As an expert in international postal financial services, Hans Boon can offer a number of interesting insights in how Posts can set up partnerships with financial partners. Currently working with the International Fund for Agricultural Development, he is part of the team dedicated to the African Postal Financial Services Initiative of which the UPU is a partner. Under the initiative, projects are currently being implemented in Ghana, Benin, Madagascar and Senegal and being prepared for seven other African countries.
Union Postale: Is creating a partnership a short-term hit?
Hans Boon: The preparatory process for building a partnership can be long; sometimes it’s not months but years. In some cases, this is too long and opportunities are missed. The challenge is how to develop a more effective way of partnership-building. We hear of the success stories at conferences and in seminars but the reality is that there are failures. Partnerships collapse, banks go bankrupt, microfinance institutions disappear or changes happen at the Post and result in a discontinuation of the partnership.
How can failed partnerships be avoided?
As a principle, more structured knowledge-sharing is needed to assist Posts in actually building partnerships and to learn from experiences elsewhere. There is a lot of value in learning about why it did not work, why it failed and how it should have worked. What is the rationale of building a partnership versus organic growth? Organic growth is the model, which you build within your own organization and financial services and you try to expand on them, doing all the operations. Time is an important factor.
What reasons are there for partnerships?
Sometimes, there are legal and regulatory reasons. Very often, the Post does not have a licence for certain financial services and it is also very difficult to obtain that licence. It might be for political or financial reasons. There is also, in many cases, a limitation in organic growth in the form of capital or finance as the funds available to invest in new services or in expanding or improving the financial sevices are limited. Therefore, certain gaps could be filled through a partnership.
Another reason to build a partnership can be knowledge or management capacity. It is not possible to hire or recruit within the postal organisation certain professionals in banking or financial services and it is possible to enter a partnership with a financial service. Again, we need to outline very well what the rationale is. For each Post, it will be quite critical to define why it should look for a partner and for what kind of partner.
Why are other players interested in a partnership with a Post?
It is not enough to say that a partnership can be built because a Post has 1,000 offices. It could be that they have not been renovated for the last 30 years and are not equipped. If we talk about entering into a partnership, we all know that there are many risks.
And the ideal partner?
Commitment on both sides is important. A partner-ship is not a free-wheeling arrangement that can be stopped the next day. On the one side, there is the Post – it has a reputation, a social mission, a public obligation. Therefore, any partner has to be a really serious institution with a long-term commitment to build a business and not making a quick profit.
What are the important building blocks for a relationship?
One is the brand value of the Post. Brand value is also known as trust, confidence or reputation. A very important element of the Post is its reputation and this can be expressed in a financial value. The United States Postal Service recently estimated the value of their brand at 3.7 billion USD. This is a high amount but I think it is underestimated. However, it signals to many other Posts thinking about building a partnership how to deal with comments from a potential partner, saying “you don’t have a good-looking postal network, your staff needs to be trained, you don’t have the equipment”. What is very critical, and in fact more so in financial services, is that the Post has a brand, a name and a reputation and that also has a price.
How can Posts evaluate their brand?
The postal operators need to have tools and instruments to realistically evaluate this price. To build a partnership is a mutual case of reputation. As a postal operator, it means, given your public mission and given the brand value, it is not really possible to engage with a certain type of financial services. The potential partner needs to be a well-established financial institution that has a sense of social responsibility and a long-term view on expanding inclusion. This also means that, if you think about building a partnership, you have to outline what the conditions are to build one. It helps the Post to have a sector policy, financial statements and clear accountability. It also helps to have the postal network interconnected but, if it is not, what can be done to interconnect it? It is also very important for the Posts to know what you should demand from the other party.
“The potential partner needs to be a well-established financial institution that has a sense of social responsibility and a long-term view on expanding inclusion.”
What could the partnership be about?
We could think about a partnership for one product line. For instance, the focus of the IFAD-UPU project is remittances. This is one product line. For the postal operator, there is still the question of how does this one product fit in the overall set or range of products to be provided to the consumers. It is also possible to think about partnerships for a client segment or specific products like insurance, credit, securities. It is more important for a postal operator to define how it can better serve its clients. Maybe the most important element in the partnership is the post offices
as the distribution network for the financial services. Post offices are not really a single separate distribution channel but they fit somewhere in an ‘only channel environment’. There are many channels in this ecosystem – whether it is mobile, terminals, self-service terminals, internet, bank branches or agents. The post office is a specific channel that could attract a large part of the population but not everyone. It is always good to look at where the actual or potential place of post offices is. Where are they located in relation to actual bank branches, agencies and ATMs and how do post offices fill the gap?
How important is technology?
Retail technology and connectivity are critical. It is very important that the UPU considers the connectivity of post offices, especially in Africa, a very high priority. A network is only networked if it is connected. Retail technology includes security scanners, printers, and so on, to make the services possible. Here, the challenge is also what we call interoperability. It is not about a separate technology for a separate operation but it needs to be able to connect for instance with payment cards, payment systems and other financial systems.
Where does cash management fit in?
This is critical. Cash management means different things, such as, at the head office, do you have a real-time online overview of what your cash position is in the different post offices? It also means how to organize the cash storage in post offices. What is the optimum amount to be stored in the post offices? And how do you transport cash, do you need secured cars and how do you keep control of the routing of those cars? How do you balance the cost against the benefits of security and keeping a balance? Some Posts have been building a centralized treasury system where they can follow the cash position quite accurately. But I see in quite a number of postal operators that this is not present and, under the IFAD project, one initiative is to prepare a toolkit for cash management, liquidity management and cash logistics to find the optimum. The optimum will differ from country to country, from month to month, seasonal patterns and customer behaviour, but at least there is a basis to go forward.
Where does cash management fit in?
This is critical. Cash management means different things, such as, at the head office, do you have a real-time online overview of what your cash position is in the different post offices? It also means how to organize the cash storage in post offices. What is the optimum amount to be stored in the post offices? And how do you transport cash, do you need secured cars and how do you keep control of the routing of those cars? How do you balance the cost against the benefits of security and keeping a balance? Some Posts have been building a centralized treasury system where they can follow the cash position quite accurately. But I see in quite a number of postal operators that this is not present and, under the IFAD project, one initiative is to prepare a toolkit for cash management, liquidity management and cash logistics to find the optimum. The optimum will differ from country to country, from month to month, seasonal patterns and customer behaviour, but at least there is a basis to go forward.
How complicated a beast is a partnership?
The contract is a small formal step in the whole process. It requires that the different layers of the organization on both sides have counterparts. And this is one of the critical challenges. On the Post’s side, it is sometimes underestimated how many contact points are needed between it and the financial partner. It needs a whole team structure on both sides with working groups. Nevertheless, even if that is in place and working well, we need to take into account that this partnership is between two organizations with very different cultures. Different cultures means there is a risk of emotional clashes. And this needs to be taken into account and anticipated by management. It needs constant attention and training.
What about regulatory aspects?
We all know that central banks may frown if approached by post offices wishing to expand their financial services. Central banks are not always familiar with how to provide financial services via the post office and they may object. They might also object because there are already only a small number of commercial banks or friendly savings banks and so, it might not be in the interests of the central bank to go forward with post offices. Therefore, a very important element in regulatory
issues is to solve the issues in both the financial and postal regulatory frameworks.
It is quite obvious that post offices can play a very significant role in universal access to financial services. Also, in principle, there is an interest and a commitment on the part of the international development community to support and expand access to financial services through post offices.
What is remarkable about the UPU-IFAD partnership?
It is a remarkable international partnership because it shows the interest of international organizations in leveraging the usage of postal network for financial inclusion. It is widely believed that post offices have big potential in improving access to financial services, but very often the potential is not captured. If we look both in Africa and around the world, we see that some kind of partnership between the Posts and financial institution – and this can be a bank, it can be a microfinance institution, it can be a money transfer organisation – exist. They are being developed
in more than 80 per cent of the countries where Posts are active in financial services. But we also see different models ranging from simple standard contracts with very little advantage for the Posts to long-term arrangements and joint ventures in investments. It would be good to have these different models clearly defined, also the pros and cons of the different models and what is more interesting for the Post.