We already know from Part One in this series that the United States Postal Service (USPS) has a long history and excellent record of administering financial services, which up until now has been limited to savings products. But a new report from the Office of the Inspector General at USPS makes a convincing argument that your local post office is actually well-suited to offer a suite of financial products and services, not just savings bonds and accounts.
Table 1 below details the potential services that are feasible using existing postal service infrastructure, but it is not exhaustive. In addition to transactional services like bill payment and check cashing, USPS could partner with banks and credit unions to offer affordable credit options, like small dollar alternatives to payday loans.
The USPS foray back into financial services doesn’t necessarily require that such services be government owned or run. Renting out post office space at low rates to regional banks and credit unions who would otherwise opt-out of smaller, rural, or less profitable markets serves the interests of all parties. Banks and credit unions get to operate in new markets without the operating capital that entry would otherwise require, consumers get easy access to basic services that almost everyone needs at some point (check cashing, bill pay, money orders), and USPS get a steady new supplemental revenue stream to shore up a shaky budget situation.
Why is the post office a good storefront for these financial services? In short, because of unmet market need coupled with steady demand in areas increasingly neglected by traditional financial service outlets. The Inspector General explains:
Banks are closing branches across the country (nearly 2,300 in 2012). Although the number of closings is only a fraction of the total number of branches, the closings are not spread evenly. The closings are heavily hitting low-income communities, including rural and inner-city areas — the places where many of the underserved live. In fact, an astounding 93 percent of the bank branch closings since late 2008 have been in ZIP Codes with below-national median household income levels. This leaves some communities stranded without physical access to quality financial services, and the problem could get much worse. Banking industry experts predict that banks will continue to shut branches, particularly in small communities.
In 19 of Oklahoma’s 77 counties, 100 percent of census tracts (an area of land about the size of the average neighborhood) have a higher percentage of unbanked households than the national average. In fact 40 percent of households in those 19 counties are unbanked or underbanked – compared to 31.7 percent overall for the state and 25.6 percent nationally who are unbanked or underbanked (see table to the left). It’s in many of these very same communities that local post office branches already act as critical lifelines for residents, and they could do so much more.
Financial services are hugely profitable for postal organizations around the globe. Given the chronic budget shortfalls of the USPS, it’s time to take seriously a strategy we know has worked in the past. While the idea has been floating around the think-tank realm for a few years, this new report from the Inspector General should breathe new life into the proposal and attract the attention of lawmakers and others serious about fiscal responsibility. Oklahoma consumers desperately need access to low cost financial services and small dollar loan products. And what better institution to provide that access than one that is trusted and already embedded in our communities?