Can the Post Office really steal your business from the bank

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The Post Office and Royal Mail have been in decline for years, with branch closures and big losses. As we reported last week, the government's way out of the mess is to partly turn the Post Office into the 'People's Bank'.

This will mean a range of mainstream banking products over the coming year or two, including mortgages, business banking and new current accounts.

But experts doubt the Post Office, which will remain primarily a postal service, can really offer the financial expertise needed to offer the kind of service people get from Lloyds, Barclays or HSBC.

According to Andrew Hagger of Moneynet.co.uk, "The Post Office is a well-established and recognised brand. But apart from convenience [it does, after all, have a huge network of branches], will it really be able to offer anything better than the rest of the market in terms of innovative products, pricing and service?"

"How many branches will have the capacity and trained staff to be able to deal with current account and mortgage business/queries on top of their existing workload?"

The fact is that nowadays we don't just bank at banks. We use them for pensions advice, for travel insurance and investments.

In short, banks are our personal accounts departments and many people will see Post Office as friendly and perhaps trustworthy, but amateurs in the finance game. Most also tend to have much longer queues than banks, with a distinctly rough-and-ready image.

One idea is that the banks will form partnerships with credit unions. Mark Lyonette of the Association of British Credit Unions said this would be good for "reducing financial exclusion and bringing fair and affordable banking services to many more communities".

Such moves are to be welcomed, but they are niche products for people who would otherwise have problems – they are not the mainstream that the Post Office needs to be appealing to.

One of the Post Office's trump cards will be offering mortgages to first-time buyers with just 10% deposit. But many experts say this is just the sort of policy that convinced many people to take out loans they couldn't afford in the early 2000s.

Melanie Bien, from mortgage brokers Savills, said: "Should they be encouraging first-time buyers on low incomes to take on big mortgages without independent advice? Sounds like a potential recipe for disaster."

And since all the banking products will continue to be offered by the Bank of Ireland, it doesn't even do much for the Post Office itself. George Thomson, the general secretary of the National Federation of Sub-postmasters, said: "Half of all profits made on existing financial service products leave the Post Office."