Like millions of others this holiday season, perhaps you’ve already made the trip to your local, friendly Post Office. While you were there, did you hear how the US Postal Service is in financial trouble? Was there talk among your neighbors in line about closing the local branch or losing Saturday deliveries?
The USPS financial problems are not a surprise. Reforms enacted in 2006 required the USPS to save up to 75 years health and retirement benefits—unlike every other Federal agency. Without these provisions, it’s like the USPS would be in the black and not the red. That’s not to say there isn’t room for improvement or modernization. But there is another way to remake the USPS that wouldn’t depend on shutting down offices or laying off mail carriers—low-cost banking.
Currently, there are millions of lower-income Americans who don’t own a bank account where they can save or conduct basic financial transactions. They fend for themselves in the high-cost and poor-quality alternative financial sector of payday lenders and check cashers. Recognizing the nefarious practices of this fringe sector was one of the factors which led to the creation of the Consumer Financial Protection Bureau. Once that agency gets up and running, they have a mandate to shut down abusive practices that have flourished without proper oversight. But even if the CFPB succeeds, we may still be left with scores of families who find it difficult to access a simple savings or transaction account. This isn’t a market segment the banks have been dying to serve.
Not only do unbanked families have to spend more of their limited resources managing their money but they don’t have a place to store and build up their savings. In fact, the small saver has largely been abandon in recent years. Traditionally, the US Savings Bond program was designed to serve the needs of the small saver, but that program has been refocused on larger and more institutional savers. Most banks have actually quick selling these as well, directing interested parties to the Treasury website.
The Postal Service could step into the breach. They already located in communities across the country and offer a number of popular financial services, such as money orders. Banking is hardly a stretch from their existing capabilities as they handle cash, track accounts, and service customers as a matter of course. What’s more, they have a large reserve of public trust and would be filling a niche that the banks don’t want to serve, which is providing simple, low-cost savings accounts. Some have called this the Public Option of Banking.
For those that think this is a far-fetched idea, many around the world would disagree. Postal banking is the norm in countries such as Japan, Germany, and France. Princeton historian Sheldon Garon describes the global phenomenon of postal savings in his new book, Beyond Our Means: Why America Spends While the World Saves. There is much to be learned from these experiences to help us set up a system that works here and meets the customer needs of the small saver. For instance, if the banks are worried about a government-backed competitor, we could cap the amounts which could be saved in the accounts or limit the types of financial services to basic savings and transaction accounts. We’ll keep the USPS safely away from mortgages and any kind of consumer lending. And don’t assume that this will lengthen the line when you show up to mail your packages. The USPS already has an expanding array of mobile and automated services.
Tim Fernholz, the Business Editor for GOOD magazine and a former New America Research Fellow, has picked up on the idea. He writes:
Traditionally, postal banks attempted to get low-income and unbanked people into the financial system, and they could play that role today, when roughly 9 million Americans don’t have a bank account and 21 million rely largely on fringe financial services like usurious check cashers rather than traditional financial institutions. Giving low-income people access to a safe banking system will firm up their economic futures.
As an enterprise, the USPS is uniquely positioned to rectify this problem: It has a lot of branches around the country, a lot of data about where people are, and already has a successful business processing money orders. It’s also one of the most trusted institutions in America at a time when people do not have much trust for banks.
Just like a public option for health insurance, a public option for banking would likely have beneficial competitive effects, offering a low-risk financial services baseline as an alternative to more fully featured or risky private banks.
If done right, this is an idea that could help alleviate the financial pressure on the USPS, fill a gap in our banking system, and help families build up small pools of savings. And it just might keep your local branch open for the next holiday season.