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barrie mckenna

February marks the beginning of the end of door-to-door mail delivery in Canada.

Canada Post is poised to announce the first batch of neighbourhoods to be shifted to community mailboxes as it ends delivery for the roughly five million homes that still get it.

The cuts mark the first step in

a five-year effort to deal with mounting losses and shrinking mail volumes at the post office. More importantly, the phase-out of home delivery heralds a much smaller Canada Post – one that will inevitably be less relevant to Canadian businesses and individuals.

As part of an overhaul announced in December, the money-losing Crown corporation is also eliminating up to 8,000 jobs, franchising more postal outlets and sharply increasing stamp prices.

A shrunken Canada Post may be exactly what the federal government wants. Ottawa rejected two possible reform paths favoured by other national postal systems: British-style privatization or a move into financial services, as the United States is pondering.

Transport Minister Lisa Raitt, who is responsible for Canada Post, defended the changes in the House of Commons last week, saying the post office is merely aligning "its services with the choices Canadians are making."

The direction of change under way at the post office, she insisted, is "clear and it is irreversible." Putting more capital into Canada Post and leaving taxpayers on the hook is out of the question, Ms. Raitt added.

Britain embraced privatization, selling 70 per cent of its Royal Mail under the direction of former Canada Post chief Moya Greene. Royal Mail shares, and profits, have soared since the October share offering.

The U.S. Postal Service, meanwhile, is considering a radically different tack – reintroducing banking services after a five-decade hiatus. Last week, the regulator for the ailing Postal Service concluded in a report that the post office could generate as much as $9-billion (U.S.) a year in revenues by offering banking services, such as pay-day loans and reloadable debit cards.

The report by the postal inspector-general prompted immediate howls of protest from U.S. bankers. Cam Fine, head of the Independent Community Bankers of America, derided the proposal as the "worst idea since the Ford Edsel." Others suggested it was an early April Fool's gag.

Entering the potentially lucrative banking business is hardly a crackpot notion. One billion people worldwide bank at their local post office, and 51 national postal systems take deposits, including those in Japan, Germany, New Zealand and Switzerland. Financial services have become an economic salvation for many postal services facing challenges similar to Canada Post's.

The report underscores that banking could be a potential source of significant revenues for an organization such as Canada Post, with its coast-to-coast network of 6,600 postal stations. The findings suggest Canada's postal service could generate as much as $900-million (Canadian) a year in revenues by getting into banking, based on the one-10th rule of thumb for the relative size of its economy.

Coincidentally, $900-million precisely matches Canada Post's estimate of the combined cost savings and stamp-price hikes it needs to regain financial viability. The withdrawal of home delivery, for example, is expected to save $400-million to $500-million a year. The other measures, including higher stamp prices, boost the bottom line by a further $400-million.

It's apparent that the government never seriously considered banking as an answer to Canada Post's troubles.

Last year, the post office commissioned the Conference Board of Canada to evaluate various options for fixing its broken business model. That report offered a list of possible solutions, and estimated their revenue impact.

The Conference Board dismissed privatization, saying it wasn't a viable strategy in "an environment of decline." It also concluded there is no room in the marketplace for Canada Post to get into the business of making loans, taking deposits or issuing debit cards. So it never estimated the revenue-generating potential.

Canada Post has instead staked its future on parcels, same-day delivery of many store purchases, and as electronic services, such as the recently relaunched ePost bill-consolidation Web portal.

The risk is that a smaller Canada Post will become irrelevant.

But if Ms. Raitt is right, most Canadians won't care.