Go to the post office, send a package, pick up some stamps and deposit your paycheck or pay a bill? That’s the newest idea for rescuing the cash-strapped USPS floated in a report published by the U.S.P.S. Office of Inspector General.
“One in four U.S. households lives at least partially outside the financial mainstream,” it says. The FDIC puts the number of entirely unbanked Americans at about 8%, but that’s still a lot of families stuck conducting financial transactions with check-cashing storefronts, services that wire money, payday lenders and even pawnshops.
Exclusion from the financial mainstream isn’t cheap: “The average underserved household spends $2,412 each year just on interest and fees for alternative financial services,” the OIG says. It estimates it could turn a profit by offering basic services like check-cashing, bill pay, small-dollar loans and the like at a fraction of the prices charged by fringe providers.
The report points out that more than 90% of bank branches closed since 2008 are in lower-income towns and neighborhoods. Post offices, on the other hand, are in both rich and poor areas.
The plan has already drawn early praise from some on the political left. On its website, the Center for American Progress, hails the idea, saying it “could spare the most economically vulnerable Americans from dealing with predatory financial companies.”
“If the Postal Service offered basic banking services — nothing fancy, just basic bill paying, check cashing and small dollar loans — then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing,” Senator Elizabeth Warren (D-Ma.) argues in a recent editorial. ”USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods.”
“Banks don’t want these customers; if they did, they would actually make a play for their business,” an article in the New Republic argues. “Instead of partnering with predatory lenders, banks could partner with the USPS on a public option, not beholden to shareholder demands, which would treat customers more fairly.”
It’s this “partnering with banks” thing where the details get tricky.
Although the OIG report says it’s not out to replace banks, banks — perhaps not surprisingly — don’t feel quite the same way.
Banks might not be raking in money in poor neighborhoods, but that doesn’t mean they’re happy about the Post Office filling in the gaps. A representative of the American Bankers Association tells the Washington Post, “We’re deeply concerned that the U.S. Postal Service is trying to drive the creation of a new [government-sponsored entity] engaged in banking services, which is not subject to the same level of regulation… This new entity could be perceived by many as a government-endorsed and preferred provider of financial products,” he says.
BloombergBusinessweek points out that plenty of non-banks, including Wal-Mart and T-Mobile, offer bank-like services via prepaid debit cards, and it suggests that the future of banking services, especially at the lower end of the income spectrum, increasingly lies with businesses (or entities) that aren’t banks themselves. “I perceive banks as becoming increasingly good at commercial banking and increasingly bad at retail banking,” Arjan Schutte, founder of Core Innovation Capital, tells the publication. “Just from an economic perspective, there are better places than banks.”
The OIG report seems to recognize this; one of its initial suggestions for entrance into the financial services market is a reloadable prepaid card, the same product that has become a de facto checking account for many low-income people priced out of mainstream banking by the escalating fees for both routine account use as well as penalties.
To experts who study the Postal Service, there are some questions: Can the post office really make money from this? And — should it? How should it balance revenue generation with some sort of civic duty?
For starters, if serving low-income Americans with financial services is such a good way to make money, why aren’t banks already doing it?
It’s a good question, and there are a couple of (related) reasons: Banking regulations require that when a bank sets up shop, it can’t just take residents’ money for deposit and not also offer lending services (like, say, mortgages). Some banks, especially after the subprime crisis and real estate bubble bursting, are reluctant to lend under these conditions, so they stay out of these areas entirely.
The Post Office, on the other hand, has a huge, well-known network of facilities, already established, staffed and paid for. “It could be that the Postal Service has a bigger retail network than the banks and could make use of that,” says James Campbell, an attorney and consultant on postal policy. “It doesn’t sound crazy, but it doesn’t sound like a big moneymaker, either.”
Campbell is also skeptical of the plan because it doesn’t address the post office’s biggest problem: a sharp decline in first-class mail volume. “This doesn’t get to the fundamental challenge the Post Office faces, which is how to make the delivery business profitable,” he says.
But the Postal Service has been tackling that slump in other ways, argues Mark T. Williams, a former bank examiner for the Federal Reserve who teaches banking at Boston University, who compares the banking plan to other recent private-sector initiatives the Post Office has undertaken, like its partnership with Amazon.com. “This is a really entrepreneurial and aggressive thing they’re doing,” he says.
He points out (as the OIG does in its report) that a number of other countries offer financial services through their postal agencies and make money doing so. ”I think this is a good time for them to continue to recreate who they are,” Williams says. “They have great locations to serve this population… I think this would be a very positive step for them.”
Success might not come without cost or risk, though. Given that the Post Office is still losing billions of dollars, Rick Geddes, an associate professor of policy analysis and management at Cornell University, thinks this is a risky time to set off in a new direction. “Would this be an additional drain or could the Postal Service do this in a way that would make it profitable?” he says.
“I’m often supportive of the Postal Service innovating and trying new products and services that are in its areas of expertise,” he says. “I would have a real question about where is the core expertise to do bill paying and check cashing.”
In fact, even defining success in this case could prove tricky. “What exactly is the goal?” Geddes says. “Is the goal to make the Postal Service more efficient, more like a utility, more profitable, or is the goal to address this fundamental problem of poor communities not having adequate banking?”
From the OIG report, it’s clear that the Postal Service thinks the answer is one that melds both profitability and public service. Although it touts the revenue-generating possibilities of financial services offered by other countries’ postal agencies, it argues that the benefits of entering the market would be social as well as financial.
“Promoting the financial health of all citizens and meeting the needs of the unbanked are longstanding federal priorities,” it says. “Postal financial services could assist underserved families in making steps toward the mainstream financial system.”
The OIG even says the economy as a whole could benefit: “Because the underserved tend to spend nearly every penny they make, any money they save by using Postal Service financial products would immediately go back into the economy,” it says.
Williams thinks the two goals aren’t mutually exclusive. “I’d argue the USPS would bring competition to these folks that have been able to prey on the underserved, so that’s a real positive,” he says.