To say that the United States Postal Service (USPS) has struggled to find its place in a changing information age is an understatement. Facing the exponential growth of digital communication, stiff competition from private firms, and draconian budget cuts, USPS hobbles into an uncertain future. Yet the public post remains an important part of American life and it still plays an indispensable role in rural commerce, culture, and medicine.
This post is the first in a series that examines a new opportunity for USPS to diversify its revenue base, fill urgent and unmet needs for millions of households, and secure its place as the socioeconomic touchstone of remote and sparsely populated areas long-neglected by private development. Part one in this series reviews the history and record of postal financial services, in the U.S. and around the world. Part two examines the suite of financial products and services that USPS is uniquely positioned to provide, and explores which business model would serve the community (and the taxpayer) best. Finally, part three reviews the benefits of the endeavor for all the parties involved and affected – banks, consumers, and the faltering U.S. Postal Service.
Earlier this year, the Office of the Inspector General at USPS released a report on the possibility of entering the financial services market, concluding there was enormous potential in the endeavor and few pitfalls. The postal service is well-positioned to offer many non-bank financial services: payment services, products to encourage savings, and affordable credit (like small dollar alternatives to payday loans). They’re able to achieve economies of scale even in small and rural communities that are least likely to have access to affordable financial services, because nearly everyone has a need for the services USPS already provides.
In fact, USPS has decades of operational experience administering a savings deposit program. Beginning in 1911, the Postal Savings System offered consumers a place to earn interest on deposits that would otherwise have gathered dust at home. For over fifty years, the public-private partnership proved a solid and successful one. It provided a uniquely safe and reliable place for deposits in the aftermath of the Great Depression and boosted household savings during the 1940s, when the 2 percent interest paid by the postal system was higher than the rates banks were paying. Generally however, they were not in competition with banks and were a boon to local banks and business:
Initial banking industry opposition to the system turned into support when bankers realized that the system was successfully drawing in a lot of money that used to be stored away in cookie jars and other hidden places. To minimize competition with banks, deposits were limited to $500 and the interest rate to 2 percent. Deposited funds were to be funneled to local banks, which would pay a 2.25 percent interest rate for the money — considerably less than the 3.5 percent that most banks were paying for deposits at that time, and lower than the interest paid to depositors by any other post in the world. Because banks would use the postal deposits to fund loans to local consumers and businesses, the economic benefits of those deposits stayed with local communities.
The system peaked in 1947, holding deposits from more than 4 million Americans at over 8,000 postal outlets across the country. As more and more depositors shifted to banks and Treasury bonds in search of higher interest rates after the war, the Postal Savings System outlived its usefulness and was deactivated in 1967.
International postal service outlets continue to successfully provide a suite of financial services to their citizen consumers (in New Zealand, Italy, and the United Kingdom among many others), and the business brings in a sizable portion of the systems’ sales and profits. While the business model varies from place to place (from purely public, to purely private, to some combination of the two) the posts succeed because they maintain a high volume of consumers traffic and provide an easy point of access for services most citizens frequently need.
The next post in this series will explore in detail just what that suite of services could look like if USPS were allowed to reactivate its roll in advancing the personal financial goals of the average American household.