People's Bank a new way not a time warp

Critics struggle with the People's Bank idea as it is smashing the banking paradigm.

The trend over the years has been to close down branches, shift people to electronic forms of payment, and build a customer base of individuals with high bank balances, and focus on business banking.

The People's Bank will have the biggest branch network in the country, it will only bank individuals, and options like Internet banking will be provided, but they are not considered high priority parts of the business.

It's little wonder then that people are scratching their heads over this one and saying the whole idea is a trip back in time to the old Post Office Savings Bank days of the 1960s.

When you look at the proposal with an objective and open mind it is possible to see that this thing could work.

NZ Post already has a branch network that delivers multiple services, from post office functions through to some financial services.

Because the branches are already there and they are generating profit, the bank is business expansion at marginal cost.

The decision to only bank individuals means that the People's Bank has a much lower risk profile than the mainstream banks. The line, spun by opposition politicians, that only beneficiaries will bank at this organisation is simplistic. It could well be argued that these people are the least likely to switch because they are reasonably unsophisticated in financial affairs.

While NZ Post has yet to reveal its target markets, it's a reasonably safe bet to assume it will be attractive to many middle class New Zealanders.

Another point lost on critics is that NZ Post is actually quite a technology savvy organisation. It sells its postal technology offshore, plus it already has some nifty services in the financial services areas, such as its electronic bill payment service eBill.

The other big plus on the technology side is that NZ Post isn't burdened with legacy systems, therefore it should be pretty nimble and competitive in the technology area.

There have been plenty of instances in the past where newcomers to the financial services industry (eg: Sovereign) have been able to trounce its competitors, as the older players have to struggle with legacy systems.

What's more NZ Post has the other vital ingredients for success.

It has a strong brand, and trust - arguably two essential ingredients for success in financial services.

The importance of brand shouldn't be dismissed. Bank Direct was the last bank to set up a niche retail banking business in New Zealand and it has spent millions of dollars on building a brand. NZ Post doesn't have to spend that sort of money.

It has a captive market. There is market demand for an alternative banking option. The Consumer's Institute, the Banking Ombudsman and the Ministry of Commerce provide plenty of evidence that New Zealanders are dissatisfied with the level of fees and services provided by the Australian-owned banks. Kiwis like the idea of a 100% locally owned bank, if they didn't TSB Bank wouldn't bother using the tagline: "The only 100% New Zealand owned bank."

Finally, it has management. The people who run NZ Post aren't mugs. The company has been highly successful, and it, along with chief executive Elmar Tomie, have won accolades for their management.

NZ Post has researched the project for at least two years, and they put the proposal to its shareholding ministers.

That must say something.

The People's Bank is a done deal. Some dogs are madly barking up the wrong tree. It's worth putting aside the politics of the idea and making sure the nearly $80 million which is invested is used wisely.

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