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U.S. Postal Service Should Offer Loans, Bank Products, Agency Says

Washington — The U.S. Postal Service should consider fixing its massive budget shortfall by offering financial products such as debit cards, remittances and loans to underbanked consumers, according to a paper issued Monday by the agency's Office of the Inspector General.

The white paper said the beleaguered Postal Service could raise approximately $8.9 billion in additional revenue and reach potentially 68 million adults by offering such products, including international money orders and transfers.

The move could introduce a hefty player to the banking industry at a time when many bankers are cutting back or increasing costs on certain services largely due to heightened regulation. However, the OIG report says the suggestion is not meant to make the Postal Service a competitor to banks, even suggesting it could partner with institutions.

"To the contrary, we are suggesting that the Postal Service could greatly complement banks' offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the underserved," the report said. "While banks are closing branches all over the country, mostly in low-income areas like rural communities and inner cities, the physical postal network is ubiquitous. The Postal Service also is among the most trusted companies in America, and trust is a critical element for implementing financial services."

Other countries, including Great Britain, Japan, Germany and China already use their post offices to offer savings accounts and other products. The U.S. Postal Service did have a savings system established in 1911 but it closed in the mid-1960s after deposits declined largely because banks were able to offer a similar government guarantee on deposits through the Federal Deposit Insurance Corp.

The Postal Service has drastically changed since then and faces mounting pressure to fix its budget after hitting steep revenue shortfalls and cutbacks in recent years. On Sunday, the Postal Service said it would increase the cost of a stamp by three cents to 49 cents a stamp.

The white paper said that if the Postal Service were to begin offering financial services to the underbanked, it would be a "major new revenue" stream.

"If even 10% of what the underserved currently spend on interest and fees instead went to more affordable offerings from the Postal Service, it could lead to $8.9 billion in new revenue per year," the report said.

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Posted by CURTIZ MORGAN | Sunday, June 26 2016 at 6:50AM ET
@Alfred, that's the point. They wouldn't be operating a deposit and banking system if done as rules and regulations allow today. They would be working with banks as currently required.

This reminds me of all of the concern regarding placement of ATM's at places other than banks. That's turned out to be a great thing for consumers, banks, ATM service providers, and places where the ATM's are located.

If the USPS wants to actually become an FI, then I'm as opposed as everyone else who has posted. However, if the USPS wants to extend the reach of financial products to the underserved/underbanked using the USPS network of locations and working with FI's as their way to legally enter this market, what's the downside? It's not like FI's are in queue to serve these consumers today--and a lot of that has to do with the rules and regulations that FI's have to follow.
Posted by Fran_Dale_Entandem | Wednesday, January 29 2014 at 11:08AM ET
What an ridiculous idea. Community banks already have government supported competition making the financial playing field biased and difficult. The Farm Credit system obtains government supported cheap bond funds to fund their loans and then does not have to pay any income taxes. Credit Unions are loosely regulated with many regulations applicable to commercial banks not applicable to them. And, Credit Unions are free from having to pay income taxes where most commercial banks pay over 30% fed taxes plus applicable state income taxes. To have another tax free USPS taking loans out of the tax paying financial industry is just another drain on others who have to foot the bill. USPS needs to reduce the cost of operations. Salaries, bonuses, benefits and retirement funding is far more than most community banks. The USPS cannot manage what they are now doing how in God's name would the poorly managed USPS be capable of operating a deposit and banking system?
Posted by Alfred Kreps | Tuesday, January 28 2014 at 10:57PM ET
Normally, I would be one of the naysayers who has already posted comments and would be agreeing. After all, there are so, so many examples of the government not doing things well--and that's being kind. However, I think that this is out-of-the-box thinking that is rarely seen in our government. And, under the same rules and regulations as financial institutions, could be just what the USPS and the underserved/underbanked need.

First, let's take a look at the USPS. They are constantly maligned and some of it is deserved, especially on past performance. However, what I have seen at the Post Office is that they started thinking out-of-the-box a number of years ago. They have great customer service; move lines quickly;, pull employees from other duties when lines get too long to help customers; are sales oriented; (Do you need any stamps or anything else today?); have made changes to Priority Mail to keep them competitive with USP and FedEx; offer a variety of stamp designs that do not become an issue when postage increases (Forever stamps); offer plain and theme packaging materials and greeting cards; and stopping your mail is as easy as going online and giving a stop date and a start date. And, guess what, you no longer have to go to the PO to pick-up your held mail. They deliver it to you on your the start date that you gave them!

Then, we have those who bemoan each postal increase. On the one hand, they want the PO to be efficient and profitable; on the other hand, they want that done with no increase in postal rates. Hello! We're in the digital age. I don't know the percentage drop in mail revenue that can be attributed to email, sending documents electronically, FB, etc., but it has to be huge!

Then, there's Saturday delivery. The PO mentions that they may need to stop Saturday mail delivery and there's an outcry. They are trying to make good business decisions and the public cries foul.

As stated in the article, "the physical postal network is ubiquitous". Why wouldn't we want them to take advantage of that, run the place like a real business (I'm thinking non-profit; I don't trust our government that much.), and stay up with (if not ahead of) the times.

Now, having said all of that, the USPS should do this as every other entity must if they are not a financial institution--they must work with an FI or multiple FI's. And, they should NOT become an FI.

The prepaid space is a great example. There are a large number of non-FI entities that offer financial services through prepaid cards to markets that are underserved/underbanked. The post office has the offices/locations; they have the customer traffic; they have the staff to handle the customer traffic, it seems like a wise move to offer services to the underserved/underbanked at reasonable prices. Think of the post office as the training grounds. Once these people are no longer paying exorbitant prices to wire money, to cash checks, or to get payday loans, they will have the opportunity to get their financial houses in order. And, in time and with good history, they have the ability to become "banked" if that is their desire.

This can be done in a way that works for the USPS, banks, prepaid program managers, and the underserved/underbanked consumer. We have been working with entrepreneurs and non-FI entities since 1999 to bring programs to market. The infrastructure is there. The concerns that banks and banking organizations have can be addressed. The best thing for the USPS, the underserved/underbanked, and financial institutions is to move forward at a deliberate pace to see if this "out-of-the-box" thought can pass muster.
Posted by Fran_Dale_Entandem | Tuesday, January 28 2014 at 12:45PM ET
Seriously? I actually find this comical. The USPS customer service and mail delivery times have gone from bad to worse in the last few years (although the price for services continues to increase) and now they think they can provide additional services? Case in point . . . I mailed my daughter's birth certificate and social security card from MN to CA in July via certified mail and it arrived in California in mid November. My attempt at working with USPS in locating these important documents was laughable. Every employee I dealt with passed the buck to someone else and no one every took responsibility for this unacceptable service.
I can't think of many individuals who would consider utilizing the additional services through USPS. Every time I stand in line at the post office for long waits, I am reminded that without competition, this is the reality. I wouldn't even consider any other relationship with this organization.
Posted by Delmari | Tuesday, January 28 2014 at 9:59AM ET
The post office has tried many of these ideas in the past. Whether due to poor strategy or shoddy execution, or both, the result was failure. For details, see November 1998 GAO Report on U.S. Postal Service's "Development and Inventory of New Products." One example detailed is an electronic money transfer service to Mexico, El Salvador, the Phillipines and the Dominican Republic. That initiative lost $15.9 million on $6.1 million in revenue.

I would urge the post office to focus on improving quality and increasing efficiency (vs. raising rates) in their current businesses.
Posted by dave_fortney | Monday, January 27 2014 at 9:26PM ET
Editor's note: We received the following comment from a reader named Byron Doss.

Has the agency even considered the costs of becoming compliant with relation to banking services? Wouldn't the USPS then become under dual-regulatory bodies? This idea should not be executed.
Posted by Marc Hochstein, Editor in Chief, American Banker | Monday, January 27 2014 at 4:38PM ET
I have no confidence that the folks at USPS, if let into this space, would limit themselves to, or even focus on, providing services to the underserved. Since this whole exercise is admittedly motivated by seeking revenues, they are going to go to where they can get the most revenue.
Posted by WayneAbernathy | Monday, January 27 2014 at 3:16PM ET
It's certainly not rocket-science. So many successful models around the world that could be easily copied. All it requires is a willingness to try -- instead of continuing to play the role of victim. Oh, and of course, regularly hitting up American consumers for more money to compensate for gross ineptitude.
Posted by jim_wells | Monday, January 27 2014 at 3:12PM ET
The idea is to modify the business model of an institution seriously in need of additional revenue by having them meet the increasing financial services needs of underserved borrowers. They have a vast existing physical and human capital infrastructure in place and could partner with existing lending institutions to develop new customer revenue streams as opposed to capturing revenue from existing community/larger banks. This is an opportunity for a new look at how to meet the business credit needs of that market segment through the development of risk offset structure that could attract private capital to manage the risk for an appropriate market based return.
Posted by DSaunders | Monday, January 27 2014 at 2:40PM ET
Well, the USPS bankrupted our nation's mail system and has generally screwed up the US Postal system so badly that non-government competitors have bankrupted them. So, yea, let's let them have a go at the United States financial sector. I am sure that if they do half as good a job at running the financial sector as they have the USPS that most of our nation's citizens will be broke within 10 years.
Posted by commobanker | Monday, January 27 2014 at 2:07PM ET
In the 2 year lead-up to EFT '99, I tried to engage senior management of the USPS in acting as a conduit for the mandated electronic payment to US benefit recipients. Even whilst I was working with the Treasury Department's FMS. Couldn't get a response to snail mail or a return phone call. Classic (and disgraceful) case of people too absorbed doing business the way they've always done it, to look at doing something new. As a result, the USPS closes underutilized post offices rather than offer new services thru these existing facilities, and Americans pay more for stamps without any improvement in service.
Posted by jim_wells | Monday, January 27 2014 at 1:50PM ET
A few questions raised by this plan: So the idea is to create yet another financial GSE? And what would this government sponsored financial enterprise do? Offer debit cards, remittances, and loans? Are there any lack of providers for these services today? And would this new GSE be subject to all of the regulation and reporting and administrative costs to which banks are subject? Or, instead, is the game that this new GSE would not be subject to all those cumbersome costs that were making these services more expensive for financial customers but instead should have the competitive advantage of not having to carry all of these costs? And where would this $8.9 billion of business come from? Is it more likely to come from community banks or larger banks?
Posted by WayneAbernathy | Monday, January 27 2014 at 1:00PM ET
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