Postal banking could help the USPS and underserved communities

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With some Americans considering mail-in ballots instead of visiting a polling place during the upcoming election, the coronavirus pandemic has helped put the spotlight on the United States Postal Service (USPS).

Many people already know that the USPS, which had a net loss of $8.8 billion during fiscal year 2019, has struggled financially for years.

That’s one reason why the idea of postal banking has come back around as a potential strategic option for the future. Revenue-generating ideas related to financial services might help the USPS get closer to sustaining its service.

Why some have been calling for the return of postal banking

A 2014 white paper from the Office of Inspector General of the USPS and a proposed Postal Banking Act, which was introduced into the Senate in 2018, are examples of talk about the return of postal banking.

That paper predicted that financial services could result in $8.9 billion per year. That number is based on the assumption of 10 percent of the underserved population paying interest and fees to the USPS.

“If anything, the events of the past few weeks have driven home how vital the U.S. Postal Service is for Americans as individuals and also for commerce,” says Mark Hamrick, Bankrate’s senior economic analyst and Washington bureau chief. “The ubiquitous nature of brick and mortar post offices would make them ideal for a thoughtful and appropriate expansion of financial services which in turn would help Americans in search of access. It might also provide the Postal Service with a much needed new revenue stream.”

The USPS’ main current banking function is issuing money orders to anyone with a bank account not being a prerequisite. There were 81 million Postal money orders processed by the Federal Reserve in 2019, according to the Fed’s data. So these are still a popular product in this era of digital banking. But USPS money orders have a limit of $1,000. So these can’t be used for every transaction.

Postal banking might help these money order customers with additional cashless transactions.

What is postal banking?

It’s been a little more than 50 years since the Postal Savings System existed.

It was established via a 1910 Act of Congress, according to the USPS website. Its goal was to get people in the U.S. to not hide their money.

According to the USPS, some immigrants banked at post offices in their previous country. The post office paid depositors 2 percent and then redeposited the money into local banks, where it earned 50 basis points (0.5 percent) more. That spread helped fund the Postal Savings System.

People could deposit money in certain increments. Postal Savings System deposits earned 2.5 percent from July 1, 1911 to July 1, 1935. U.S. savings bonds took the place of postal savings bonds in 1935.

In 1966, the USPS stopped accepting deposits and the Postal Savings System ended in 1967.

What would postal banking look like today?

In that 2014 white paper, direct deposits, prepaid cards, bill payments, small loans and international money transfers were some of the potential services mentioned.

These were called non-bank financial services in the report.

In the proposed Postal Banking Act, the bill would have given the USPS the power to provide basic financial services. This included:

  • Small loans at a low cost to consumers.
  • Small checking and savings accounts that are in specific amounts. These could be with just the USPS or the USPS could partner with banks and credit unions.
  • Transactional and remittance services.
  • Other basic financial services in the public interest.

Under that bill, the USPS would not have become an insured depository institution. It also wouldn’t have been a lender.

Postal banking could help reach unbanked Americans

Providing non-bank financial services for the underserved is one of the possible benefits of postal banking.

In 2017, 6.5 percent of U.S. households were unbanked according to the FDIC’s National Survey of Unbanked and Underbanked Households. That percentage equals approximately 8.4 million households, which includes about 14.1 million adults.

“The challenge for any venture involving a for-profit commercial venture and the U.S. Postal Service would be balancing the needs of the unbanked against the need for a big bank to drive shareholder returns,” Hamrick says. “There are millions of Americans who haven’t had access to traditional banking services, although some burgeoning business models and technologies may be changing that.”

But in the current era it might make sense for the USPS to partner with existing banks

Recently, Chase Bank confirmed that it had spoken to the USPS about the possibility of Chase ATMs being around some postal locations.

“We had very preliminary conversations with the U.S. Postal Service several months ago about what it might look like to lease a small number of spaces for an ATM to better serve some historically underserved communities,” says a Chase spokesperson. “These were very preliminary conversations, there is no agreement in place and no imminent plans to move forward.”

Chase ATMs at certain USPS locations could bring banking to areas that either don’t have ATM banking or no longer have ATMs. This could help add ATMs as brick-and-mortar locations have decreased over the years.

Banks leasing space from the USPS is a way to potentially add an additional revenue stream for the postal service.

USPS could be a way for Chase to expand its footprint even more

Chase, the largest bank in the U.S. based on total assets, has been expanding to new markets in recent years. In March 2019, it announced plans to move into the following markets:

  • Charlotte, North Carolina
  • Greenville, South Carolina
  • Kansas City, Kansas
  • Minneapolis
  • Nashville, Tennessee
  • Pittsburgh
  • Providence, Rhode Island
  • Raleigh, North Carolina

In December 2018, Chase opened its first branch in the greater Boston area. Recently, it has opened branches in Albuquerque and the Richmond, Virginia area.

The total number of bank branches in the U.S. have declined every year since 2009, according to the FDIC. But Chase is one bank that continues to enter new markets.

Final thoughts

America relies on the USPS. With the USPS struggling financially in the digital age, postal banking may be worth considering. A solution that both adds a revenue stream to the USPS and helps the unbanked and underbanked could benefit many and give consumers additional banking options.

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