Branches could swing this banking battle

The Post Office's 11,500-strong network could help it beat high street lenders with a new current account.

The Post Office revealed this week it will launch a current account. While that may come as a surprise to those with long memories who still remember the old Girobank which operated out of Post Office branches, there hasn't actually been a branch banking service offered through the network for years.

That's set to change in a matter of weeks when the Post Office launches a current account. It won't be available across the whole branch network until 2014, but the move marks the first challenge to the high street banks from a credible alternative that can offer a significant branch network to back up its banking proposition.

For a long while it looked as if that challenge would come from the supermarkets, with Tesco and Sainsbury's believed to be planning to launch accounts. The fact that the Post Office has stolen a march by promising to launch its account in a few branches this spring should mark the beginning of the battle for our bank account business.

The move has been universally welcomed. Chris Leslie, the shadow Treasury minister, said: "It is a sensible move by the Post Office to take on the high street banks – they are a trusted brand but will need to prove they can compete. Basic banking services are under threat as the big five banks chip away at the free cash machine network and fees for services are heading the wrong way."

Richard Lloyd, executive director of consumer group Which? said: "We welcome new entrants to the current account market to increase consumer choice and tackle the unhealthy dominance of the biggest banks."

It's not just the Post Office that is hoping to break the big banks' dominance of the current account market. In the last month the Nationwide building society has upped its challenge with two new accounts, more are planned.

Phil Smith, Nationwide's head of current accounts, said: "We have made no secret of our desire to increase our current account market share by offering consumers a real alternative to the big banks. We believe that while you do need a bank account, you don't need a bank."

In the next 18 months the mutual is set to make further inroads into the banks' dominance with further new launches. Meanwhile, the Co-operative is still hoping to complete the purchase of 600 or so Lloyds Banking Group branches to give it a network approaching 1,000 branches.

It is likely to be branches that makes the difference in this banking battle, despite a high proportion of people using online banking or phone apps to do their transactions. But many still prefer to have a bank with a nearby branch. Some 7,734 local bank branches have disappeared since 1990, according to research by the Campaign for Community Banking.

The fact that the Post Office already has a nationwide branch network should give it a great advantage. Despite shrinking its network almost in half during recent years, it still has around 11,500 branches and already has strong ties with Bank of Ireland, which will be providing the banking expertise behind the new launch.

But its success depends on what kind of bank account it plans to launch. All it has said so far is that it will offer "simplicity, transparency and good value for money".

If it can achieve that, by this time next year the banks may face real competition.