Should the USPS re-launch a postal bank?

The United States Postal Service is currently facing a very tough financial situation. Losses are piling on and could reach $14.1 billion for fiscal year 2012. Drastic decisions must therefore be made to ensure the viability of the Post. Most of the focus is currently placed on slashing costs, by closing post offices, reducing the workforce (155,000 jobs could be cut in the next 4 years) or cutting on the service (for example by going from 6-day to 5-day delivery).

Others are pushing for the USPS to expand into other services, such as electronic or financial services. From 1911 to 1967, a postal bank has already been operating in the US. Various articles (here, here, or here) have been published in recent months to lobby for the USPS to expand its financial services offering. In a country where more than one quarter of all households are unbanked or underbanked (FDIC, 2009), this could be an interesting proposal. However this project faces strong opposition, the arguments being that the postal staff doesn’t have the capacity to offer financial products or that the Post would bring unfair competition to private banks. What do you think? Post your comments below!

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4 comments

  1. In theory, it’s a great idea. In practice, it’ll never get through a Republican Congress. It has all the elements the right wing finds so objectionable: government interference in markets, services aimed at illegal immigrants (who would surely make up a large segment of the new USPS Bank’s clients), and of course, it’ll be viciously opposed by the powerful financial services lobby.

  2. A good question! … and it triggers to many more questions .
    The article says that a postal bank had been operating in the U.S. till 1967. The U.S. postal savings system was not really a bank: it was the U.S. Treasury distributing some of its paper-based products (bonds and bills) in small denominations via the post offices. This savings system had its merits, and helped many unbanked Americans to safe keep money, and it helped the Treasury to efficiently pool small savings as one of the sources to finance large infrastructural projects. The system also contributed to inculcate the habit of savings with youth and children.
    Since 1967 banking in the U.S. has changed dramatically , not in the least because of new technologies, and driven by changes in client needs and client behavior, and changes in the regulation of the financial sector.
    Questions that appear today include :
    The ubiquitous network could provide proximity, a low-threshold and easy access. If post offices were equipped with new, modern standard technology for financial services , how many un(der)banked would want to use the post office as an access point , and to what extent can self-service technology be used ? A better picture of the size of the gap in the un(der)served market that post offices can fill appears as an essential starting point in the discussion, and data seem to be missing to assess what role and added-value the post offices realistically can contribute in countervailing power to serve the interest of the un(der)banked ?
    Maybe tellers in post offices can be trained to provide basic financial services. The bigger, institutional issue is: what competence has USPS in running a bank and to invest the money, and what systems does it have to run a bank in every corner of the 50 states? If not, how much taxpayers ‘money is needed to establish the bank and how long will it take to reach out to the poor?
    With the current condition of USPS the next questions can be added: why should a non-bank and government agency in deep financial trouble start a bank? Why would the un (der) banked trust their money to such an institution?
    The last three decades have seen in Europe and Asia in increased separation of management of banking via the post offices from the mail managing a reengineered lean transport/logistic operation reengineered and less in need of ownership of retail post offices.
    From a mail business perspective the conversion of a large part of USPS’s fixed assets (post offices) in variable cost for postal agents seems inevitable, and the option of diversification into financial services through organic growth does not appear very feasible in the short or medium term.
    However, there is immense value destruction in closing post offices that have been 2 centuries or more a public trusted cornerstone in many of U.S. villages and cities. More constructive and innovative options could be considered with the aim of preserving and creating value for society and the un(der) banked in particular.
    In my view the question is therefore not: Should the USPS re-launch a postal bank? The answer is no, but the question should be: How can the U.S. Government incentivize U.S. banks co-operation between the banks and with the USPS to use the post offices as part of the infrastructure to ensure universal access to basic financial services? Should the State fund the technology and equipment to facilitate access to standard financial services? Is agency banking an option for regional and community banks, are joint-ventures feasible, or are banks interested in acquiring the real estate of post offices to redeploy it in a more commercially feasible way for retailing?
    Competition in banking has shown to be useful up to a certain point and no further leaving so many Americans without reliable, easy and affordable access to banking. Cooperation between the private banks and the public postal service is the challenge to strive for today; it begins where competition leaves off.

  3. The financial services industry has no interest in the un(der)banked in America, otherwise they would have tapped into that market. Perhaps, if the USPS gave them free to low-priced space, they might begin the experiment, but the economics of the financial services industry would inevitably see the forcing out of the un(der)banked as fees begin to rise, and offices are made less convenient to deal with. In those countries with financial services in the post office, the reviews are mixed. In some places, the postal financial services are highly profitable, as in France and Germany, but they are full-service multi-line competitors-brokerage accounts and insurance offerings. In other places, such as Africa, the products are simpler and one can’t get a very clear picture, but it is likely they are not commercially-viable and are a public service. In Brazil, I gather the system has been highly effective in providing banking services in remote and unbanked areas, but it that system involves a national license of space to a major commercial bank network. I don’t know if they provide low-cost services.
    The USPS probably could not make money on offering postal savings accounts. But the Interstate Highway system doesn’t make money either. Nor does the USPS’s address database. Or the Federal flight controller system. Or the US Army. Those are all considered “social goods” and society has concluded that their provision are a matter of necessity in order to have a civilized nation, and so we all contribute to the expense of maintaining them. Couldn’t a system of publicly supported postal savings accounts be considered a “public good”? Why must the USPS be self-sustaining financially? Because FedEx and UPS say it should be? Because “economic theory” says it should be? What this nation needs is a healthy debate on this subject.

  4. Another interesting article on this question, comparing the postal business models in the US and the UK: http://cepobserver.com/2012/03/could-royal-mails-approach-to-postal-retail-services-work-in-the-united-states/
    Various interesting points can be put forward:
    – Diversification is key factor of success in the UK with only 1/3 of revenues coming from mail and parcel (against 94% in the US).
    – Commercial freedom, which is something that USPS management has been repeatedly requesting from Congress over the past few months, appears essential in the UK, as the Post Office Ltd has the liberty to offer almost any product they want.

    The article also mentions that “Congress continues to impose a universal service obligation for retail services in remote and low-income areas on the Postal Service without including the funds to cover that retail network.” This takes us back to Charles Prescott’s comment (above) on the notion of public good. Is the Post a public good? Are postal savings a public good? We will continue to publish more articles on the subject in the coming weeks / months.
    Thanks to all for the comments and keep contributing to this blog!

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