Banking On The Postal Service

Postal Banks

Last week, a white paper (pdf) from the USPS inspector general revived the idea of letting our post offices offer basic financial services:

The report suggests three types of potential products. First, it proposes a “Postal Card” that could make in-store purchases, access cash at ATMs, pay bills online, or transfer money internationally. Customers with paper checks could cash them at the post office or deposit them through their cell phones, loading them onto their Postal Card. Second, the USPS could offer an interest-bearing savings account, again through the Postal Card, encouraging savings from communities with little in the way of a personal safety net. Finally, the Postal Service could offer small-dollar loans, effectively an alternative to costly payday lending. The fees on all these services would be drastically lower than anything in the marketplace today.

Elizabeth Warren, naturally, loves the idea. So does Waldman:

Some people have referred to this as a “public option” for banking, which is an accurate description, but makes it more likely that Republicans will recoil in horror as they catch the whiff of the dreaded Obamacare about the proposal. But the big banks—the ones with all the power in Washington—should be perfectly fine with it, since they’re not interested in these customers anyway.

Helaine Olen disagrees:

Turns out banks are not actually losing money on low-income Americans.

In fact, the less than wealthy have turned into a nice little profit center for the big banks. If these customers want to stay, the banks make them pay. The median overdraft charge is $34 at large banks and $30 at smaller financial institutions, according to a report from the Consumer Financial Protection Bureau. The result? Moebs Services, a financial research firm, estimated banks took in $32 billion in overdraft fees in 2012.

Salmon doubts the USPS can compete with payday lenders:

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. That in turn means that the existing banks will fight tooth and nail to prevent such a thing from ever seeing the light of day.