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

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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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Comments (12)
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
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
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
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
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
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