Australia Post turns tables in $1bn battle with big banks

Paul Graham is seizing the moment to keep Australia Post delivering. This time he wants banks to be part of the solution.

Australia Post CEO Paul Graham has given himself a tight window to overhaul its agreements with banks.

A small modern building, set well back from the main street in a town outside of Melbourne, has become the new front line in the fierce behind-the-scenes battle between Australia Post and the nation’s big four banks.

In the past few years, as each big-name bank pulled its branches out of the town one-by-one, the cramped post office, along with selling stamps, cheap phones and fluffy toys, has suddenly become the de facto bank branch.

In fact, it’s the only place for miles around that can process cheques in between passport applications. And despite the cash flooding into the post office from busy local pubs, hairdressers, and even farmers – it is losing money. Big time.

Australia Post’s letters business lost almost $400m last year.

That why AusPost boss Paul Graham wants to blow up the contracts it entered into shortly before he joined two years ago, when the post office agreed to process the branch transactions of the banks for a fee.

Now with the political momentum on his side, Graham sees a window to put things right and has given himself a deadline of between three and four months to strike new deals.

The anger is palpable inside AusPost about the longer-term contracts. The government-owned post office believes it wasn’t given the full picture of the intent at the time of signing the long-term deals. The scope of the contracts has dramatically widened to the point where it is now handling more than $10bn in additional cash annually. This is a massive step up in volume.

Graham suspects what was intended as a partnership has instead become a free pass for banks to extract cost savings by leaving town.

His campaign was given a big political push when Treasurer Jim Chalmers last week told ANZ to find a commercially acceptable deal with AusPost as part of his conditions for approving the bank’s $4.9bn buyout of Suncorp.

Initially, AusPost saw an opportunity to support the funding of its 4300-plus branch network, including those owned by small operators, by working with the banks to take on their spillover deposit transactions. And in some cases, the services would deliver basic banking services into regional towns where no banks have trodden for years. There are now about 300 post offices where no bank is nearby.

Former AusPost boss Christine Holgate got the ball rolling in 2018 when she signed up CBA, Westpac and NAB for a combined $220m into a rebooted Bank@Post over three years, plus a stepped transaction fee. At the time, she said these agreements were the single largest investment into the nation’s post office network from a non-government agency.

Holgate was pushed out of the role by the Morrison government in late 2020 and the world has changed since then.

The humble post office in many cases is the last bank branch in town. Picture: NCA NewsWire/Penny Stephens

What took the post office by surprise is the sheer number of branch closures since 2018, which accelerated during the Covid pandemic (Commonwealth Bank and Westpac have separately put in a moratorium on regional branch closures).

“Australia’s banks have closed thousands of branches across the country over the past few years, including branches in hundreds of regional towns. AusPost has stepped in to fill the void that this has left behind,” Graham told a recent Senate estimates hearing.

The funds set to flow through to AusPost from the current deals are not insignificant, and could amount to as much as $900m over the next decade. However, with over-the-counter transactions now pushing past 16 million a year and fast rising, the collective $90m annual payments the big four and dozens of other banks represents a drop in the ocean for the volume of work involved.

The numbers remain confidential but Westpac two years ago signed on for a $200m deal extending until 2032. Commonwealth Bank and National Australia Bank also have 10-year deals in place. ANZ has been a holdout from signing on to the scheme, which means AusPost regularly turns its customers away.

There is now the additional cost of transporting cash around, and expensive safety and security upgrades that had to be rapidly rolled out.

AusPost is now finding itself facing massive regulation risks such as navigating anti-money laundering rules as it processes billions of dollars in funds.

Added to the pressures of Bank@Post is the hot button issue of cold hard cash.

Some banks have pushed their branches to go cashless by pushing their customers to use ATM services. But this doesn’t always work for pensioners, occasional bank users and even farmers. Many still want the security of an over-the-counter transaction.

Graham has told staff of his experience walking into a branch of a big four bank in one regional town, where the person behind the teller helpfully directed him to the AusPost branch down the road to process the over-the-counter cash transaction. It’s this story, played out countless times across Australia, that is the source of his frustration.

Added to this there are now demands for more complicated transactions well beyond the scope of the Bank@Post agreement, particularly as more small business owners are coming Graham’s way.

Last year, more than one million cash-heavy business transactions were processed in the post office. This “was never envisaged or intended when Bank@Post first commenced”, Graham told the senators.

Australia Post’s Paul Graham appears before Senate estimates at Parliament House. Picture: NCA NewsWire/Martin Ollman

On Graham’s own estimates, the major banks have collectively managed to offload between $4bn and $5bn in cumulative savings on to AusPost.

Banks contacted by The Weekend Australian strongly dispute this number. While the terms of the contracts are confidential, they also claim they entered into Bank@Post agreements in good faith.

One bank executive says there is a feeling of surprise that AusPost is looking for a renegotiation of a commercial agreement just two years in. The banks too also point to the annual $22m community investment fund designed to pay for security upgrades and other costs of the service.

Still, the complications of main street banking are increasingly pulling AusPost away from its core business. For example, it is now a big player in the heated debate about keeping the pressured Armaguard cash delivery business going. Graham was involved in the recent round of talks including banks to bail out the Armaguard cash delivery business that was on the brink of collapse. A $50m funding injection including from AusPost has given Armaguard a temporary lifeline, but a longer-term answer is yet to be found to keep Australia’s last remaining cash transport company afloat.

Graham’s agenda is all about putting the post office on a sustainable footing in keeping with its commitment to continuing to serve the community. While his parcels business is booming, revenue from letters is collapsing.

This means it is becoming increasingly harder to fund the massive infrastructure supporting the timely delivery to all parts of Australia. AusPost lost just over $200m last year as its letters delivery business stalled. Indeed, the loss on delivering letters is now nearing a hefty $400m annually.

Graham simply doesn’t need the headache of added losses from banking while he tries to fix the letters business. He has indicated he is not looking to generate a windfall out of the Bank@Post deal, rather he wants fair compensation for the services of his post office network – particularly for the privately owned licence holders struggling as letters volumes are falling.

Those close to the talks say AusPost is eyeing price rises in the ballpark of 30 per cent and the additional of volume and business banking step-ups.

ANZ has been told by Treasurer Jim Chalmers to strike a commercial deal with Australia Post. Picture: Getty Images

Given the sheer size of the big banks, the additional cash outlay of this would be a rounding error for any of them, but Graham believes it is enough to put the Bank@Post partnership on a sustainable long-term footing.

Graham is reluctant to walk away entirely given AusPost’s regard for community obligations. He could revert to the letter of the contracts to only do very basic transactions, but knows there are reputation risks for all parties by going down this path.

So far, Commonwealth Bank has been the most receptive to reopening talks, particularly as it generates the largest number of customers for Bank@Post. NAB and Westpac are watching developments.

After holding out for so long, ANZ is set to become the first to sign on to a new deal. It quickly reached out to Graham and his new head of retail Josh Bannister, seeking talks last Monday.

It just so happens that was the first business day after the Treasurer told ANZ to get to the negotiating table as part of approval for the Suncorp deal. A deal with ANZ, and the terms of any agreement should set a benchmark for others to follow.

“We are talking to our banking partners now, and I am confident that they recognise their obligation to recommit their support of Australia Post so that together we can continue to serve their customers, particularly in rural and regional areas,” Graham says.

[e-mail]

Originally published as Australia Post turns tables in $1bn battle with big banks