By Patti Murphy
ProScribes Inc.
Are banking services in the cards for the U.S. Postal Service? This question has been bandied about for years, but has failed to gain traction. It’s not a novel concept. The USPS has been selling money orders for years, and in the first half of the 20th century, operated a Postal Service Savings System.
The savings system was slow to take off, but at its peak, in 1947, more than 4 million depositors had $3.4 billion (nearly $42.2 billion in today’s dollars) on deposit with the system. The program was shut down in the mid-1960s, when branch banking began to flourish.
This September, the USPS began a small pilot in a first step toward offering a broader spectrum of financial services. The pilot is running in one post office in each of four East Coast cities—Baltimore, Md, Washington, D.C., Falls Church, Va., and Bronx, N.Y. Services include cashing payroll and business checks for amounts up to $500, with the funds loaded onto a Visa gift card. At a cost of $5.95 for the card, it’s a better deal than most commercial check-cashing services, which typically charge 5 percent or more of face value of a check.
The move seems in part a response to pressure from the American Postal Workers Union, which successfully negotiated postal banking pilots during contract negotiations in 2016. The USPS has been careful not to use the word "banking" in describing the pilot, preferring instead to use the term "financial services offerings." And for good reason: banks and other regulated financial institutions are adamantly opposed to the USPS getting into banking. In a July 2021 letter to lawmakers, the Independent Bankers Association of America wrote, “Postal banking in any form is an ill-advised idea fraught with unintended consequences.”
The APWU, however, believes the USPS, which operates more than 31,000 offices nationwide, is an ideal conduit for banking consumers who have little or no access to banks and credit unions. And the union is not alone. Several prominent Democrats have sponsored legislation that would allow the USPS to offer low-cost checking and savings accounts, mobile banking and low-cost loans.
And in 2015, the USPS Inspector General’s office issued a report in which it estimated that offering basic banking services would generate $9 billion in revenues for the financially beleaguered Postal Service. The move has significant opposition from Republicans in Congress. About 20 Republican Senators wrote the postmaster general condemning the four-city pilot. “The Postal Service lost tens of billions of taxpayer dollars when it was focused solely on delivering mail. If you think the USPS is inefficient now, wait until it tries its hand at banking and delivering mail at the same time,” said Sen. John Kennedy, R-La.
Sen. Kennedy has a point. But so do those who see the USPS as a conduit for serving the millions of Americans who are underserved by banks and credit unions. More than one in five American households currently relies, at least in part, on nonbank financial services providers, like check cashing, money order, and short-term loan companies, according to the Federal Deposit Insurance Corp.
The agency reported that 5.4 percent of households are unbanked; 16 percent are under-banked, meaning they have bank accounts but also use nonbank service providers. The FDIC also warned that the COVID-19 pandemic could push even more Americans into un/under-banked status.
There are far more bank branches—nearly 75,000 in 2020, according to the FDIC—than USPS offices. But many bank branches are in urban and suburban areas. The USPS has offices in every ZIP code, and in 2015, 59 percent of those ZIP codes had no bank branches, according to the USPS IG’s report. I can only imagine that percentage has increased, as more banks shutter branch offices and migrate more customers to mobile and online banking. But many consumers in rural areas lack broadband internet access, which means they can’t easily access mobile and online banking services.
Consumers in many countries already perform banking activities through local postal offices. In Spain, Slovenia and the Czech Republic, local post offices execute customer transactions on behalf of multiple private-sector banks using terminals tied to those banks’ systems. The German postal service operated a bank, called Postbank, for nearly a century, before it was privatized in the early 1990s, with Deutsche Bank taking a majority interest in the entity. Still, Postbank continues to offer select services through Germany’s post office branches.
In Italy, the post office has offered savings accounts for more than a century and partners with private banks to make mortgage and personal loans. Post offices in China, France and Japan hold banking licenses and compete against private sector banks for all types of banking services.
In the UK, National Girobank was a public sector bank run by the General Post Office between 1968 and 1990, when it was taken over by a private sector banking concern. National Girobank was the first bank designed around computerized operations, and the first in Europe to offer telephone banking.
Which brings me to what I see as the biggest obstacle to postal banking in the United States: technology. Banks and credit unions spend billions of dollars annually on technology. A recent survey by Bank Director magazine found the median bank budget for technology was $1.7 million this year, and megabanks like JPMorgan Chase and Bank of America spend about $10 billion a year, each, on technology.
Key to technology budgeting is the need to secure customer information. “In an era of systems hacking, securing financial data against ever evolving threats has become that much more challenging,” the ICBA wrote in its letter to Congress. “A postal bank would have to build data security systems from scratch.” Breaches would expose customers to potential identity theft and other fraud, and the USPS to significant financial losses, the ICBA noted.
In its letter, the ICBA also suggested partnerships between financial technology firms and community banks will help ensure unbanked and underbanked Americans gain broader access to financial services beyond physical branch networks. Sounds good. But what about one or more fintech firms partnering with USPS to offer financial services that can be accessed electronically, or by visiting a local post office? It seems worthy of consideration.
Patti Murphy is senior editor at The Green Sheet and self-described payments maven of the fourth estate. Follow her on Twitter @GS_PayMaven.
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