THE joint venture announced by Bank of Ireland and Royal Mail last week is expected to be profitable by the end of year three.

Sources close to Bank of Ireland said it was very confident that this target could be met, leaving the bank with a relatively quick return on its £125m investment. All profits in the following years will be split evenly between the two partners.

Separately, it is understood that as well as selling products through the Royal Mail’s 16,900 branches, the joint venture will quickly move to adopt a direct sales model. Plans have been developed to launch the first product, expected to be an unsecured loan, in the first quarter of next year.

Other products being considered for an early roll-out are insurance, mortgages, credit cards and personal banking. The new joint venture will select the products to be sold on a “best of breed” basis, which means it will not necessarily use Bank of Ireland products.

The new company is expected to launch a direct-sales arm in the second quarter of next year. Direct banking is at the most competitive end of the crowded market.

The two partners have said they do not expect to compete head-to-head with direct market leaders such as Egg and Smile. However, it is understood that their targets allow for as much as 15% of revenue to come from internet and telephone sales within three years.

The new company will be managed by a joint-venture board, to which Bank of Ireland and Royal Mail will each appoint two directors. Both sides will also be represented on the nomination committee which will appoint the new chief executive, although market sources said the successful candidate is most likely to come from Bank of Ireland with Royal Mail providing the chairman. The joint venture will have a small staff of no more than 50 people.

About 90% of the Royal Mail’s post offices are independently run by business people who not longer handle social security cheques, now paid directly into claimants’ bank accounts. Sources close to the deal said the two partners expected independent post office owners to be “hungry” for new financial products to make up the revenue shortfall.

Although only one in 10 British villages has a bank, six out of 10 have a post office.