= Subscriber content; or subscribe now to access all American Banker content.

Postal Banking: Maybe Not So Crazy After All

A recent white paper by the U.S. Postal Service’s Office of the Inspector General floated the idea of introducing postal banking services as a means of expanding financial inclusion. Not surprisingly, the banking industry has rushed to condemn the idea—which would create new competition for financial services—as sort of creeping socialism. But when one considers postal banking more carefully, the idea isn’t so crazy, although it raises a number of real questions and challenges.  

First, the idea of a postal bank is not new to the United States. The USPS successfully operated a postal savings bank from 1911 to 1967. The system was designed as the Republican (!) alternative to federal deposit insurance. The Postal Savings Bank was constrained by its statutory limitations to offering only passbook savings, but in World War II the Postal Savings Bank pioneered new ideas and technologies to help service members, such as deposit by mail.

Put another way, we’ve done postal banking successfully before, without the world collapsing.

Looking globally, the United States is very much the outlier in not having a postal banking option. Most developed countries (and many developing countries) offer some form of postal banking. There’s a great deal of variation in the services postal banks around the world offer, ranging from payments, like the successful giro system in Europe, to mortgages in Switzerland. Nor are postal banks always niche players—the Japanese postal bank is one of the largest financial institutions in that country. Postal banking hasn’t been a disaster elsewhere.

Obviously the fact that postal banking is not new or unique does not tell us whether it is a good idea. The answer to that question depends on what kind of postal banking system we would have and why.

To the extent that postal banking is meant to plug the budgetary hole in the USPS, it is not particularly appealing. It is questionable how well the USPS could succeed in a head-to-head competition for mainstream financial services. One the one hand, it has the advantage of the best retail branch network of any business in the country, with post offices in every ZIP code; customer familiarity; and an existing cash handling system. But that’s not the same as operating a full-service bank.

More importantly, if the postal bank would serve primarily low-income consumers, as the Inspector General’s report suggests, can the USPS turn a profit while offering simple, transparent, and low-cost products? Fair financial inclusion might be at odds with revenue goals, and USPS profitability should not be based on exploiting financially vulnerable populations.  

To the extent that postal banking is meant to address the problems of the unbanked and underbanked, however, it has a lot to commend it. The post office’s accessible branch network may offer advantages in reaching these consumers, many of whom do not feel comfortable dealing with the more formal feel of traditional financial institutions. Moreover, one could imagine a postal bank as a feeder service that brings unbanked consumers into the mainstream financial system and then graduates them to private institutions. That was how the Postal Savings Bank worked; its clientele was overwhelmingly low-income earners and immigrants, and the $2,000 cap on postal savings accounts meant that as consumers became successful, they would have to graduate to the private banking system.

What one thinks about a postal banking system also depends on the services offered. Most controversial would be provision of credit. There are legitimate concerns about offering government-backed small-dollar loans or other forms of consumer credit through a postal bank. The taxpayer would bear the risk of losses and underwriting might be politicized. Of course, as the experience of 2008 shows, the taxpayer already bears the risk of poor consumer credit underwriting by private banks, and we already have the government assuming credit risk on everything from home mortgages (through Fannie Mae, Freddie Mac, and the Federal Housing Administration) to commercial loans (via the Small Business Administration). Is there any reason unsecured, small-dollar consumer credit should be treated as different?

Why, then, the objections from the banking industry? Well, no business wants competition, particularly competition that might be unfairly advantaged. On the other hand, if a postal bank were truly limited to serving the unbanked, it is hard to see how it would directly compete with private banks. Instead, it would be picking up the customers that the private banking industry does not serve because they are unprofitable. A postal bank’s services might ultimately expand, but that is neither inevitable nor a sufficient reason to object to a limited postal bank. Perhaps, then, the concern is that if a postal bank offered simple, transparently priced, low-cost services, that might start to shape consumer expectations for the whole financial services industry.

At the very least, one could imagine a postal bank offering some sort of limited transaction accounts with associated debit cards and bill-pay services as a valuable service to unbanked and underbanked consumers. Such a product would compete with private prepaid cards and mobile banking solutions, but might offer a more transparent, low-cost, “plain vanilla” alternative that would anchor the market and force competitors to offer consumers superior value propositions. It is hard to make low-income consumers—like many of the unbanked and underbanked—into profitable financial services customers. That is one reason why so many are unbanked.

This points to a real tension in any sort of postal banking proposal: to the extent that a postal banking system is designed to provide low-cost services to consumers, it is potentially at odds with the USPS’s need to find new revenue sources. Put another way, is the mission of a postal bank profit or financial inclusion?

Perhaps both can be achieved at the same time, but that is the challenge. If we can resolve it, postal banking doesn’t seem so crazy after all.

Adam J. Levitin is a professor of law at Georgetown University.


(23) Comments



Comments (23)
It is interesting that the term "unbanked" is used to often. Who are the unbanked and why are they unbanked? The unbanked are often people who do not want to have any records kept of their financial activities. They are often illegals who, if at all possible, do not want to let anyone know of their existence. We have banks in two communites that have a larger hispanic population than all other racial groups combined. The bank has bilingual employees to assist this particular group of people. It is our experience that they do not want to have bank accounts but do want access to ATM's in order to obtain funds by using EBT cards. The bank offers FREE ACCOUNTS including a free debit card. Local businesses are offered automatic deposit of payroll to their employee account with an ATM access card to obtain the funds. Our experience is that the majority of the workers, primarily hispanic, want a check and prefer to cash that check at a retail store like Wal-mart, Safeway etc. As is often the case, the Washington lawmakers make a lot of noise about things they have little if any personal experience or knowledge. Their speak is attempts to influence votes for themselves rather than obtaining facts. In summary, many if not most of the "UNBANKED" are unbanked by choice and not because they do not have access to banks to serve them. Thus, considering the poor service provided by USPS why would anyone with factual knowledge believe that USPS could proved banking services to meet anyones need let alone the UNBANKED?
Posted by Alfred Kreps | Wednesday, February 05 2014 at 3:57PM ET
On Monday this week I had to mail a certified letter to a delinquent borrower. The nearby post office branch has not installed the electronic kiosk so many branches have. So I had to wait in line for 30 minutes for a 30 second transaction.
The postal service has no competition for standard mail services. Therefore the resources that management provides for customer service are severely lacking. Yes, the mail does get through. But don't expect all the service windows to be manned during busy times. They don't care!
Envision now the lines for consumer loan applicants. And the insanity of the postal service to try to collect on delinquents, repo cars and other collateral. Yes, there is a need to better serve the unbanked. But having the post office try to solve that problem is first class stupid.
The policy makers should experience the lousy service at their local post office branch (instead of sending their assistants to suffer.) They might then rethink this lending strategy.
Posted by StevenChase | Wednesday, February 05 2014 at 12:02PM ET
I tend to agree with Fran_Dale. Postal Bank should concentrate on mobilizing small savings and help raising credit for consumption in the ordinary course of business. It should be a window for reaching the unreached rather than taking on full fledged bank's role.
Posted by yerram | Tuesday, February 04 2014 at 8:16PM ET
Remember that Mrs. Warren obtained a position at Harvard because she claimed to have native american ancestry. When her ancestry was checked out no one could find that she ever had native american ancestry. If true, she frauded the college and now is working with the current administration to perpitrate frauds upon all true Americans. So it stands to reason that someone like Mrs. Warren would try to destroy private enterprise in favor of Washington contro.
Posted by Alfred Kreps | Tuesday, February 04 2014 at 3:29PM ET
First, the government pushes several banks out of payday-like lending while it discourages banks from processing third party payday transactions. At the same time due to regulatory and compliance pressure banks limit their support of the check cashing business. Now, the government considers focusing on an underserved market that it is largely responsible for making underserved. Sounds like a story for Jon Stewart.
Posted by cwendel | Tuesday, February 04 2014 at 8:09AM ET
Mr. Levin, you are naive and should focus on law. Please stay out of something about which you have little if any experience. You are a quasi-government employee funded by both taxpayers, parents, philanthropists and students. USPS is one of poorest, if not the very poorest, managed operations anywhere. Your opinion about banking is more questionable than mine about the law profession.
Posted by Alfred Kreps | Monday, February 03 2014 at 8:19PM ET
I see that Elizabeth Warren has gone public with a call for the USPS to get into the banking business. Clearly this article is part of a coordinated propaganda campaign. It is a shame that AB can be coerced into such complicity.
Posted by Bob Newton | Monday, February 03 2014 at 1:58PM ET
Wake up people!!! Take a look at what the government is doing to healthcare...they are totally destroying the private insurance industry so that we will be forced to look to the government for a solution to our healthcare needs. Now comes the Consumer Loan Protection Bureau that is destroying the ability of commercial banks to profitably provide consumer loans...and guess what... the postal banking service comes to save the day. Once the government takes over all industry, we can line up for our monthly allotment of toilet paper!
Posted by walkerlloyd | Monday, February 03 2014 at 9:49AM ET
stop by your local Check Casher on a busy day and see for yourself how quickly the customer is served and notice the smile on their face. on the same day go to your local Post office and see the opposite. No smiles, long slow lines and imagine the drilling by the friendly post office employee if proper ID was not available to complete a transaction.
Posted by bellfair | Monday, February 03 2014 at 7:06AM ET
Bob Newton, you appear to be misinformed. USPS is not subsidized by the taxpayers. You might want to take a look at their publicly-available financial reports as well - you will see that the last reported fiscal year, 2013, showed a profit of $600 million from postal operations. Since USPS is required to lend $5.6 billion per year to the US Treasury in anticipation of expenses nearly a century in the future, it showed a net "loss" of $5 billion even though it did not lend that money to the Treasury. Note also that USPS has funded well over 100% of its pension liabilities and around 50% of its retiree health benefit liability, which is a superior position to that of any Fortune 1000 company.
Posted by LiamSkye | Saturday, February 01 2014 at 3:55PM ET
"Tax-subsidized government agencies should not expand their services to compete with private industry. If the Post Office truly cares about financial inclusion, it should seek ways to help the existing banking industry reach more people. Read more at
Posted by NW Financial Review | Friday, January 31 2014 at 11:03AM ET"

Maybe tax-subsidized agencies should not compete with private industry, but what about the United States Postal Service? Since it is not tax subsidized but is, arguably, a federal agency, should it be allowed to compete with banks? Remember that it already competes with private sector carriers.
Posted by LiamSkye | Saturday, February 01 2014 at 3:47PM ET
The moderator should examine the name-calling and personalization of what is supposed to be on-topic debate in the post above by "consumerdefender".

Let's look at the USPS bottom line in 2012, the most recently reported year: Net loss of $15.9 billion, after a pension payment of $11.9 billion. Even with no pension plan, the USPS is a big loser. Its business model is in permanent decline. Its basic business of delivering first class mail has fallen from 97 billion pieces in 2006 to 68 billion in 2012 - and they are mostly utility and credit card bills that are rapidly going electronic.

It is also a partisan canard to blame "Republicans" for the 2006 Postal Accountability and Enhancement Act. The postal workers union wanted its plan fully funded just as much as Congress wanted to reduce the USPS's unfunded liabilities, which made it impossible to privatize at that time.

Now maybe if the USPS were completely privatized and set free to succeed or fail on its own merits, its management could then make the case to its investors and customers that it should diversify. But not as a quasi-governmental, tax-subsidized entity.
Posted by Bob Newton | Saturday, February 01 2014 at 7:29AM ET
I just blogged about this here:
Posted by mehrsa | Friday, January 31 2014 at 4:19PM ET
Is your company required to fund its pension liabilities 75 years out? Unless you are the USPS, you're lying if you say yes. Prior to the Republican imposition of this ridiculous requirement, the USPS was making money, not losing it. This of course irritated FedEx and UPS to no end. BTW, I have used all three services to send packages, both at standard speed and overnight, and the USPS is the only one to guarantee, in an enforceable contract with real remedies available, that it will deliver when it says it will. It is also the cheapest by far as a direct matter (and for a person of relatively modest wealth such as myself, also as an indirect matter). Your use of the term 'statist', Bob Newton, gives you away as the Randroid you likely are; no-one who idolizes or even gives serious credence to Ayn Rand should be taken seriously, by anyone, ever.
Posted by consumerdefender | Friday, January 31 2014 at 3:01PM ET
USPS could also push to have the ridiculous and obviously-designed-to-destroy-it requirement that it fully fund its pension liabilities 75 years into the future repealed and replaced with the normal ERISA requirements. That would solve the revenue problem and then some, eliminating the tension noted at the end of the article.
Posted by consumerdefender | Friday, January 31 2014 at 2:56PM ET
It is no surprise that this article is written by a university professor. Only in the fantasy world of the ivory tower could such an idea be seriously considered. The utopian language of the article with its "woulds" and "coulds" and "imagines" is a great example of the magical thinking with which statists delude themselves.

Why should we not have a postal bank? Let me count some ways - but note, there are so many that we cannot list them all here:

1. Retail banking services are not a legitimate function of government under our Constitution.

2. The Post Office itself is a dying relic of obsolete technology.

3. The management of the Post Office can't avoid losing billions of dollars per year in its basic business, and you want to trust your savings to them?

4. The federal government's record of fiscal prudence is no better, and you want to trust your savings to them?

5. Since the Post Office can't turn a profit, it would be subsidized by your tax dollars. Not only is this immoral in itself, but such subsidy is a form of crony fascism favoring government over the legitimate private businesses in the industry. It is exactly like government meddling in the energy, insurance, and healthcare industries - and how are they working out for ya?

I find the timing of this article quite suspicious, coming in the same week as the President's proposal to confiscate your IRA investments and give you a "guaranteed return" of less than the inflation rate. Is it merely another government camel pushing his nose under the nation's tent?
Posted by Bob Newton | Friday, January 31 2014 at 1:28PM ET
I've been a banker twice in my career and have worked in the banking/payments industry for 44 years and I can vouch for the fact that bankers are not frightened by competition. All they are asking for, or have ever asked for, is the same rules, regulation, and oversight for all that want to play in the banking/payments industry. What they have now is pressure from the government to do certain things and then blame from the government because they did what they were forced to do. Don't confuse banks with Wall Street as is so common today.
Posted by Fran_Dale_Entandem | Friday, January 31 2014 at 12:58PM ET
Levitin is right. Bankers are frightened by competition. They only cloak their fear in the language of capitalism. They don't believe in it, and certainly not as it applies to services for the poor.
Posted by Edwin W | Friday, January 31 2014 at 12:50PM ET
That would be a great idea except for the number of post office locations. However, maybe it's a two prong model. Bank branches where bank are interested and USPS where they are not. From what I'm seeing and reading, banks are continuing to close branches. Maybe this can be turned into a win-win-win except for the fact that banks are not targeting this market segment and many in this market segment are wary of banks.
Posted by Fran_Dale_Entandem | Friday, January 31 2014 at 11:31AM ET
Bingo, Commo! Old thinking for an old problem brings back old solutions (like the "Ford Edsel" referred to by Bengston - NWFR). If Ye Olde Postal would like to go modern, perhaps they should adopt the (slightly more modern) grocery store model of incorporating bank branches in their facilities. The rent might save some of the impending PO closings.
Posted by mdillon | Friday, January 31 2014 at 11:24AM ET
As I commented on the prior article about this subject, the USPS does not need to be and should not be a "bank/FI" in order to provide services to the underbanked/underserved market. They can and should work within the current financial system.

As to profit, they can offer services at lower prices than payday lenders and others who serve this market and still make money. The fees paid by this market can be and should be higher than credit worthy individuals because there is more risk.

It seems everyone is trying to make this seem so difficult and so anti-bank. It is neither.
Posted by Fran_Dale_Entandem | Friday, January 31 2014 at 11:13AM ET
Tax-subsidized government agencies should not expand their services to compete with private industry. If the Post Office truly cares about financial inclusion, it should seek ways to help the existing banking industry reach more people. Read more at
Posted by NW Financial Review | Friday, January 31 2014 at 11:03AM ET
Reminds me of the old song: "still crazy after all these years."
Posted by commobanker | Friday, January 31 2014 at 10:48AM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.