Is it the greatest idea since sliced bread or the worst idea since the Ford Edsel?
The U.S. Postal Service Office of Inspector General has published a white paper proposing the money-losing federal agency could solve a lot of problems for underserved populations, and itself, by providing financial services.
The mail delivering agency has been losing billions of dollars annually — $5 billion last year — to competition from FedEx and UPS, not to mention e-mail.
Yet the Postal Service, whose status is enshrined in the Constitution and must therefore carry on delivering mail, figures it could also deliver a "suite of financial services" to the underbanked, bringing in $8.9 billion annually if it captured just 10% the estimated $89 billion this population spends on interest and fees.
The report seems to go out of its way to say that it would not compete directly with financial institutions or compete for mainstream bank customers.
The report is titled "Providing Non-Bank Financial Services for the Underserved," and most of its analysis is indeed devoted to the one in four U.S. households who do not have bank accounts or who use costly services like payday loans.
The Inspector General (IG) argues that the postal service has a large presence, and high trust, precisely in areas with poor access to retail banking services. For example, a substantial majority of post offices — 59% — are located in ZIP codes with zero or just one bank branch.
Meanwhile, banks have increasingly been shutting down branches, mainly in these very communities.
"An astounding 93% of the bank branch closings since late 2008 have been in ZIP Codes with below-national median household income levels," the report says.
And yet despite low incomes, the underbanked pay high fees for needed financial transactions — $2,412 on average per household for alternative financial services such as check cashing, money orders, payday lending, pawn shops and the like.
The IG report, for example, cites data that such consumers are spending a median of $32.60 a month on prepaid card fees, encompassing monthly charges, ATM and purchase fees. An alternative Postal Card, it suggests, "could come with fewer and lower fees than others, bringing in an average of, perhaps, $15 a month in fee revenue per consumer. At that rate, if 10% of the 68 million underserved Americans used the Postal Card, the card alone would bring in $1.2 billion a year in revenue."
The report suggests that the postal services can help in many other areas of financial services, including direct deposits, e-commerce, bill payments, money orders, small loans, mobile transactions and international money transfers.
Industry reaction to the Inspector General's proposal was swift and harsh. American Banker, an industry trade publication, reported harsh criticism from industry representatives.
"You wouldn't have a FedEx and UPS [United Parcel Service] had the Postal Service been a model of efficiency and service, so you want to unleash that failed model on the financial system? It's the worst idea since the Ford Edsel," the publication quoted Cam Fine, CEO of the Independent Community Bankers of America, as saying.
