Are public-private partnerships the future of postal banking?
WASHINGTON — For years, bankers have opposed attempts by Democratic lawmakers to enable the U.S. Postal Service to provide financial services, arguing that the struggling government agency is not equipped to handle such an undertaking.
But the industry's position appears to soften on the topic of banking services being offered at USPS sites through partnerships with financial institutions.
Some industry observers said bankers may be more open to the partnership idea following a report that JPMorgan Chase had been in discussions with the agency before the coronavirus pandemic to offer ATMs and other banking services at post office locations.
“We are not fans at all of the postal service getting into core banking functions,” said Rick Clayburgh, president and CEO of the North Dakota Bankers Association. “I think their focus should be on what their core delivery is and their core business model. The concept of having the post office serve as a potential spot for an ATM machine or even leasing out space isn’t necessarily a bad idea.”
It is still unclear if any talks between JPMorgan Chase and the USPS will advance. A bank spokesperson said the pre-pandemic "conversations never materialized, and there are no imminent plans to continue the conversation or move forward.”
But Peter Gwaltney, president and CEO of the North Carolina Bankers Association, said the USPS should even allow other banks to make bids to lease space at post office locations if the agency is interested in partnering with financial institutions.
“If the postal service were to come up with a fair and equitable and transparent process, competitive bid, whatever we typically expect our government agencies to do to procure services, if they were to go through a process like that in that manner, then I think it would make sense,” Gwaltney said. “Particularly for communities where there is not a bank branch and there needs to be access to services, the post office makes sense.”
The comments from industry representatives follow the report last week by Capitol Forum, citing anonymous sources, that said JPMorgan Chase and the USPS may have even discussed some type of exclusivity arrangment for the bank to provide banking services to postal employees.
But the JPMorgan Chase spokesperson denied that the parties discussed exclusivity and said the talks had focused on leasing space for ATMs.
“Our Real Estate group regularly explores a variety of locations for ATMs for the convenience of our customers,” the spokesperson said. “We had very early conversations with the Postal Service about what it might look like to lease unused exterior space for a small handful of ATMs."
But the revelation of those talks ruffled some feathers among community bankers concerned about the idea of a large bank potentially negotiating a deal with such a large national organization as the USPS.
The news prompted the Independent Community Bankers of America to write a letter to Postal Regulatory Commission Chair Robert Taub on Aug. 24, calling for an investigation into the discussions.
“Any exclusive arrangement, negotiated behind closed doors, to allow a profit-driven entity to leverage the USPS branch network is a formula for corruption and should be a serious concern to all Americans who care about the integrity of our public institutions,” ICBA President and CEO Rebeca Romero Rainey wrote to Taub.
The spokesperson for JPMorgan said that “there was never any discussion about an ‘exclusive partnership’ for banking services” between the USPS and the bank.
But industry representatives are not opposed to the idea of public-private deals between the USPS and smaller financial institutions.
Ryan Donovan, chief advocacy officer at the Credit Union National Association, said that the post office should consider partnering with local community banks or credit unions, rather than a Wall Street megabank like JPMorgan Chase.
“It certainly begs the question of how did the Wall Street giant get in the room with the postal service on this and why wouldn’t the postal service want to partner with local providers to provide the services?” Donovan said. “In most communities, I think the postal service would find a willing provider in a local financial services provider.”
Still, some in the banking industry think the USPS should stay out of the financial services sphere entirely, including partnering with private banks.
McCall Wilson, president and chief executive of the $660 million-asset Bank of Fayette County in Tennessee, said he would still be concerned with the USPS partnering with local banks.
“It would be a logistical nightmare to try and make that work, to manage that model, I think would almost be impossible,” Wilson said. “I think you have to be very careful when you take the government and start partnering with the government.”
Meanwhile, Democratic lawmakers continue to push for a direct public banking option through the USPS.
Sen. Sherrod Brown, D-Ohio, the top Democrat on the Senate Banking Committee, has pushed for consumers to be able to access free digital bank accounts, known as FedAccounts, backed by the Federal Reserve.
“Millions of Americans don’t have access to the financial services they need because big banks like JPMorgan Chase make it too expensive for working families to get a bank account,” Brown said in a statement to American Banker. “That’s why I introduced the Banking for All Act, which would protect the financial wellbeing of hardworking Americans and allow anyone to access a free bank account at the Post Office or a community bank."
Sen. Kirsten Gillibrand, D-N.Y., introduced a bill in April to establish a nonprofit bank offering low-cost checking and savings accounts, ATMs, mobile banking and low-interest loans through the USPS. That legislation is also aimed at boosting revenue for the ailing agency.
Mehrsa Baradaran, a professor at the University of California, Irvine School of Law, and author of “How the Other Half Banks,” said that the push for a public banking option is a result of traditional banks’ failure to offer basic financial services for certain low-income Americans.
“These are going to be very simple accounts that banks have decided not to offer,” Baradaran said. “We are talking about providing bank accounts for unbanked and underbanked people. It would seem to me that banks should be happy that someone would be filling this role, because the cost-benefit [analysis] just doesn’t work out for them.”
Baradaran added that the USPS is an attractive option for expanding access to financial services because it has a large geographic footprint.
“There’s over 30,000 branches,” Baradaran said. “The thing about the footprint of the post office is that it doesn’t discriminate based on profitability of a community. And over the last 10 years, most bank closures have been in lower- and middle-income communities.”
But financial institutions say a better approach would be reform the regulatory framework that they say inhibits their ability to serve underbanked consumers.
“There’s changes that can be made in law and regulation that could make it easier to access credit unions and that can allow credit unions to do more for consumers,” said Donovan. “Those are the changes that we would encourage policymakers to look at as opposed to taking a struggling public service and asking it to get into a highly regulated line of business.”
Consumer advocates have largely endorsed public financial services options through the USPS, such as Brown’s FedAccounts proposal. But Porter McConnell, campaign director at Take on Wall Street, said she would potentially support partnerships between private community development financial institutions and the USPS as an alternative.
“If someone in the private sector could come in and offer a non-predatory option in this space, then I think it would be less urgent, but we have not seen that happen yet,” McConnell said. “If there was a community development financial institution that went to work with the post office on something, I could see that making sense.”