What got many people so excited last year about the concept of postal banking – enabling the U.S. Postal Service to provide expanded financial services for the 68 million Americans with little or no access to them -- was a government white paper from the post office’s Inspector General, outlining the benefits and advantages of such a program. In a nutshell, USPS IG David Williams explained how postal banking could promote financial inclusion and save families billions while turning a small profit for the Postal Service besides, a complete win-win idea.
Now, Williams’ office has delivered a follow-up report, “The Road Ahead for Postal Financial Services,” which goes into more detail about what a modern postal banking system might look like. Unfortunately, much has changed on Capitol Hill since last January, and none of it good. If a Democratic Senate majority couldn’t get pro-postal banking members onto the Postal Service Board of Governors, there’s little hope that the current Republican majority will. However, this remains a tremendous idea to relieve economic inequality and preserve an important public-sector ladder into the middle class; and continued agitation just might get it done.
The report makes the point that USPS is already a large alternative financial services provider. Post offices sold $21 billion in money orders last year, earning $66 million in profit. Through a partnership with American Express, USPS sells prepaid cards. They can legally host ATMs on site. They offer international money transfers and remittances, and even, on a limited basis, check cashing services. The Inspector General suggests that the agency simply scale up to reach beyond the approximately 13 million customers they currently have.
These customers do not necessarily have the profile you would expect. According to the report, “post offices in rural ZIP Codes sell 27 percent more money orders per capita than urban locations.” These families have ended up on the wrong side of the digital divide. As industries eliminate brick-and-mortar locations for cost savings, they have neglected large swaths of the country where in-person transactions are still needed. Despite some downsizing, there are over 30,000 post office locations, with at least one branch in every ZIP code in America. A network of postal financial services could eliminate “bank deserts” in rural and urban locations, create a safety net and ensure universal access, which is part of USPS’ core mission.
Without expanded postal services, these “unbanked” or “underbanked” Americans are typically shunted into alternatives like check cashers and payday lenders, which charge high fees and interest, costing the average family over $2,400 a year, or 10 percent of their gross annual income. So not only would the Postal Service benefit from additional revenue, but struggling families would benefit massively from cheaper and less predatory financial services options.
With the assistance of Mercator Advisory Group, a financial industry consultant, the Inspector General assessed a series of potential approaches for expanding banking services. The most realizable option is to expand existing services through existing authority, allowing customers to transfer money between post offices, pay bills at the post office, cash checks, and make international money transfers. The report estimates that even this limited approach could generate $1.1 billion in annual revenue for the Postal Service within five years of rollout. (This does not equal profits, but the Inspector General’s preliminary analysis suggests that it would be profitable.)
Layering on additional services like reloadable prepaid cards, checking accounts or small loans would probably require additional legal authority. But it would allow USPS to “gain significantly more revenue and make a more meaningful impact on financial inclusion,” the Inspector General’s office said in a statement.
The report gave a variety of options for these expanded services: USPS could partner with individual or multiple financial services providers to offer bank accounts, payday loans and reloadable prepaid cards. They could also create a marketplace, allowing several providers to deliver financial services from their storefronts. The final option is to charter a licensed postal bank, which would provide the biggest benefits for the Postal Service and the public, but require negotiating a regulatory thicket and, in all likelihood, Congressional approval.
While not making an official recommendation, the Inspector General suggests that the post office start small and prove the concept, ramping up after building a customer base and the nation’s trust. Restructuring existing services, like joining the Universal Postal Union’s International Financial System and adding dozens of countries to the existing roster of international money transfers, could also be positive.
That customer base is ready to use the Postal Service for their banking. A poll from the Pew Charitable Trusts last year found that large majorities of consumers of prepaid cards, payday loans, bill paying services and check cashing would be somewhat or very likely to try the Postal Service’s products.
If the Postal Regulatory Commission approved it, USPS could expand services under the first option discussed above, without Congressional action. The PRC granted approval for prepaid gift card sales last August because they operated similarly to money orders, and under that logic, several other financial services could be authorized, from node-to-node money transfers to check cashing to non-reloadable prepaid cards to electronic delivery of state and federal benefits.
This would not be a full-service postal bank, with checking accounts and ATM cards. But it would be a far superior option for underserved communities. For example, Kansas is currently gouging recipients of welfare benefits by limiting withdrawals to $25 a day and charging high out-of-network fees. Receiving those benefits through the post office could eliminate out-of-network charges, by allowing beneficiaries to use Postal Service ATMs for cash withdrawals of benefits.
Postal Service executive management has not shown much interest in postal banking thus far. The Board of Governors, which helps set USPS policy, currently has six vacancies and is operating without a quorum. While four nominees recently advanced out of the Senate Homeland Security and Government Affairs Committee, the Republican Senate has little motivation to fill those slots.
But the American Postal Worker’s Union, which represents over 200,000 clerks and support service staff, is in the middle of contract negotiations, and has vowed to make postal banking part of their core demands. APWU President Mark Dimondstein praised the Inspector General’s report, saying it “confirms that the Postal Service can act now to provide consumers with affordable financial services while strengthening our trusted national treasure, the public Postal Service.”
A deeper push through the APWU’s “Campaign for Postal Banking” could force management to at least conduct pilot programs to see if the public would respond positively to additional postal financial services. And this would help protect postal jobs, which like most public-sector work provides a key vehicle for minority access to the middle class.
“Millions of underserved American families are hungry for more affordable financial options,” the report concludes. The Inspector General should be commended for his perseverance in promoting this idea to reduce inequality and shore up the nation’s second-largest employer simultaneously. Hopefully those with the ability to make this idea a reality are listening.