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Is a Postal Banking an Answer for the Unbanked?

Is a Postal Banking an Answer for the Unbanked?

Maybe it’s time to put the United States Post Office back in the banking business. Until 1967, the USPS offered savings deposit accounts and even now you can get money orders and do international wire transfers.

There’s a push by the Campaign for Postal Banking to get the USPS to provide a banking alternative, particularly for low income and those without bank accounts who depend on payday loans and check cashing places. No doubt, such a change would be significant. A 2013 Federal Deposit Insurance Corporation survey found that nearly 10 million households in 2013 had no one with a bank account. According to the Campaign for Postal Banking, payday loans typically charge an interest rate of 391%.

A world in which the USPS would have savings accounts, bill paying, ATM services among others isn’t revolutionary. According to the Campaign for Postal Banking, 1.5 billion people worldwide access their financial services through a post office.

The notion of the USPS going full scale into banking stirs debate. The experts weigh in.

The pros

In an interview with CreditCards.com, Mehrsa Baradaran, a University of Georgia law professor and author of How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy, explains why postal banking is a good idea, "Because we’ve reached a real crisis, as the banks are now bigger and more powerful, which means they have the ability to pull out of rural, depressed, low income and inner city areas. Community banks are dying by the hundreds every year and they won’t be back because they’re after the same profit numbers. The post office is also struggling and reaching out for a lifeline. That’s why now, and why the post office makes sense."

Andreas Lewis, managing director of Ad Hoc UX Research, which has done extensive research looking at the "user experience" of the unbanked populations and how financial services products can work for them, sees many benefits for consumers, "convenience and ubiquity because the USPS is ‘everywhere’ and is easy to access." She says it is also a trusted brand because people have many touch points with the USPS for handling confidential information in their lives. This trust could easily be extended to the provision of financial services. Her opinion aligns with the Campaign for Postal Banking which found that 68% of those they surveyed have confidence in the USPS, compared to 26% in banks.

The USPS entering the market may encourage banks to provide competing products

Another plus, she says would be the pressure placed on banks. "The USPS entering the market may encourage banks to provide competing products, opening the market and giving even better and more competitive services."

While the banking industry might feel some threat from the USPS being in their business, those feelings are unfounded, says John Turner, CEO of UsersThink. "A USPS banking system would give those without financial stability and access at least some, which makes them more likely to be able to access more traditional banking in the future, creating a pipeline of new customers for said banks."

Then too, inevitably the banking industry would somehow become involved in the equation because the flow of finance is about interaction. Current banking customers will be seeking ways to pay and interact with customers of the USPS service, such as paying a friend or relative or co-signing for a loan, for example, says Lewis.

The cons

While there are real upsides, things don’t always play out as planned. "The consumers who need this service may have few or no alternatives and the USPS could initiate charges that would be unavoidable," says Lewis. She also points out that consumers could face brand or social stigma if the USPS offering is considered to be one for a marginalized population.

There is no guarantee that this would be a revenue bonanza that the USPS no doubt needs.

There is no guarantee that this would be a revenue bonanza that the USPS no doubt needs. That said though, it would still help the financially strapped system.

Lessons from the UK

The post office in the UK offers banking. The experience has been mixed, not perfect, but progress. "It has experienced some losses and has wrestled with finding the right business mix for profitability, as well as providing much-needed "convenience" services to underserved or rural populations," she says. The provision of financial services, in addition to other services where people can manage payments to the government make are incredibly convenient, so the service almost becomes a necessity, she contends.

"The USPS can learn a great deal from how the post office in the UK has operated and benefited. What strategies went wrong? Which strategies and products were most successful? When does the government need to step in, or step back? How do citizens value the services?" she points out.

Says Lewis, "The USPS is ideally poised to behave similarly to the post office in the UK. While the USA leads in many progressive solutions, it lags in other areas."

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Anonymous   |     |   Comment #1
so for me robbing a Post Office would be sooo convenient.
Stewie   |     |   Comment #2
Just might have to go postal.
Anonymous   |     |   Comment #3
Would cost a lot to add additional security to every post office. And a lot of training of postal employees.
Anonymous   |     |   Comment #4
As long as they don't lose my deposits or deposit them into the wrong account as often as they lose my mail and/or deliver everyone else's mail to my mailbox, I'm good with it.   
Joe Putman
Joe Putman   |     |   Comment #5
Approximately 50% of payday loans end up in default. This still gives about a 10% profit margin to big corporate payday lenders that know what they are doing. They charge 380-400 % and after losses from people who refuse to pay the, back only make 10% profit. I imagine that the post office would charge less, like the 36% rate often parroted by those who advocate for ending payday loans. The problem here is they will either have to not loan to the majority of applicants, or face steep losses from their loan program. 
Anonymous   |     |   Comment #6
People stopped at Ellis Island then proceeded to numerous American cities and towns. They worked. They fed their families. They saved. Many had no more than a few grades of formal schooling yet they acquired the skills required by steel workers, carpenters, brick layers and electricians. They built modern America.

With cell phone in hand and an EBT card in their pocket a growing number of our population is now classified as "unbanked". This is a personal CHOICE, not fate.

As soon as the transition to a "cashless" society is complete, the underground economy will vanish and the unbanked will become the banked. Problem solved.
Anonymous   |     |   Comment #7
I think the post office would do basics like checking and savings. Where would loan reps be? The lobbies in the post office have no room for a rep to sit at? What about training and required certifications. Lines? ATM's?
Anonymous   |     |   Comment #8
"savings accounts, bill paying, ATM services"?

The people that are now conducting strictly cash transactions don't want their money in a bank. That would make it traceable and reported to agencies like the IRS and Treasury. The underground economy is a $2 Trillion behemoth. Only a totally cashless society would end it and  Sweden is the closest country to becoming an all-electronic cashless society. Credit Suisse says the rule of thumb in Scandinavia is: "If you have to pay in cash, something is wrong."
Anonymous   |     |   Comment #9
Walmart would be a in in a better position to offer these services. I believe they are in the process of opening an FDIC ILC (Industrial Loan company. They have the space, financial resources and IT support that can do this. They have the finances too. The post office is a broke quasi government agency and filled with union and government restrictions.
Barabbas   |     |   Comment #12
What you're arguing for is called "fascism". There's no reason why USPS couldn't offer these services, except for the fact that they encroach on private sector enterprises. Those enterprises employ lobbyists and fund campaigns to prevent the government from providing a middle man role. Any "gains" from government services will positively affect the deficit. Except, they're coming out of corporate profits. The private sector will fight tooth and nail for the right to exploit consumers for profit. The only reason why USPS is broke is because politicians, primarily Republicans, are hell-bent on defunding it to the point where it's failure is guaranteed. That then gets sold as a failure of government and is used as reasoning to push for even more fascism. FWIW, FedEx and UPS provide absolutely horrible service and I fail to see why anyone would use them over the USPS. Any opportunity the government gets to take on middleman roles, it should. Banking is one, shipping is another. Hell, I want NASDAQ and NYSE shutdown with the Treasury running the only stock exchange. That could only benefit American citizens (and hurt corporations, which is why it will never happen.)
Anonymous   |     |   Comment #18
Thank you. Newman. :)
Anonymous   |     |   Comment #19
George : Well I was dropping of the calzone money for the week ....  Um, shouldn't you be at work by now ?

Newman : Work?  It's raining.

George : Soooooo...

Newman : I called in sick. I don't work in the rain.

George : You don't work in the rain ?  You're a mailman.  "Neither rain nor sleet nor snow..."  IT'S THE FIRST ONE!
Anonymous   |     |   Comment #20
My postman is in a 30 year old truck that breaks down, polutes and gets poor has mileage. Last year they ordered shelves so they could fit packages in the truck for this Christmas. They are on back order. Government is the problem not the solution to problems. I don't think the post office could run an efficient bank especially if it requires government support. They need to close some post offices and deliver 5 days a week so they can save money.
Saver2   |     |   Comment #10
A number of UK post offices provide banking services (cash withdrawals/deposits, ATM's, checking services, etc.) which is very convenient.  Moreover, some UK libraries even have a post office service desk adjacent to the book checkout desks.  We should considering doing the same in the U.S.
MidAtlantic   |     |   Comment #11
The UK is not a very encouraging example. "Girobank" was formed in 1968 and within two years had cumulative losses of about $30m. It was never successful as a commercial operation and was sold in 1990.

The services the UK Post Office now provides is just as the front-end of a number of commercial organisations eg checking and savings accounts are with the Bank of Ireland.
Barabbas   |     |   Comment #13
Founded in '68, invested heavily for a couple years and sold 22 years later. That's a failure!?!?!? $30mm in losses is nothing for a bank, especially if they were never realized. The fact that it lasted that long hardly shows failure. When was the last time any bank went 22 years without M&A activity? Just because John Pierpont Morgan shares a name with a major bank doesn't mean he founded it. Hell, it merged with Chase less than 10 years ago.
Anonymous   |     |   Comment #14
Yes, it was never successful. It never reached any kind of viable number of accounts and was loss-making throughout it's existence. That is why I said it is not an encouraging example of the Post Office running a bank.
Anonymous   |     |   Comment #23
Just like the Federal government!  It's a loosing proposition!  The Federal deficit keeps growing every year and sucking money down a gigantic black hole with no return. 
Anonymous   |     |   Comment #15
Regarding the so-called "expert" cited in the article, Mehrsa Baradaran - first of all, his book (obligatorily plugged in the article, of course) is titled "How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy".  Even if one knew nothing else about this issue (if in fact if it is an issue, which I doubt), would it not be evident that the author of a tome having such an incendiary title might perhaps not be of unimpeachable impartiality?

Secondly, he states "... we've reached a real crisis...", "Community banks are dying by the hundreds every year...", etc.   In addition to the Chicken-Little pretensions necessary to sell such a book, this completely ignores the large increases in the number and size of local credit unions offering services equal to banks, usually at lower cost, and the massive expansion in their customer base - an expansion enabled largely by the fact that many of them have changed their charters to vastly increase their fields of membership.  In fact, banks have fought this credit union expansion tooth-and-nail over the past several years, both legislatively and in the courts, largely without success.   

In fact I find it humorous that for those posters above who whine that we as a nation are somehow "under-banked", they need go no further afield than this particular website - the one they posted on, Ken's website - to disprove that notion, since Ken's website lists quite clearly the large number of credit unions that have wide-open or nearly wide-open (meaning, easy-to-satisfy) membership requirements.
RJM   |     |   Comment #16
The "other half" ??

How many people really don't have a checking account ?

It cant be half.  Maybe 10-20% ?
Jennifer (anonymous)   |     |   Comment #17
I never use checks.  Only credit cards.  I simply adore them!
Anonymous   |     |   Comment #21
So what's your point, Jennifer?   Other than adoring credit cards!

Anonymous   |     |   Comment #24
Jennifer always adores everything she comments on - sometimes more simply than others.
MidAtlantic   |     |   Comment #22
RJM - According to bankrate.com it is 17 million, so about 5%.
ChrisCD   |     |   Comment #27
People use alternative banking services for a number of reasons.  Any bank, credit union, or alternative service needs to be profitable.  With the losses that the Post Office is already dealing with, I'm really not convinced this is a good avenue for them to take.  I certainly wouldn't want to be subsidizing low cost or free checking with my postage.  Postage prices continue to climb as it is.
Anonymous   |     |   Comment #28
Why, this is an absolutely brilliant idea!   Every time I deal with some government agency, I'm always struck by the astonishing efficiency with which the hard-working employees cheerfully and promptly help us customers.  In contrast, any time I go to some private business, the employees are nothing but a bunch of fat slobs who spend half the day ignoring customers and talking about their lavish retirement benefits instead!   And when it comes to government efficiency, is there anything that compares to the U.S. Post Office?  Well, maybe the DMV.  Or perhaps Obamacare:  "If you like your bank account, you can keep your bank account.  Period.  And no one's ever going to take it away from you."
Anonymous   |     |   Comment #29
The Chase bank near me now has just 1 teller during the day.   I deposit my checks at the ATM or you can use a smart phone.  I watch as people waste time filling out a deposit slip and wait for a teller to process a deposit (I was getting a signature guarantee)  So the post office will take on a dying business to add to the falling 1st class mail as more people use bill pay from checking accounts. One post office near me is suppose to open at 9:00 but on a few occasions it has opened the doors at 9:15
SWLABR (anonymous)   |     |   Comment #30
If the market required (or "demanded") a 2nd teller at your Chase branch, trust me: the Market is fairly efficient at these things.  Options include:

1. Chase hires additional teller(s) to accommodate all the excessive number of clients tirelessly standing in line (for fear of forever losing those clients);
2. You take your business across the street to B of A, Comerica, CitiBank, or any number of other national or regional banks within spitting distance to fulfill on Chase's fear of losing clients - see, option #1, above);
3. You find the most convenient of thousands of credit unions that could provide much better service at better rates, friendlier faces, less hassle factor than is currently "available" at your 1-teller Chase branch (see Comment #15, above, referencing the reason(s) we're at http://www.depositaccounts.com); OR

4. You could simply wait for USPSBank to begin offering "services" with incredibly friendly tellers [/sarcasm] whose names are completely unpronounceable, whether by birth in the States, or through "importation" from abroad, and who are employed by the employer of last resort (i.e., the federal government) thanks to laws, coupled with unions, that favor hiring the otherwise unemployable . . . all combined to allow, for amongst other things, an employer who would consistently allow its "Open for Business at 9:00 a.m." branch to open its doors at ~ 9:15 a.m., give or take.

The choice is your's . . . literally.