Should the US Postal Service become a bank?
- For supporters of postal banking, it's a way millions of unbanked and underbanked Americans could access financial services.
- Opponents claim postal banking would be unprofitable.
Post offices double as banks in much of the world. And recent growth in that space has reignited a debate in the U.S. where the U.S. Postal Service faces pressures to stay profitable (it posted a $5.6 billion loss last year) and when mail volume is at a 29-year low.
Postal banks are post offices that offer financial services. According to the Pew Charitable Trusts, over 1.6 billion postal bank accounts operate around the world, with some major players such as Japan, Brazil, France and Switzerland. To supporters of postal banking in the U.S., the post office network could be the basis to provide financial services to over 27 percent of U.S. households that are unbanked or or underbanked.
India launched the India Post Payments Bank earlier this year, the goal of which would be to provide an estimated 40 percent of the population that’s unbanked basic financial services including deposits, remittances and bill payments. It’s a payments infrastructure “in the nature of the public good,” as Ashok Pal Singh, CEO of India Post Payments Bank, explained in an interview with the Economic Times.
“I call it a win-win,” said Mehrsa Baradaran, a University of Georgia law professor and author of “How the Other Half Banks,” speaking about the advantages that could be gained from postal banking in the U.S. “It’s a win for people who don’t have access to banking, and it’s a win for the post office because it generates revenue. We have an unequal banking system, we’ve got a large federal investment in a banking sector that’s not servicing the population and this equalizes that.”
The movement has some prominent backers, including Senators Elizabeth Warren and Bernie Sanders. Sen. Sanders, a former presidential candidate, made postal banking a campaign position while Sen. Warren has said she would like post offices to replace payday lenders.
“With nearly 60 percent of post office branches in zip codes where there are either one or no bank branches, postal banking could fill the void banks have left by closing branches nationwide,” said Sen. Warren in a statement. “The Postal Service already has a presence in low-income and rural communities, and it could leverage that infrastructure to provide access to lower-cost basic banking services.”
The USPS engaged in postal banking operations from 1911 to 1966. A spokesman maintained that it provides financial services that are feasible within its current infrastructure, including money orders, electronic funds transfers and U.S. Treasury check cashing. He added that although its core operations do not include banking, it’s open to other lines of business.
“To the extent our research concludes that we can legally provide additional services at a profit and without distracting from our core business, we would consider these,” said David Partenheimer, the USPS public relations manager. “However, public policy and regulatory discussions must be addressed before the Postal Service invests in an area outside our core function.”
A 2015 report from the Office of the Inspector General of the USPS made a case for the USPS to offer expanded financial services offerings, arguing that they would “benefit the underserved and shore up the strength of the postal network.” While Bank of America, JPMorgan Chase, TD Bank and Citi could not provide comments by deadline, the American Bankers Association opposes the expansion of financial services delivered by the USPS, noting in a recent letter to the House Committee on Oversight and Government Reform that it could present “significant competitive issues for private sector entities.”
Some analysts who watch the industry worry that with the transformation of banking service delivery to digital and mobile channels and questions around profitability, postal banking could be an unwise move for the USPS.
“Why don’t banks serve the unbanked? Because it’s not profitable to,” said Ron Shevlin, director of research at Cornerstone Advisors. “If banks can’t profitably serve the unbanked, how is the postal service going to do it? Are we really in a position in the U.S. for the government to provide more unprofitable services?”
The cost of banking and security infrastructure could also deter postal banks in the U.S., noted another analyst. While not opposed to the concept of postal banking, the cost to retrofit post office branches and install security infrastructure could be prohibitive, said Stephen Matteo Miller, senior research fellow at the Mercatus Institute at George Mason University.
Still, proponents note that customers of payday lending services are more inclined to use physical branches, and that the successful implementation of postal banking in other parts of world can be a model.
“The people who need the post office the most are still using cash — there has to be brick and mortar if you look at check cashing,” said Baradaran. “I wish people would understand that this is not some radical idea and that people are using it abroad — we did this for a very long time successfully, and there’s no reason to think we can’t do it again.”
Photo Credit: Pixabay / 3dman_eu