Community Activists Line Up Behind Postal Banking
The United States Postal Service is commonly depicted as an antiquated, inefficient institution that won't stop hemorrhaging money until it streamlines its operations and fully embraces technology.
That was not the picture that emerged at an event in Harlem last week. Activists, community leaders and economists gathered at St. Mary's Episcopal Church to limn the Postal Service as a "national treasure," to decry the closing of post offices and mail processing centers and to discuss the virtues of transforming local post offices into providers of financial services.
"There is a crying need for expanded services, such as postal banking," said Nellie Bailey, the founding director of the Harlem Tenants Council, who set the tone in her strident opening remarks.
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The event was a field hearing organized by A Grand Alliance to Save Our Public Postal Service, a coalition of 141 national, state and local organizations. The group believes that the Postal Service could return to health by allowing its more than 31,600 offices to cash checks and offer other financial services to the unbanked and underbanked.
Sarah Ludwig, the founder and co-director of the New Economy Project, noted that between 2008 and mid-2013, nearly 1,900 bank branches shut down nationwide—93% of which were in low-income neighborhoods.
As a result, some 68 million Americans now live in so-called "bank deserts," ZIP codes with zero or one bank branch. In the absence of banks, members of these communities turn to check cashers, payday lenders and pawnshops, in the process paying about $89 billion a year in fees and interest.
The idea of consumers cashing checks or buying prepaid cards at post offices has gained traction since the Postal Service's Office of the Inspector General suggested in a 2014 white paper that the Postal Service is "well positioned to provide nonbank financial services to those whose needs are not being met by the traditional financial sector."
Democratic Sens. Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts, along with a number of community activists, support the idea that post offices could fill these vacuums by offering basic financial services, including electronic money orders or bill payments, surcharge-free ATMs and affordable microloans. The Postal Service, they argue, has the necessary footprint and is a trusted institution even among many people who are wary of banks.
What's more, if even 10% of what the underbanked and unbanked pay on interest and fees were redirected to Postal Service products and services, "it could lead to $8.9 billion in new revenue per year," the Inspector General said in its 2014 report.
It is revenue the Postal Service could sorely use. It posts enormous losses each year as it struggles to keep pace with the cost of funding its pension program for retirees. Its net loss for the first three months of 2016 was $2 billion, up from $1.5 billion the prior year, on operating revenue of $17.7 billion. Were the Postal Service to expand its offering of financial services, banks might view it as a direct competitor to banks — one that could afford to operate at a loss.
But banks don't need to gird their loins just yet. The Postal Service's primary financial service is the sale of domestic money orders, and that business has been on the decline for years. In 2015, the Postal Service sold just 93 million money orders, 60% fewer than it sold in 2000.
Postal money orders are still widely used by members of impoverished and low-income communities, as Julio Paton, a businessman who leads the South Bronx Community Association, noted at the May 13 hearing, but the Postal Service has ignored calls to modernize the product.
If customers were able to buy money orders electronically and have them mailed directly to their billers, annual revenue from postal money orders would rise 59% within five years, a report released last month by the Postal Service's Office of Inspector General found.
If it fails to protect its existing business, how much less effort is it likely to put into expanding its financial services? Indeed, the Postal Service has so far failed to implement even a pilot program for postal banking. At times in the past, Postmaster General Patrick Donahue has been at pains to remind people that the Office of the Inspector General, which has expressed enthusiasm for postal banking, operates independently of the larger Postal Service.
James Parrott, the deputy director and chief economist of the Fiscal Policy Institute, another speaker at the Harlem field hearing, expressed confidence that the Postal Service could learn to meet the needs of financially underserved communities. "It has adapted too many changes over the last 240 years, and there is no reason it can't be retooled for the Internet Age," he said.
But Gale Brewer, Manhattan's borough president, was more skeptical. The Postal Service, she told the gathering, is lucky to have ecommerce giants such as Amazon propping up demand for its package delivery. "The Postal Service has never been creative," she said.