A recent General Accounting Office report concludes the U.S. Postal Service needs to accept credit and debit cards to remain competitive.
Despite the tepid title of the report, "U.S. Postal Service Proposed Policy to Accept Credit and Debit Cards Makes Sense Conceptually," the Postal Service and the credit card industry are pleased with the findings.
Sen. David Pryor, D-Ark., chairman of the Governmental Affairs subcommittee on federal services, post office, and civil service, requested the report in September. He was concerned that the Postal Service might implement card acceptance too quickly before it had considered the costs and benefits of such a nationwide policy.
Cost Estimates Vary
The GAO report -- going by earlier Postal Service research -- estimates that installing and acquiring card authorization terminals could cost as much as $45 million. But the service now claims such up-front expenses would be substantially lower.
The most controversial cost is that of processing fees assessed by issuers. Some lawmakers are uneasy about the Postal Service absorbing such fees at taxpayer expense, but MasterCard and Visa rules prohibit passing along those fees to the cardholder.
Stephen M. Kearney, the service's treasurer and chief financial officer, argues that there are costs connected with all types of payment methods.
Card acceptance has been tested in 555 post offices in the metropolitan areas of Washington, Dallas-Fort Worth, and Orlando since June 1993.
The pilots are supposed to answer questions the GAO report raises, such as whether the Postal Service should accept cards just at larger post offices and whether to accept cards at windows only, or also at vending machines.
The Postal Service has been testing card acceptance in vending machines in Santa Ana, Calif., for one year, and it is rolling out tests in six other cities.
Could Take 2 Years
It also commissioned a number of surveys which show that consumers want to use their credit cards at post offices. One survey found that 71% of the Postal Service's customers favor such a payment option, and 25% said they would use their cards to buy postal services.
Currently, Mr. Kearney is sponsoring a proposal that would implement card acceptance in the 33,000 post offices around the country. The proposal, which first must be approved by the service's capital investment committee and then by its board of governors, does not include vending machines.
If it is approved, Mr. Kearney estimates, it could take two years to implement card acceptance in all 33,000 post offices.
The Postal Service could become the largest card-accepting merchant in terms of locations and one of the top five merchants in sales with $25 billion in annual consumer retail sales, according to David M. Lewis, MasterCard International's vice president of service markets.
Sales Volume Could Increase
Mr. Kearney said that "75% of our transactions are cash, and we will probably displace a lot of those transactions with cards."
If Mr. Kearney is right, the Postal Service could increase its sales volume, because the average cash ticket is about $20 -- versus the average credit or debit ticket at about $50. The only prediction Mr. Kearney will make, however, is that card acceptance will improve service and customer satisfaction.
Various surveys have shown consumers consider the convenience of not having to carry a lot of cash as the most important reason for wanting the Postal Service to accept cards.
The GAO report concluded that the Postal Service's proposal to accept cards "could help the service make its services more convenient to customers and potentially reduce its cash and check handling costs. However ... the service needs to complete and analyze the results of pilot test efforts" before negotiating fees to be paid to card companies.