Have banks, fintechs compete to bring banking services to post offices
Banking services have long been offered national post offices in other countries, making basic account, savings and payment services widely available to populations who might not otherwise have access to them.
Here in the U.S., the idea of postal banking is winning political support from some progressives, who point to the need to fill “banking deserts” left in the wake of bank and branch closures in rural areas and inner-city neighborhoods. It was part of Bernie Sanders’s platform during his primary campaign and has since surfaced in the Joe Biden campaign’s Unity Agenda.
But the prospect of postal banking is anathema to many. Its most vocal opponents include the libertarian right and most community banks and credit unions. The former see unjustified intrusion by government into a private market. The latter see direct competition with their Main Street locations. The most reasoned skeptics point to the high investment and operating costs associated with activating a new, nationwide financial branch network, the inevitable challenges that a government freight carrier network would encounter in learning a new business, and the anachronism of opening new brick-and-mortar operations in a rapidly digitizing industry.
The combined opposition would likely render any legislative effort to launch a nationwide postal banking program in the U.S. as dead on arrival.
Still, there are some compelling economics and potential consumer benefits to be had from postal banking, particularly for populations lacking easy access to banking services. In many rural areas and inner-city neighborhoods the local post office is an outpost for delivery of services of all types. The U.S. Postal Services has a physical presence in more locations — roughly 35,000 — than any other U.S. retail operation. The offices and staff are both legitimate public assets and boots on the ground that could be leveraged to expand financial access. And the addition of financial services could enhance the economic viability of locations that still serve as community lifelines.
The delivery of banking services through post offices needn’t require the USPS to become a financial institution or to turn its locations into traditional bank branches. Digital and mobile technology have made possible a growing number of alliances between existing retail financial institutions and nonbank retailers. Through Post Office Money, the U.K.’s postal service hosts ATMs and teller windows through which consumers can conduct routine banking transactions with 27 of the country’s banks, including the largest institutions and many of its “challenger,” digital-only banks.
In the U.S., banks and credit unions already have extensive experience operating in-store kiosks within larger retailers like Walmart, leveraging digital technology to experiment with standalone mini-branches and interactive teller machines, and other hybrid distribution models. They, as well as some of the newer “neobanks,” are well positioned to bring basic and inexpensive financial services to USPS locations at low marginal costs.
How it would work
We propose that the USPS test partnerships with financial institutions: making selected territories — six urban, six rural — open for “partnership bids” by incumbent depository institutions and/or fintechs.
The territories would be narrowly defined as underserved — for example, post offices in rural counties in a single state that have fewer than three branches per 10,000 residents, or post offices in ZIP codes in large metropolitan areas that have just one or no full-service bank branches.
To be considered, bidders for a given territory would need to offer a suite of basic banking services for a period of five years. There would be both minimum functions and features required, such as automatic savings features, in-person bill and rental payments, credit-builder loans, small-business loans for microbusinesses, as well as constraints on certain charges, such as no overdraft fees, no interest charges or fees on credit products that exceeded effective annual percentage rates of 36%.
To lower costs, use of digital banking platforms and products would be encouraged. To further encourage innovation and partnerships with fintechs, and to avoid building the new services on top of inflexible legacy systems, preference would be given to bidders using open-source systems and winners would not have to perform the same exacting vendor due diligence as they do for their existing deposit-taking operations.
In turn, providers would enjoy freedom in how they meet certain reporting and consumer disclosure requirements, including the freedom to provide electronic and/or paper disclosures as they can demonstrate consumer understanding. Providers’ brand presence would be permitted on-site, as would use of existing post office staff, who could be cross-trained to offer basic banking products, to support providers’ on-site technology and to coach consumers in their use.
Importantly, participating banks would receive Community Reinvestment Act credit. And fintech bidders could receive priority consideration for charters in exchange for providing products through this program.
Choosing the winners
Winners would be selected on the basis of the number of post offices covered in the territories, products offered and projected pricing, marketing commitments, investments in office upgrades and training, contribution to the USPS’s on-site operational and staffing costs, deployment of innovative and flexible IT technology and hardware, partnerships with local nonprofits that offered financial coaching and counseling, and an assessment of each proposals’ likely impact on the financial health of affected communities.
Winning franchisors would operate on an open-book basis (to the USPS) in order to provide insights on operational costs, marketing and consumer adoption, and aid in to measuring financial health impacts on customers. In the fifth year of the program, the USPS and Consumer Financial Protection Bureau’s Office of Research would write a joint report to the President and Congress regarding lessons learned.
While there may be good reasons to be skeptical about implementing postal banking across the U.S., there are compelling reasons to try it, particularly in underserved rural areas and urban neighborhoods.
Our proposal will likely please neither those advocating a national “public option” in consumer financial services, nor die-hard opponents of any USPS involvement in banking. But testing competing hybrid distribution models through multiple pilots just might garner bipartisan support and prove out how the USPS can most sustainably deliver on the promise of postal banking in communities that other providers have abandoned.