Digital bank Monzo has entered discussions with the Post Office to allow its customers to deposit and withdraw cash in branched across the country.
Chief executive Tom Blomfield told MPs that while cash transactions were declining they were not “going away.”
A potential deal, similar to those between the Post Office and other major UK banks, would enable customers to withdraw and deposit cash in post offices.
The Post Office is also in discussion with UK banks to renegotiate the deal to offer banking services after revealing it makes a loss from the current arrangement.
Committee chair Nicky Morgan raised concerns banks were relying on the Post Office “taking up the slack” or on customers travelling further to alternative branches.
Post Office banking director Martin Kearsley told the Treasury Select Committee its current deal with banks - to allow customers to withdraw and deposit cash - was not profitable.
Kearsley said discussions were ongoing to “change that position” but declined to go further as the negotiations were commercially active.
The total number of bank branches in the UK has fallen from 11,365 in 2007 down to 7,207 in 2017, according to a Parliament review last year.
Kearsley said that through the banks restructuring programme the Post Office has seen a “huge increase” in the amount of cash coming in and out of branches, taking up much of employees’ time.
With all the cash infrastructure needed to cope with demand, it was not profitable, he said.
Lloyds Bank managing director Robin Bulloch said the bank was “very happy” to be reviewing the deal with the Post Office.