The U.S. banking industry is starting to warm up to the idea of the Postal Service offering retail banking services.
Ten months ago, when the concept of postal banking was first floated, bank industry officials panned it. But in recent weeks, the government official who has been championing the proposal has indicated that he is more interested in a partnership with private-sector banks than head-to-head competition. While there are still skeptics within the banking industry, there also clear signs of a thaw.
One state-level banking trade group even volunteered recently to participate in a potential pilot test in which banking products would be offered through the Postal Service.
U.S. Postal Service Inspector General David Williams fleshed out his vision for cooperation between the public and private sectors in an Oct. 7 speech to the North Carolina Bankers Association. He said in an interview that the speech was well received, although Tar Heel State bankers still want to see more details.
"The North Carolina Bankers Association said that in the near term, they'd like to work with us to help think of ideas and ways to go forward," said Williams, whose office kick-started the debate over postal banking when it published a paper on the topic in January. "And then they said, beyond that, they'd be interested in exploring the idea with the Postal Service of piloting the offering of financial services."
Thad Woodard, the association's president and chief executive officer, confirmed the group's interest in participating in a pilot project.
"In North Carolina, we like to think that banks are always willing to look at new and different things," Woodard said. "Not understanding what the impact at this point might be upon our banks, we're more than willing to volunteer as the laboratory testing facility at least to get to the point of developing that with the U.S. Postal Service, so that we could work together to find out if there's value for both the industry and the Postal Service."
Mike Ayotte, president and CEO of the $81 million-asset Morganton Savings Bank in Morganton, N.C., said that he was surprised by the collaborative tone of Williams' recent speech. Ayotte had expected to hear Williams say that the Postal Service needed to offer banking services in order to shore up its budget, or that postal banking would compete against the private sector.
"That wasn't the approach he took," said Ayotte, who is also chairman of the North Carolina Bankers Association. "What I hear him saying is, 'This is an idea we would like to explore with you guys.'"
"It's an interesting idea," he offered. "I say I'm neutral. Let's talk about logistics."
In its January white paper, the U.S. Postal Service inspector general's office proposed that the post office start offering prepaid cards, remittances and perhaps even small consumer loans to Americans who are outside the financial mainstream. The report estimated that the cash-strapped agency could earn nearly $9 billion per year.
In his Oct. 7 speech, Williams suggested that the Postal Service could provide a platform that private-sector financial institutions could use to offer competing prepaid cards and other financial products.
"The platform would be open to everyone banks, credit unions and the credit card industry," he said, according to a prepared version of the remarks.
"To have your products placed on the postal platform, you would simply identify [their] attributes, fee structure and interest rates. A certification process could also verify whether products meet the financial industry's best practices and identify how long you have been operating," he added.
Williams argued that the Postal Service and the banking industry face some similar challenges today both have large physical footprints that are a legacy of the pre-digital era. He cited one banking executive's prediction that the number of U.S. bank branches will drop precipitously.
"Left behind will be expanding bank deserts, with no services or incomplete services. Those who aren't yet ready to move to digital solutions will be left with no solutions," Williams said, according to the prepared text of his remarks.
"Could we share a common infrastructure to convert cost centers to profit centers as we serve America? Specifically, is there a way that this vast postal network could allow banks to maintain these residual services best provided face to face with brick-and-mortar access points?"
In the follow-up interview, Williams said that the rise of mobile banking is not going to eliminate, at least any time soon, the need for checks, money orders and other legacy financial products.
"It may be a very long time before a landlord accepts a prepaid card," Williams said. "They may want a money order or checks for a very long time. So if you can't do that using these mobile apps, somebody needs to exchange one financial instrument for another."
The postal IG's office is working on a follow-up report about postal banking, which is expected to be released by February. That research will take a closer look at the types of products that might be offered in postal branches, as well as potential partnerships with financial institutions.
The postal banking concept still faces big hurdles. For starters, it is unclear whether the Postal Service has the legal authority it would need to offer banking products. Moreover, officials at the Postal Service itself have shown far less enthusiasm about the concept than the inspector general's office has.
USPS spokeswoman Toni DeLancey said in an email that the agency continues to explore the postal banking idea but currently has no specific plans.
She pointed to comments in March from Postmaster General Patrick Donahoe, who said: "The IG's an independent agency, and I think people need to keep that in mind."
Any pilot testing of postal banking would probably require the involvement of the Postal Service itself, Inspector General Williams said. He said that his agency continues to explore the banking concept with the USPS' marketing and sales team, but acknowledged that the Postal Service is prioritizing other initiatives in the short term.
It is also clear that some in the banking industry remain highly skeptical of post office banking.
Ken Clayton, chief counsel at the American Bankers Association, raised a host of concerns. He questioned whether the Postal Service would be subject to the same regulations as private-sector banks, said that many Americans who lack bank accounts do not want them, and argued that the fast rise of mobile banking undermines the logic of offering banking services in post offices.
"If that is the trend of the future, how do you continue to operate an extensive brick-and-mortar system?" Clayton asked.
Ayotte said that bankers' reaction to the inspector general's speech in Pinehurst, N.C., ran the gamut.
"On the one hand, you've got folks who say I'm in a little town," Ayotte said, "and I don't want to give Bank of America another way to serve customers and eat out of my bowl."
"And then you have other folks who are rah-rah," he added.
Ayotte said that what interested him was the idea of bringing financial services to rural areas. He noted that in many towns that have nearby post offices, people must drive long distances to access banking services.
"What if they need something that they can't do on the Internet? To me, that's very, very interesting," he said.