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Should the US Postal Service Offer Basic Financial Services?

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The U.S. Postal Service could offer basic banking services to customers, many of whom do not have reliable and affordable access to mainstream banking products like savings accounts and forms of credit.

From the moment I heard this, it sounded like a bad idea. Not long ago, discussions about the U.S. Postal Service focused on the question of ending delivery on Saturdays, the closing of 700 retail locations, and the elimination of the U.S. Postal service entirely. And now, there’s a proposal with studies claiming legitimate benefits across the board for expanding the services offered by this semi-private, semi-government entity.

The U.S. Postal Service has a weird existence. It is an independent government agency that operates like an independent corporation, but it is subject to congressional interference, oversight, and direction. USPS is not funded by tax revenue, yet the government still directs how the organization’s revenue is spent.

Providing the U.S. Postal Service with another profit center, like the ability to profit from basic banking services, might help the organization grow in strength.

The domestic precedent for banking at the post office.

In 1907, the United States suffered an economic recession, and this crisis was followed by a “panic” in 1910. The American public reacted by losing trust and faith in the banking industry, and in a bid to get money moving through the economy again, the Post Office began offering savings accounts in 1911. This made basic banking services available to working class people, who felt either abused or ignored by the financial industry. The savings account earned depositors 2% interest, while the post office earned 2.5% interest on the deposits by investing them with the mainstream financial industry.

The Postal Service continued offering deposit accounts through 1967, but still continues offering money orders, which allow customers to send money in cash form relatively securely from one location to another.

The social environment that spurred to government to allow the USPS to start offering banking services exists today. According to Elizabeth Warren, a senator who is in favor of expanding the Postal Service’s relationship with retail money-handling, “… [T]he average underserved household spends roughly 10 percent of its annual income on interest and fees — about the same amount they spend on food.”

The poor is spending too much money on non-bank financial services like check-cashing and payday loans. Poor communities turn to predatory, high-cost financial services because they don’t have many choices. Banks — and even credit unions, which are thought to better support local communities — do not set up retail locations in economically-stressed neighborhoods because it’s not profitable. There’s little trust in either direction between the banking industry and poor communities. Even if convenient retail locations did exist in high-poverty locations, customers would not walk through the doors.

But everyone goes to the Post Office or receives deliveries from a letter carrier. While the USPS reach in rural locations isn’t great, delivery services touch almost every household in the country, regardless of socio-economic status. If the U.S. Postal Service is able to offer check-cashing and small loans, and perhaps limited deposits again, and able to offer such services at a lower cost than what is currently available, it could mean a better lifestyle for those living in tough financial situations.

The foreign precedent for banking at the post office.

Other countries have successfully implemented similar models.

  • In Australia, you can bank at the post office. Australia Post works in partnership with the financial industry to accept deposits and make withdrawals and pay credit card bills.
  • In the United Kingdom, the Post Office offers banking services that compete with retail banking, and has recently expanded their selection of banking products. The Post Office in the UK is structured differently, with a different service that handles delivery and collection of mail (the Royal Mail), and both are now private companies than they are government agencies.
  • La Poste in France has its own banking subsidiary, La Banque postale, and post offices in that country offer banking services.
  • Poste italiene in Italy, which was once a government-owned monopoly but is now a public company under government control, offers financial products such as savings accounts and prepaid cards.
  • The postal service in Japan, again a former government agency that has gone through privatization, offers a variety of financial services including savings accounts, government bonds, investments, and loans.

The banking industry isn’t a fan of the idea.

Banks don’t want competition from outside their industry. Competition of this kind is a threat to the reputation of the industry, especially when an organization as unhealthy as the U.S. Postal Service can come in and undercut their pricing. A recent article in American Banker, the trade publication of the American Bankers Association poked fun at the idea that the USPS could serve poor communities better than the financial industry with “15 reasons why the post office should stay out of banking.” Each “reason” was a Tweet in which a Postal Service customer complained on Twitter about an interaction with the mail or an employee of the post office. The 15 reasons were in fact just one: poor customer service.

Customer service is a legitimate complaint. It seems far-fetched to take a work force that already seems displeased with the responsibilities they have and introduce more services. They will need training. They will need more staff to handle larger volumes of customers. The proposal could take a generally bad customer experience and make it much worse.

But the postal service does not hold a monopoly on bad customer service; in fact, the post office and the financial industry are roughly tied in the American Customer Satisfaction Index (ACSI). When it comes to pointing out customer service issues, the banking industry can sit back down.

Some in the U.S. Postal Service approve of the idea.

The U.S. Postal Service Office of the Inspector General released a white paper with research about and support for the idea. The Postal Service considers itself to be one of the most trusted companies in America (citing the Ponemon Institute’s survey which named the USPS the fourth most trusted company in the United States), but the organization isn’t usually included in surveys of the most trusted private companies because the USPS isn’t fully private. If the Post Office is trusted much more than companies in the banking industry, it is well-positioned to handle consumers’ financial responsibilities much better than banks.

The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector. It could accomplish this largely by partnering with banks, who also could lend expertise as the Postal Service structures new offerings. The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks’ offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the underserved. While banks are closing branches all over the country, mostly in low-income areas like rural communities and inner cities, the physical postal network is ubiquitous.

Here’s the bottom line. The banking industry has no interest in expanding services to cover poverty-stricken communities and households and those households have no interest in dealing with the banking industry. At the same time, the poverty needs financial services, and they are restricted to their only, expensive options like payday loans and check-cashing storefronts. These products exist because there is a need for them — or for something. So far, this has been the only profitable, and thus sustainable, way to bring financial services to certain communities.

If we can leverage an existing infrastructure to reduce the cost of financial service for the poor, and reduce their financial burden at the same time, it’s worth looking into. The U.S. Postal Service is not always the example of a perfect organization, but it is not any worse than your average bank. Despite closures, the Postal Service has the infrastructure in place to better reach communities underserved by the financial industry. Any other method of expand financial services would require a much bigger investment in infrastructure and would not be financially viable.

The U.S. Postal Service should begin to offer basic banking services, like savings accounts and prepaid debit cards. The financial industry doesn’t need to see this as competition, because the primary target customer isn’t interested in working with a bank, anyway. The Postal Service could partner with the industry behind the scenes to take advantage of the financial infrastructure that already exists. A relationship is possible, and rather than fight society’s attempts to better serve the underserved, the financial industry should welcome any kind of innovation that would help bring banking to lower classes.

Eventually, as households in poverty become better acquainted with financial products, they will become better customers for banks, even if it takes a generation for that to take hold.

Photo: Flickr

Updated February 17, 2014 and originally published February 11, 2014.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar 1 Anonymous

The post office is going to have to look into ways to increase revenue outside of the ‘raise the price of stamps’ practice that has gotten them nowhere. Other services should be looked at as a way to provide value to the consumer.

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avatar 2 Anonymous

Yes. But then it will be tough especially if they are planning to go against private sectors who will not be happy with what they are about to do.

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avatar 3 Anonymous

USPS already sells money orders. I don’t see anything wrong with the post office expanding basic financial services. The unbanked customers most likely to use the post office for this basic stuff aren’t customers the banks particularly want to serve either.

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avatar 4 qixx

The service i receive from the post office is not as good as the service i receive from my bank or credit union. If they were to expand into financial services i’d think debit card services and maybe check cashing (limited to government or payroll checks) would be the most viable option.

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avatar 5 Ceecee

If the post office undercuts the check cashing services, are they going to be able to charge enough to cover the extra costs and make a profit? I know that the check cashing operations are expensive, but someone with skill needs to run the numbers to see if this is feasible.

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avatar 6 Luke Landes

Wal-Mart offers “lower” cost check-cashing ($3 or $6 depending on whether the check is above the $1,000 threshold). I expect the service can be profitable for the USPS at those rates, though it would be great to get even lower. The average check cashing fee in other locations seems to be 1.75% to 2%, or $20 for a $1,000 check. Even if the USPS settles around Wal-Mart’s fees, it will be better than the options most typically available in low SES communities.

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avatar 7 qixx

A store near me offers $1 check cashing for any payroll or government issued check. Not sure what their rates are for other checks. Almost any amount should be profitable if they limit it to these low risk checks.

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avatar 8 Anonymous

Lordy, they can’t even deliver the mail if it snows more than a couple of inches. I sure don’t want them to handle my money!!

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avatar 9 Anonymous

I’ve never seen the post office stopped by a little snow. We had 6″ the past weekend and the post office was on the road but Fedex & UPS weren’t.

Maybe in Atlanta that happens but that entire city had problems with 2″ of snow.

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avatar 10 Anonymous

I can definitely see the benefit of the USPS offering some basic banking services – it potentially gives access to those who’re underserved and helps bring in another profit center. As Michael said, they can only go with the “raise the rate” method for so long to the point where something else will be needed in terms of revenue or hefty cuts. My concern though is how that would interact with the government oversight they already have to deal with. Outside of Wal-Mart, I’m sure many of the check cashing/cash advance outfits won’t be happy, especially with a number of them being run by the big banks.

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avatar 11 Anonymous

I think this could be a very valuable service. Although your article started out saying that you thought it was a bad idea, the rest of the article seemed to be about why it was a good idea.
I don’t think this would compete with banks because the people who would benefit most are not being served by banks now. You can get some services like check cashing for a price but no one wants to handle savings accounts that start small and whose owners can only afford to add a little at a time. Having even a small savings account might prevent taking out payday loans whose interest rates are about as high as one would expect from loan sharks.

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avatar 12 Anonymous

They also do Passport ordering services on top of the money orders in my state. I think the check cashing idea is fine and can get the predatory businesses out of the poor areas. Taking deposits might be too far fetched for the USPS.

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avatar 13 Donna Freedman

Boy, won’t the check-cashing and cash-advance places hate that…! Which is why I like the idea.

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