I’m absolutely fascinated by the latest idea (though not an old one) that the United States Postal Service should offering banking services, but can’t help but think that this is more about keeping the USPS afloat than helping the unbanked. That doesn’t mean it won’t work, but banking ain’t easy, y’all. As Billy Beale, CEO of Union First Market Bankshares Corp., said at Bank Director’s Acquire or Be Acquired Conference last month: “Banking isn’t complicated. It’s complex.”
The USPS has been bleeding money for years, suffering from the dual challenges of keeping pace with an increasingly technological population relying less and less on traditional mail coupled with its obligation to contribute $5.6 billion to retiree health care benefits–a payment the agency failed to make last year. The USPS ended 2013 with a net loss of $5 billion, and has posted losses for 7 consecutive years.
The Office of the Inspector General of the U.S. Postal Service, in a report released on January 27, anticipates $8.9 billion in annual revenue if the USPS branches into financial services, which would include prepaid cards and small loans. The USPS doesn’t want to openly compete with banks, it stresses in the report, but suggests a complement to what banks already do by reaching out to low-income communities in rural and inner city areas, markets that many banks have exited as they close unprofitable and inefficient branches. Thirty-eight percent of post offices are located in areas with no bank branches.
The report cites the 2011 FDIC National Survey of Unbanked and Underbanked Households to argue that almost half of the underbanked/unbanked can’t have a relationship with a bank anyway – many of them say that they just don’t have the money, say that fees are too high, have credit problems or have had an account closed by their former bank . And 29 percent say that they don’t need or want a bank account, or they just don’t trust banks in general. Twenty-eight percent of U.S. households are underbanked or unbanked.
Private companies like banks are typically advised or just have the acumen not to branch out into a business they know little about – that’s just good business sense. Yes, the USPS (with American Express) has offered prepaid debit (gift cards) since 2011, and offers money transfers – though the report admits that this market is shrinking due to competitive pressures. The thought of the already-troubled USPS going “all-in” on financial services just smells like bad idea to me, but we’ll just have to wait and see. With T-Mobile just the latest to enter the fray, the USPS is only one in a long line of competition coming from outside the industry – competition not beholden to the same regulations and challenges faced by banks.