The U.S. Postal Service should add financial services to its repertoire. Doing so would challenge existing political philosophies and bolster economic growth.
Neoliberalism, when it works as it is supposed to, negatively affects the wealthy and poor alike. Clubbed together, timid employment, slow income growth, dwindling state income support and the rising costs of living force low- and middle-income people to supplement their income with debt. This hurts the rest of the economy, which relies not on consumer interest payments to credit firms, but actual spending on goods and services.
Redirecting the $7.4 billion spent annually by the 12 million Americans who take out payday loans would certainly help the nation's gross domestic product, given some 70% of U.S. GDP is made up of consumer spending. Unfortunately, the plan outlined in the white paper from the U.S. Postal Service's Office of the Inspector General which bills the agency as a potential bank partner would do little to drive that money back into the economy.
One needs only to look to the U.K., cited in the white paper as an example of an "international post" already offering financial services to consumers, to understand why.
Back in 2010, as the rise of fringe finance tore through the U.K., the Department for Business, Innovation and Skills suggested a U.K.-wide merger between the Post Office and credit unions in order to offer an alternative source of short-term credit to the increasing number of consumers patronizing payday lenders or pawnbrokers.
This merger was suggested as an attempt to give credit unions more of a High Street presence. (Only around 1.5% of the U.K. population is a member of a credit union compared to next-door neighbor Northern Ireland where some 36.9% of the population are.)
It was also suggested as way to make the U.K. Post Office relevant again. Just as in the U.S., the prominence of email has given the U.K.'s post offices somewhat of an identity crisis. The recent move by the government to privatize Royal Mail has once again opened up the conversation of its relevance in the modern age.
But, four years after the original conversations on a credit union merger, very little has changed. While the U.K. Post Office does provide everything from mail services, broadband, car insurance and, yes, savings accounts, it has barely scratched the surface on financial inclusion. In fact, U.K. payday lenders, like in many countries, have ballooned. The industry, worth a mere £100 million in 2004, is now estimated to be worth around £2.2 billion.
The U.K.'s failure to make a dent in payday profits is proof that the U.S. Inspector General plans far more plugged into providing finance to underserved and low-income households would have to go further than outlined. The U.S. Postal Service couldn't dabble in financial services as the U.K. Post Office does. Instead, as Reuters blogger Felix Salmon recently pointed out, the agency would have to become an ethical bank, not merely a bank partner. Salmon writes:
Non-banks compete on convenience, not on cost, and tend to be open very long hours; while the Post Office has the advantage that a lot of the underserved go there anyway, it's still going to have real difficulty competing with Western Union, check-cashing stores, and all the other high-cost non-bank financial-services shops which do exist in the ZIP codes without banks.In order to make a postal bank work, it needs to be a postal bank: it has to be able to take market share away from existing banks
This is because alternative financial institutions, like, say, credit unions, can only provide loans and savings accounts to low-income households if they have enough middle-to-upper-class customers on hand to foot the costs. In order to retain these savers, who can theoretically move their services elsewhere at a moment's notice, the U.S. Postal Service would have to offer savings accounts with very competitive rates.
This move may worry folks like Independent Community Bankers of America President Camden Fine, but it is one worth pursuing. To be sure it is needed, as U.S. payday loan volume has risen steadily in recent years.
The U.S. Postal Service's Inspector General has a noble idea, but it will need to be more radical to change banking overall. This way the $7 billon of dead money lining payday lender's' pockets is put to better use.
Carl Packman is a writer, researcher and blogger. His book, "Loan Sharks: The Rise and Rise of Payday Lending," was published in 2012 by Searching Finance.