Banking on (and at) the Post Office

It’s hard to think of an institution more archaic than the U.S. Postal Service. In a sense, it predates even the Declaration of Independence—Benjamin Franklin was named the first Postmaster General a year earlier, in 1775, and the Post Office Department, a Cabinet-level agency, was chartered in 1792. For the record, it’s been quasi-independent since the Postal Reorganization Act of 1971, but it’s still commonly perceived as a government bureaucracy, in part because it has long been dependent on government credit. It is not often associated with innovation, efficiency or even operating profit.

And of course, there’s the core product: mail, which many now describe as snail mail. At a time when even e-mail seems antiquated compared to the many social channels available, who needs a delivery system for all that paper? In the end, who needs it?

Try the financial services industry.

Post Office Man

On first glance, it makes for an odd partnership. We like to be on the cutting edge of innovation, and high-tech tools represent a critical element in that equation. Sure, our industry puts out a lot of paper, and we probably to our part to keep the postal service busy delivering some of it. But that’s about where any connection ends. Many in our field would take it as an insult if our services were described as being anything like the Post Office.

But there might be some changes coming. A brand new report from the Office of the Inspector General of the U.S. Postal Service suggests an interesting form of cooperation, and it is generating considerable buzz.

The report, “Providing Non-Bank Financial Services for the Underserved,” points out that the Post Office, by virtue of its ubiquity alone, is uniquely positioned to Postal Service is well positioned to provide certain categories of financial services to communities around the country whose needs are currently not being met by our industry.

Before delving into what this is, let’s be clear about what it isn’t. The Post Office is not suggesting that it wants to compete with banks in any way, neighborhood or otherwise. Instead, the report proposes that services could include reloadable prepaid cards with money-saving features and mobile capabilities, financial products that assist underserved communities and international money transfers. Moving forward, it could even expand into microfinance, replacing the predatory loan sharks who prey on these neighborhoods and charge obscene rates of interest.

Before descending into snark—and there’s surely rich potential for that—it might be wise to take an alternate look at this scenario. Much of the coverage of the Postal Service’s report focuses on such a move might benefit the institution and the communities it serves. But we should consider what’s in it for us.

This idea is being floated because more than a quarter of the U.S. population has no bank account at all, or have one but still need to rely extensively on check-cashing storefronts, pawnshops and the like. That’s because, to put it bluntly, we’re not there. With our operating model, having a brick-and-mortar outlet in many of these neighborhoods simply doesn’t make fiscal sense. However, while the average “unbanked” family makes about $25,500 a year, it spends nearly 10% of that amount on fees and interest for access to some form of financial services some of it to unscrupulous lenders. Getting into this market won’t just be good for them, it might be good for us, too.

And there’s more. As we’ve documented extensively on this blog, bank branches are shutting down everywhere, a logical outcome of the digital, mobile and cashless economy. But this migration leaves behind vast swathes of the population, and the Post Office isn’t going anywhere. By becoming a physical representation of our digital offerings, it could arguably complement our offerings.

This is not to say it’s going to be easy, and resistance to the idea has already emerged. Some industry groups are decrying the proposal, and the head of the Independent Community Bankers of America memorably described it as the worst idea since the Edsel. However, at least two senators, including Consumer Financial Protection Bureau (CFPB) advocate Sen. Elizabeth Warren, estimate that the U.S.P.S. could make nearly $9 billion a year by proving key services to millions currently left out of the system.

Despite the obvious obstacles, this is an intriguing idea. And in this market, in this environment, that makes it welcome.

Image courtesy of Boians Cho Joo Young/ FreeDigitalPhotos.net