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

What We’re Reading: U.S. Postal Service, Alerts, and Voice Recognition

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

  • U.S. Postal Service Should Offer Loans, Bank Products, Agency Says

American Banker

Washington — The U.S. Postal Service should consider fixing its massive budget shortfall by offering financial products such as debit cards, remittances and loans to underbanked consumers, according to a paper issued Monday by the agency’s Office of the Inspector General. The white paper said the beleaguered Postal Service could raise approximately $8.9 billion in additional revenue and reach potentially 68 million adults by offering such products, including international money orders and transfers.

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  • Cisco Research Reveals Web Threats Escalating While Mobile Attacks Are Still Rare

Credit Union Journal

The cyberthreats companies faced were greater in 2013 than in any of the previous thirteen years, mobile malware is much less of a threat than anybody thought it would be, large company websites have formed a bad habit of connecting to questionable websites, most web exploits target Java, and hackers are making excellent use of cloud computing — these are a few highlights of Cisco’s Annual Security Report. The report is compilation of observations and numbers from the security intelligence and operations group within Cisco. This includes daily reviews of 16 billion web requests, 93 billion e-mails, 200,000 IP addresses, 400,000 malware samples, 33 million endpoint files and 28 million network connections.

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  • Ex-Googlers’ Startup Shape Turns Hackers’ Code-Morphing Tricks Against Them

Forbes.com

Shape’s CEO Derek Smith (left) and VP of strategy Shuman Ghosemajumder, who once fought click fraud at Google. In late January a team of entrepreneurs out of Google and the defense world unveiled a startup called Shape Security. The 58-person Mountain View, Calif. company sells a pizza-box-size appliance called a ShapeShifter that plugs into a company’s network and obfuscates the code behind the customer’s website. It replaces variables with random strings of characters that change every time a page is loaded, all without altering the way the site appears to human visitors. This trick, known as polymorphism, makes it vastly more difficult for cybercriminals to use automated tools to crack passwords, scrape content from thousands of sites or use malware-infected PCs to spy on victims’ online banking.

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  • Listen to the Voices of Customers About Alerts That Matter

Javelin Strategy & Research

A potential example came to light this week during a Javelin webinar for Financial Alerts Forecast 2013: Security + Personal Finance = ROI, a report in which I call for banks and credit unions to expand the content of alerts in order to initiate regular “conversations” that provide compelling information, insight, and advice as customers bank, shop, buy, borrow, save, and invest. To start a discussion about financial alerts that consumers value most highly, we asked the nearly 50 attendees who work for banks, credit card networks, technology vendors, regulators and other industry players to identify which of five alerts U.S. consumers rated the most valuable. About 40% of the attendees selected alerts that notify customers of unusual transactions based on their purchasing behavior, with an additional 31% picking alerts that would warn customers when they’re at risk of overdrawing an account.

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  • Wells Fargo tests mobile banking voice recognition

Mobile Payments Today

Wells Fargo is testing voice recognition for use in mobile banking, according to The Charlotte Observer. The newspaper reported that Wells Fargo began the technology in its mobile banking app with employees using their real bank accounts in summer 2013. Brian Pearce, Wells Fargo’s head of mobile technology, told the newspaper that the bank doesn’t yet have a timeframe for rolling out voice recognition to its 12 million mobile banking customers.

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  • The Billion-Dollar Fintech Club (private companies)

Net Banker

Made it (recently went public/acquired): Xero, the New Zealand-based cloud accounting company, is valued at US$4 bil on NZ market. Qiwi PLC, the Russian payment giant, went public in May 2013 and is currently valued at $2 bil (Nasdaq). Lifelock went public in Oct 2012 and is currently worth $1.8 billion, it recently acquired Lemon to bolster its mobile identity protection services. Trusteer, the online security company, sold to IBM for $1 billion in 2013. Climate Corp (formerly Weatherbill), a weather insurance play, sold to Monsanto for $930 mil in Oct 2013 after raising $107 mil (Forbes). Braintree sold to PayPal for $800 million, $200 mil shy of the “club,” but not too shabby.

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  • Now T-Mobile Wants To Shake Up The Banking Industry

ReadWrite

T-Mobile’s biggest goal over the last year has been to disturb the roost that rival U.S. carriers have been sitting comfortably in for years. By eliminating carrier subsidies, creating new payment plans for smartphones and allowing customers to upgrade their smartphones more frequently, its competitors—AT&T, Verizon and Sprint—have all raced to match or exceed T-Mobile’s offerings. T-Mobile announced Wednesday that it is getting into … personal finance. Called “Mobile Money,” T-Mobile’s new program is designed to disrupt the finance industry’s model of forcing people to pay to manage their own money via check cards, bank accounts and other fees.

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