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How Postcodes Have Become the New Currency

How Postcodes Have Become the New Currency

"These humble strings of letters and numbers have become one of our key financial measurement tools."
David Green

When the UK’s General Post Office (GPO) subdivided London addresses into 10 numbered postal districts in 1957, it may have seemed like an innocuous measure to better deliver in a rapidly-growing city that was already delivering 100 million items a year.

But the then Postmaster General Charles Canning could not have foreseen the marvel that the postcode system would become. By World War I, modern postal codes were commonplace across Europe and, as world populations grew, were soon adopted in cities around the world.

But the real success of postcodes is that their value has long since outstripped their name or original purpose. In a world where post has become a second-class means of communication (we are now in the “post-post” age, if you like), postcodes have endured to determine far more than the manageability of mail delivery.

In fact, if you think about it, the humble post or ZIP code these days is more like a form of currency than a geographical indicator. These humble strings of letters and numbers have become one of our key financial measurement tools.

Look around you. Today, postcode location plays a significant factor in estimating insurance premiums. It is not, of course, the code itself but, rather, the people within it and the incidents they experience which determine price.

But the effect is the same - a 30-year-old married man with no children and a clean driving record who drives a 2011 Ford Focus could be slapped with a £930 premium if living in the Bradford postcode of BD3 0AQ - five times more than if he lived in low-risk TR16 6DF in Redruth, Cornwall, according to insurer Admiral.

It is not just car insurance. Today’s postcode databases don’t just segment cities into districts, they have a granular understanding of the geographic features within them, like elevation, which can be a key determinant when it comes to assessing floodplain risk for home insurance.

Today, the postcode is a key factor in assessing eligibility for host of financial and other services. It is the main way universities determine if applicants are eligible for scholarships, how heating schemes decide if you can have free loft insulation, a key component in credit agencies’ consumer records and in banks’ consideration of a credit card application.

But, while postcodes can saddle consumers with extra expense, as in the case of insurance, they can also be the passport to a more prosperous future. For parents desperate to give their children the best education, living in the right postcode has become a fiercely competitive and frequently stressful kind of social bloodsport. Yes, school catchment areas are often mapped to postal code areas, and GPs surgeries the same.

For anyone still dealing in delivering physical goods, the postcode still sets the rules of the road. Despite the emergence of GPS precision, your Deliveroo rider or DPD courier is still guided to your home or premises by that mix of seemingly-random characters.

This means postcodes have an extraordinary bearing on the underlying business expenses and viability of a swathe of the services everyone uses today. If the crow may fly to one district quicker than the other but the roads have other ideas, that matters. If the vehicle and person-hour costs of visiting one area determine that the trip is not worth the expense, that is vital business intelligence. It is no wonder many residents have campaigned to change their postcode to a more advantageous one.

For all these reasons, it is clear that the postcode has taken on an unintended life of its own, as the fabric with which financial decisions are patched together. Rarely in human history can such a system have been responsible for so much wealth yet been so unsung for it.

Accurate postcode data is not only critical for making a physical delivery, it is also critical to financial services delivery.

And that is why I think it is high time we recognised postcodes as a valuable financial asset in their own right. In investing, we have a public system of recognising the value of corporations, called the stock exchange. In money itself, currencies used barometers for monetary value.

Should the postcode system be viewed as an index, in which each coded area is ascribed a single value that all interested parties could look on as a fixed and agreed rating? Should such a thing be made publicly-available, as the stock exchange is, especially to those about whom decisions are made using these codes? Or is it best kept accessible only to the corporations that pay for access?

These are the sorts of questions that will arise if we begin thinking of the postcode as more a monetary instrument than a geospatial one. And they are questions which not every nation will face. Because postal codes are far from being adopted in every country. In some countries with sparse population, areas were never deemed necessary for subdividing.

But it may be no coincidence that it is precisely those countries which also lag behind on economic activity. We should revel in the marvel of the system the GPO created in the mid-19th Century. One of the most interesting asset determinants of value is right under our feet, and I hope that we will continue to innovate and build on the great system that’s already in place.