635 Origins of the Post Office, when King Charles I allowed the public to use his Royal Mail


Total POs

Total closures

Urban POs

Urban closures

Rural POs

Rural closures



































































































Sources; Guardian, 16/12/02, p.7 ‘Ghost town Britain looms’; Guardian, 18/12/04, p.11, ‘Pleas ignored as 600 town post offices go’.


The Guardian (10/4/04, p.2) reported that in 2006 some 1,600 rural Post Offices, a fifth of the total number of rural Post Offices as existing in 2004, may close. 3,000 urban Post Offices had already closed by 4/04. A £150 million subsidy was introduced in 2003 to keep smaller rural Post Offices open, but this subsidy was to run out in 2006 – it was extended by the UK government, in September 2004, to run till 2008. The Post Office Chief Executive, David Mills, warned that without this subsidy, known as the Social Network payment, up to 80% of rural Post Offices, or around 6,000 of them, could close. Already, the Post Office is (2004) finding it hard in some areas to find new tenants when sub-postmasters retire.


90% of rural Post Offices make a loss, and the smallest 10% only receive 20 customers a week, making a loss of £18 per customer visit (Daily Telegraph, 16/9/04, p.10).  The UK government says a Post Office needs 2,000 customers a week to make a profit. This statistic was virtually repeated in 2006; in a Commons statement Jim Fitzpatrick, Employment Relations Minister, stated that ‘fewer than 16 people a week use the 800 smallest rural Post offices, at a loss to the PO of £17 a visit’. (Daily Telegraph, 23/7/06, p.12).


The Times (9 December 2006, p.1) reported that the Royal Mail had told the UK government that it wanted to close over half of the country’s 14,400 Post Offices. This would leave the UK with approximately 4,000 rural and 2,500 urban Post Offices.  The Government was reported to be ready to agree to closures of some 2,500 to 3,000 Post offices, in urban and rural areas.  Rural areas with subsidised Post offices would be worst hit but even some 100 of the 480 central ‘Crown’ High Street Post Offices would also close.  In 2006 the government was spending £150 million a year supporting rural Post Offices but this funding was due to expire in 2008.


2.4. Possible ways to keep Post Offices open


The Post Office may be accommodated in a pub or even a church. The former solution has been tried in the Republic of Ireland, where Post Office hours, including those of the attached grocery business, lengthened to those of the pub, 11am to 11pm. The Yorkshire Post spoke of the latter solution as part of a return by the church to its old mediaeval role as a community centre, although there might be architectural and ecclesiastical objections to this. Another possibility is having a mobile Post office in a van. So several villages can share one over the week. However some villagers have objected to having mobile vans in their village, housing a peripatetic grocery shop. The Independent Retail News of 30/5/03 reported that in Scotland a sub-Post Office was doubling as the local Police station. Combining the Post Office with other services may be the best way of preserving them in isolated rural areas.  Other Post offices have been relocated in convenience stores, or branches of W H Smiths.


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