Girobank
Encyclopedia
Girobank was a British
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 public sector financial institution founded in 1968 by the General Post Office. It
started life as the National Giro but went through several name changes, becoming National Girobank, then Girobank Plc (latterly trading as Alliance & Leicester Giro), before merging into Alliance & Leicester Commercial Bank (now part of Santander Corporate Banking
Santander Corporate Banking
Santander Corporate Banking is the business banking division of Grupo Santander.The bank incorporates Alliance & Leicester Commercial Bank, which began rebranding its regional contact centres under the Santander name in 2009....

) in 2003.

The organisation chalked up notable firsts. It was the first bank designed with computerised operations in mind; the first bank in Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

 to adopt OCR (optical character recognition)
Optical character recognition
Optical character recognition, usually abbreviated to OCR, is the mechanical or electronic translation of scanned images of handwritten, typewritten or printed text into machine-encoded text. It is widely used to convert books and documents into electronic files, to computerize a record-keeping...

 technology; the first UK bank to offer free accounts to individuals; the first bank to offer interest-bearing current accounts, and the first bank in Europe to offer telephone banking
Telephone banking
Telephone banking is a service provided by a financial institution, which allows its customers to perform transactions over the telephone.Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability...

, beating the much trumpeted First Direct
First Direct
First Direct is a telephone and internet-based retail bank in the United Kingdom, a division of HSBC Bank plc. First Direct has headquarters in Leeds, West Yorkshire, England, and has 1.16 million customers....

 service by several years. It is widely credited for shaking up the UK banking market, forcing competitors to innovate and respond to the needs of the mass market.

The concept

Postal Giro or Postgiro systems have a long history in European financial services. The basic concept is that of a banking system not based on cheque
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...

s, but rather by direct transfer between accounts. If the accounting office is centralised, then transfers between accounts can happen simultaneously. Money could be paid in or withdrawn from the system at any post office, and later connections to the commercial banking systems were established, often by the convenience of the local bank opening its own account at the Postgiro.

By the middle of the 20th century, most countries in continental Europe had a postal giro
Giro
A Giro or giro transfer is a payment transfer from one bank account to another bank account and instigated by the payer, not the payee...

 service. The world's first post office giro
Giro
A Giro or giro transfer is a payment transfer from one bank account to another bank account and instigated by the payer, not the payee...

 banking system was established in Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

 in the late 19th century by the Österreichische Postsparkasse
Österreichische Postsparkasse
Österreichische Postsparkasse is a postal savings bank in Austria. It was owned by the Austrian Mail and thus by the government. It merged in 1 October 2005, with the BAWAG to form BAWAG P.S.K..-During the Austro-Hungarian Empire:...

. By the time the British Postgiro was conceived, the Dutch
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

 Postgiro was very well established with virtually every adult having a postgiro account with very large and well used postgiro operations in most other countries in Europe and Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...

.

The term "bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

" was not used initially to describe the service. The banks' main payment instrument was based on the "cheque" ("check" in American English) which has a totally different remittance model from the "Giro
Giro
A Giro or giro transfer is a payment transfer from one bank account to another bank account and instigated by the payer, not the payee...

".

In the banking model, cheques are written by the remitter and then handed or posted to the payee who must then visit a bank or post the cheque to his bank. The cheque must then be cleared
Clearing (finance)
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....

, a complex process by which cheques are sorted once, posted to a central clearing, sorted again, and then posted back to the paying branch where the cheque is finally checked and then paid.

In the Postal Giro model Giro Transfers are sent through the post by the remitter to the Giro Centre. On receipt, the transfer is checked and the account transfer takes place. If the transfer is successful, the transfer document is sent to the recipient, together with an updated statement of account being credited. The remitter is also sent an updated statement. In the case of large utilities
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...

 receiving thousands of transactions per day, statements would be sent electronically and incorporate a reference number uniquely identifying the remittance for reconciliation
Bank reconciliation
A Bank reconciliation is a process that explains the difference between the bank balance shown in an organisation's bank statement, as supplied by the bank, and the corresponding amount shown in the organisation's own accounting records at a particular point in time.Such differences may occur, for...

 purposes.

Reason for establishment in the UK

Politics
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...

 played a part in the development of the National Giro as the British Postgiro was named. It reflected a general feeling in the Labour Movement
Labour movement
The term labour movement or labor movement is a broad term for the development of a collective organization of working people, to campaign in their own interest for better treatment from their employers and governments, in particular through the implementation of specific laws governing labour...

 that the banks were not meeting the mass banking needs of the British population. In the early 1960s, the majority of adults in the United Kingdom did not have a bank account and the banks did not court business from the working class
Working class
Working class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...

es, which they regarded as unprofitable. If you were working class, you would be paid weekly and in cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

. If middle class
Middle class
The middle class is any class of people in the middle of a societal hierarchy. In Weberian socio-economic terms, the middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class....

, you were more likely to be salaried
Salary
A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis....

 and paid with a bank cheque at the end of the month. If you could afford to have a bank account, you could pay the cheque into the account -- but even among the middle class, many had no bank account. It was common practice for cheques to be endorsed to local traders (and especially the milkman
Milkman
A milkman is a person, traditionally male, who delivers milk in milk bottles or cartons. Milk deliveries frequently occur in the morning and it is not uncommon for milkmen to deliver products other than milk such as eggs, cream, cheese, butter, yogurt or soft drinks...

) who would know the customer and be prepared to exchange the cheque for cash.

In the 1960s, although most towns had one or more bank branches, smaller communities very often had no bank branch at all. Post Offices, on the other hand were just about in every community. There used to be about 22,000 Post Offices in the UK compared to about 3,000 bank branches. The Post Office was ideally placed to establish a viable mass banking system.

The banks also were rather secretive about their tariff structure which were never published. The Post Office would publish a tariff of charges, the key one being that transfers between accounts would be free of charge, thus encouraging the adoption of the system.
At a stroke the National Giro, as the service would be called, would, it was hoped, revolutionise banking in the UK.

Planning for the National Giro

Computerisation, it was argued, would transform the profitability of the new system, and it was estimated that a payment between two National Giro accounts could be made in 24 hours if there was a central accounting office located at a good communications hub. This would also speed up the national bank payment clearing system based on local bank branches and centralised cheque exchange requiring cheques to be returned to local branches. This had (and to this day still has) a 3-5 day clearing cycle.

The Wilson government placed an Act
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...

 before Parliament
Parliament of the United Kingdom
The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body in the United Kingdom, British Crown dependencies and British overseas territories, located in London...

 and The Post Office's central planning department and its new Computer Division began business and technical planning for the new service.

The Post Office bought land at Bootle
Bootle
Bootle is a town within the Metropolitan Borough of Sefton in Merseyside, England, and a 'Post town' in the L postcode area. Formally known as Bootle-cum-Linacre, the town is 4 miles  to the north of Liverpool city centre, and has a total resident population of 77,640.Historically part of...

 on Merseyside
Merseyside
Merseyside is a metropolitan county in North West England, with a population of 1,365,900. It encompasses the metropolitan area centred on both banks of the lower reaches of the Mersey Estuary, and comprises five metropolitan boroughs: Knowsley, St Helens, Sefton, Wirral, and the city of Liverpool...

 on the site of a sidings
Rail siding
A siding, in rail terminology, is a low-speed track section distinct from a running line or through route such as a main line or branch line or spur. It may connect to through track or to other sidings at either end...

 of the North Mersey Branch
North Mersey Branch
The North Mersey Branch is a railway line that connected the Liverpool and Bury Railway at Fazakerley Junction with the Gladstone Dock. It was opened in 1867 by the Lancashire and Yorkshire Railway.- Usage :...

 railway. It also built a large, purpose built office and data processing
Data processing
Computer data processing is any process that a computer program does to enter data and summarise, analyse or otherwise convert data into usable information. The process may be automated and run on a computer. It involves recording, analysing, sorting, summarising, calculating, disseminating and...

 complex for the site. It was rumoured that the buildings had been planned with an alternative use as a hospital
Hospital
A hospital is a health care institution providing patient treatment by specialized staff and equipment. Hospitals often, but not always, provide for inpatient care or longer-term patient stays....

 should the project be abandoned.

The National Giro was the first financial institution in Europe and possibly the world, to be established from the outset to be fully computerised. What's more, it broke new ground in Europe when it adopted Optical Character Recognition for its transfer, inpayment and outpayment transaction documents, making it possible for the first time for utility companies and mail order companies to print their own personalised remittance slips and automate at least part of the complex accounting processes.

Uncertainty and the "Green Light"

The early years of the National Giro were unprofitable. This was hardly a surprise given that a huge amount had been invested in establishing a service infrastructure that began with zero customers. Similar types of enterprise such as the credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...

 operator, Barclaycard
Barclaycard
Barclaycard, part of Barclays Retail and Business Banking, is a global payment business. The Barclaycard was the first credit card introduced in the UK, coming into service in 1966. It enjoyed a monopoly until the introduction of the Access card in 1972....

, would also take many years to begin to build a base from which to begin recouping both capital and labour costs. Nevertheless, the largely middle class press led by the Daily Telegraph and the Daily Mail
Daily Mail
The Daily Mail is a British daily middle-market tabloid newspaper owned by the Daily Mail and General Trust. First published in 1896 by Lord Northcliffe, it is the United Kingdom's second biggest-selling daily newspaper after The Sun. Its sister paper The Mail on Sunday was launched in 1982...

were hostile to the creation of the National Giro as were the banks, which saw it as a long term threat. When a Conservative
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...

 government came to power in 1970, there were pressures on the government to close the still loss making operation.

The Post Office made a strong case for adding new services that could transform the financial viability of the operation. Essentially, it proposed that it tackle both the income and expenditure side of the business.
  • On the expenditure side, it would limit the growth in staff by limiting the plans for expanding the personal customer base. As this grew, transaction costs grew (including the cost of remitting all those daily movement statements). Advertising
    Advertising
    Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...

     ceased and charges were introduced that would discourage further growth in the personal giro account business.

  • It also proposed that the government itself should start using the Giro by making social security
    Social security
    Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...

     payments through the service. As most people still did not have bank accounts, this led to the birth of the girocheque, a payment instrument exchangeable at the Post Office for cash, but equally capable of being paid into any bank account.


The biggest change, however, took place behind the scenes. Instead of focusing on the needs of the utilities (which had by this time already adopted the Giro) and the personal banking market, the National Giro would aim to capture the cash deposit business then dominated by the commercial clearing banks
Clearing (finance)
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....

. The Post Office itself was a major customer of the commercial banks. It had a constant need for cash in order for it to pay out social security payments (welfare payments and pensions). Bank notes and coin had to be obtained from the banks which charged a fee for this service. The banks were also charging the depositors of these notes and coin, all of which needed to be counted before being passed on to the Post Office (which itself then had extra costs in counting the money provided by the banks. The new system was brilliantly simple. Large depositors of cash (supermarkets, petrol (gas) stations etc.) would be encouraged through pricing to pay their cash into the Post Office. Post Offices are more convenient and open longer hours so there was a natural case for choosing the Post Office. What's more, the depositor would count the money once and seal it discrete envelopes of say, units of £100, £500 or £1000. The Post Office would take the money on trust, but commit to counting it not on receipt, but within a fixed period, of say 5 days. Thus within the Post Office, money could be handled very easily and its source was clearly marked. The money would be counted at the time it was needed (i.e. when the envelope needed to be opened). Discrepancies were reported to the Giro, so that any attempt at systematic fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...

 could be easily identified. And the Giro could charge both the depositor for the deposit and the Post Office as an internal charge for the provision of the cash. As these charges were lower than those being charged by the commercial banks, everybody was happy. The Post Office internal handling of cash also became much simplified by the handling of fixed value envelopes.

The government accepted the plan, and after a great deal of uncertainty the National Giro got its long awaited "Green Light".

The new plan was a great success and provided a firm financial foundation for its operations, although at some cost to the great plan to move the country over to using the Giro for remittances instead of the banks.

Banking for the masses

By the late 1970s, one pound in every four pounds deposited in cash at a bank in the UK was deposited with the National Giro at the Post Office. This would later rise to one pound in every three. The organisation was again profitable and repaying its capital costs. Indeed, its rate of return on capital was higher than that of the commercial banks, and this allowed the government to relax the constraints it had placed on the National Giro and even allow for further capitalisation.

In 1978, National Giro renamed itself National Girobank to re-establish itself in the minds of the public as a bank, rather than some quasi non-bank. Its status as a bank had been fixed in law, but it had until now been reluctant to use the term. It also re-launched its ambition to be the People's Bank, and introduced completely free banking to UK personal customers. This included free postage for the remittance of documents to the Giro Centre as well as free cheques and deposits (the terms inpayments and outpayments were dropped).

The new campaign was a great success and at first the bank had trouble keeping up with the flow of new business it generated.

Later the bank dropped the word National from its title, simply being known as Girobank plc as a prelude to privatisation.

Although the bank gained a large number of new accounts it never reached the level of penetration achieved by the European Postgiros to enable it to become the main payment clearing system in the UK as was the dream of its creators. The main reasons are given in the next two sections.

Girocheque as a derogatory term

The term Girocheque quickly became associated with welfare dependence. Worse still, the name was often contracted to Giro making little distinction between the welfare cheque and the business. Having a giro account meant writing one's own girocheques and although recipients of girocheques did not need to have (and most did not have) a giro account, girocheques issued by personal customers were sometimes viewed with suspicion by the recipient. They also carried the name and address of the issuer, making them very noticeably different from the cheques issued by other banks and noticeably similar to welfare girocheques.

This issue was rectified in the 1978 relaunch. The term girocheque was dropped in favour of the more neutral cheque. Nevertheless the media continued to refer to Girocheques as Giros.

Competition

The commercial banks had not been slow to respond to the challenge of competing with the National Giro and had developed their own credit transfer service known as Bank Giro, primarily aimed at the same utilities that the Giro had attracted. It still mainly required a visit to a bank branch and there was no free postage for the remitter.

The banks had also responded to the criticism that they were secretive about their tariffs and for the first time published a standard tariff for personal customers. They also began heavy advertising to the personal banking sector in order to capture the customers that the National Giro had been forced to give up on during the period between the Green Light and the relaunch of Free Banking some seven years later. They had also adopted new services such as credit cards, personal loans and revolving credit accounts which Girobank could not easily do until it had a significant base.

Although the Giro did offer personal loans through a third party, it did not offer many of these main services on its own behalf until after the relaunch in 1978. It added savings accounts, overdraft
Overdraft
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft...

s, revolving credit
Revolving credit
Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Examples of revolving credits used by consumers include credit cards. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day...

 accounts, credit and debit cards, and was instrumental in the formation of the LINK
LINK (UK)
LINK is a shared interbank network of automated teller machines operating in the United Kingdom. The network counts 37 member institutions, of which many are various banks and building societies issuing LINK ATM cards, and the remainder are independent ATM operators who do not issue cards...

 ATM
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...

 consortium of smaller banks and building societies
Building society
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially mortgage lending. These institutions are found in the United Kingdom and several other countries.The term "building society"...

 which led the commercial clearing banks to begin linking their own networks which they had hitherto refused to do. It was also quick to establish internet banking and mass market it to its customers. So although the Girobank ended up looking much like any other bank, it was clearly nothing like the type of bank it originally expected to be, but it had also been instrumental in changing the competitive nature of the banking market in the UK and had been a great innovator.

Privatisation

The Alliance & Leicester
Alliance & Leicester
Alliance & Leicester was a former UK-based bank and PLC, which in later years operated as a trading name of Santander UK before being rebranded as Santander. Alliance & Leicester was legally acquired in May 2010 by Santander UK, and was fully incorporated by 2011...

 Group won a bidding process for the Girobank operation in 1989 when the government decided to privatise
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

 it. The transaction was completed in 1990. By the time of the privatisation, the bank was essentially indistinguishable from its competitors apart from the fact that it used Post Offices to transact cash business. The contract with the Post Office was to continue to be an exclusive one for a fixed period after privatisation. Nowadays, the Post Office provides cash services to many banks on a commercial basis.

The personal banking business of Girobank became part of the Alliance & Leicester Building Society directly. The Business Banking arm continued trading under the name of Girobank as a wholly owned subsidiary of the Alliance and Leicester Group but has, since July 2003, been renamed as Alliance & Leicester Commercial Bank following further consolidation in the Alliance & Leicester Group. In May 2010 Alliance & Leicester was acquired by Grupo Santander
Grupo Santander
The Santander Group is a banking group centered on Banco Santander, S.A., the largest bank in the Eurozone and one of the largest banks in the world in terms of market capitalisation. According to Forbes Magazine Global 2000, it is the 13th largest public company in the world...

; the name Alliance & Leicester will be replaced by Santander UK
Santander UK
Santander UK plc is a wholly owned subsidiary of the Spanish Santander Group. Based in the United Kingdom, it operates under the name of Santander. Santander is the third largest bank in the UK in terms of deposits, the second largest in terms of mortgages held, and the fourth largest in terms of...

.

While the name "Girobank" is no longer used, the organisation lives on within the Alliance & Leicester Group. The name "Girobank" is, however, still used on some Bank Giro Credits intended for paying bills, along with the Alliance & Leicester "plus" logo. Some Councils even continue to use the original name "Post Office".Giro".

Campaign for re-establishment

On 17th March 2009, a campaign was launched to bring back Girobank.
Backers include some MPs, trade unions and small businesses.
If the plans were implemented, 11,500 Post Office branches would offer a full range of banking services.

See also

  • Giro
    Giro
    A Giro or giro transfer is a payment transfer from one bank account to another bank account and instigated by the payer, not the payee...

  • Personal account
    Personal account
    A personal account is an account for use by an individual for that person's own needs. It is a relative term to differentiate them from those accounts for corporate or business use...

  • Current account (banking)
  • Alliance & Leicester Commercial Bank

External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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