Secret Canada Post files obtained by Blacklock’s show executives rated postal banking a “win-win” before cabinet apparently killed the scheme in favour of drastic rate hikes and service cuts this winter.
Confidential documents indicate managers spent years on research, polling and focus group study that concluded Canada Post could profitably launch the largest banking network in the country.
“This would be a win-win strategy”, read one management report Banking: A Proven Diversification Strategy. Executives poured over profit margins at domestic banks and foreign post offices, even drafting a “vision for Canada Post financial services”. Instead the Crown agency opted for 35% rate hikes this year and elimination of all home mail delivery nationwide.
“It is encouraging to see they spent more than three years looking into it, but the question remains – why didn’t they proceed?” said George Floresco, of the Canadian Union of Postal Workers national executive. “I suspect somewhere between Canada Post and Parliament Hill a phone call was made. It appears the government stepped in.”
The Crown corporation publicly denied any interest in offering insurance, savings deposits and consumer chequing accounts. “It is not our core business,” spokesperson Jon Hamilton said earlier; “Canadians have many options to serve their banking needs. It would require a huge investment to serve a niche market.”
However the confidential records show Canada Post quietly assembled a massive file on postal banking and concluded the venture was profitable. Blacklock’s obtained the records from the corporation’s general counsel through Access to Information. Of 811 pages a total 701 were censored. The files are dated between 2009 and 2013. “The implication is they were taking this very seriously,” Floresco said. “To spend years looking at this issue reflects an in-depth analysis.”
Canada Post’s chief financial officer Wayne Cheeseman did not comment. Records show Cheeseman received reports on retail banking as recently as last October 22, just seven weeks before the post office abruptly announced its winter austerity plan.
“I am shocked,” Floresco said. “They told us nothing about this. We had no idea they were doing this kind of intensive study. We pressed Canada Post on this issue and were told that private banks were already looking after the market.”
Records show the corporation’s CEO and directors had the Canada Post Research Group conduct polls and focus groups on “reaction to Canada Post offering financial services”, according to a 2010 report. The corporation operated Postal Savings Banks for a century till 1968 when management disbanded the system. Canada Post currently has 6519 offices nationwide – a bigger network than the Royal Bank’s 4214 automated banking machines, the largest of any financial institution in Canada. “Some posts including La Poste (France) and New Zealand Post have effectively and successfully created their own banks,” management noted.
Data concluded banking was a proven money-maker, accounting for 13 percent of profits for the U.K. post office; 25 percent for Australian post; 30 percent for France’s La Poste; 54 percent in Switzerland; 71 percent at New Zealand Post Group’s Kiwi Bank; and 78 percent of profits for Italy’s Banco Posta which “was not able to obtain a banking license due to heavy lobbying by existing Italian financial institutions”, but since 1999 has offered government-backed savings accounts at a commission: “This arrangement has proven to be successful for them as banking and insurance represent close to half of revenues.”
Documents indicate Canada Post also examined profits of domestic banks, including smaller on-line institutions like ING Bank of Canada, and even researched Bank Act regulations and minimum capital requirements.
“Virtual banks such as ING have no physical branch network and rely on phone and web access, along with competitive service offerings,” read on 2011 report to Canada Post directors, Financial Services Opportunity. “Hybrid banks (‘clicks and mortar’) emphasize virtual access while leveraging physical retail market position and reach to attract customers.”
The Crown corporation noted ING saw a 33% profit margin on annual revenues of $543 million, with lower margins reported by PC Financial Inc. and Canadian Tire Bank. Profits in Canadian banking averaged 20.5 percent a year, research concluded.
The documents identified no obvious risk to banking, instead urging Canada Post executives to weigh “the size of the prize”, according to the report Banking: A Proven Diversification Strategy. The research identified a single postal bank that failed to show a profit – Ireland’s AnPost, which collapsed along with the nation’s economy in 2010, when the republic qualified for a $127 billion bailout from the European Union and International Monetary Fund.
By Tom Korski