Sunday, February 28, 2016

What's Wrong with Postal Banking?

Video: Mr. Tree tells Erik Cagle "No" to USPS banking.
In my video debut Friday, I praised postal officials for resisting the urging from various quarters that they enter -- or, rather, re-enter -- the banking business.

(The video, an interview with Erik Cagle of Printing Impressions, is a real hoot for lovers of bad puns, even though it addresses the serious topic of the USPS's future.)

The idea of having the USPS provide more financial services than just selling money orders has noble intentions: Many poor people and rural residents have inadequate access to banks. Sen. Elizabeth Warren (D-Mass.) says more than one-quarter of U.S households are "unbanked" or "underbanked" -- that is, at least partially reliant on expensive nonbank financial services like payday lending and check cashing.

But the proponents have avoided answering several key questions:

  • Who would pay for the upfront investment in equipment, technology, and employee training? Because of Congressional accounting games, the Postal Service can barely keep its head above water and is unable to borrow any money. As I noted in the video, it operates thousands of inefficient delivery vehicles that are well past their intended life and have "an annoying habit of bursting into flames without warning. The USPS is slowly replacing those. It has no access to additional capital.
  • What does the Postal Service know about running a bank? The regulations, the security issues, and the information systems to run a nationwide bank are daunting. And USPS salary caps would prevent it from hiring the kind of people who would know how to create and run such a bank.
  • Why do you think the USPS would be able to thrive where private enterprise fears to tread? If the only financial institutions that can make a go of it in poor areas charge usurious interest rates, why do you think the Postal Service could thrive by making lower-interest loans? The Postal Service's only competitive advantage is that it already has buildings and staff in underbanked locales. But 21st Century financial institutions are built more on bytes than bricks.
  • Who will pay if the USPS's banking efforts go sour? There's only one answers, which the proponents won't admit: Mailers. I haven't heard anyone propose government appropriations to help the Postal Service's banking efforts or federal guarantees to cover it for unexpected losses. The only way the USPS could sustain losses, or even make significant investments, in a banking venture would be to hit its customers with another "exigent" surcharge. If Congress wants a program to help the underbanked, it should have the cojones to appropriate the money -- not pay for it with a back-door tax on Forever Stamps and mail-dependent industries.
The Postal Service has its hands full adjusting to declining volumes of traditional mail, ramping up its package-delivery business, and just trying to pay its bills. The last thing it needs is to be distracted by a risky venture that is unrelated to its core business or its expertise.


Unknown said...

Spot on as usual. My suggestion would be that any member of Congress supporting the USPS moving into banking/financial services would be required to be one of their first customers if ever enacted.

Tom Murray said...

The USPS National Bank. Here's one dilemma. The Postal Service could increase mail volume by requiring their banking customers to receive all statements via USPS. But then they would lose money because they wouldn't charge themselves postage. That's frank.

Anonymous said...

The upper management loves coming up with more for the workers to do, but with less and less help doing them. These may look good on paper but can't be done in real life or only by doing them halfass and middle management forcing the workers to find ways to lies to the system, just so the can tell their bosses "see I got my workers to follow orders".

Anonymous said...

I love your blog. It is informative, witty, and on target. But I think that you may be missing some key points on this issue. First off, you rightly point to the inherent challenges of the Postal Service becoming a full-on postal bank. But there are a lot of financial services — many of which the Postal Service already offers — that do not involve the risks, costs, or regulatory complexities of becoming a “bank.” This is where the real opportunities lie.

As the USPS OIG has pointed outhere andhere, the Postal Service already offers domestic money orders, international money orders, electronic international money transfers, prepaid gift cards, and limited check cashing. If it focused on improving these non-bank services and expanding into similar, adjacent non-bank services, it could generate $1.1B in annual revenue after five years. These are not complex financial products that require a lot of expertise to sell, and existing retail staff are more than capable. Postal clerks already receive Bank Secrecy Act, anti-money laundering, and other training — significantly more than the clerks at convenience stores, pharmacies, and grocery stores who sell these same, transaction-based financial services.

Also, these are not high-risk products that could result in the Postal Service needing to be “bailed out” by mailers, taxpayers, or anyone else. Just look at money orders. They are among the Postal Service’s more profitable products, earning a higher profit margin than both priority mail and first class packages.

It makes sense to raise questions about turning the Postal Service into a full-blown bank. But you should also recognize that basic, non-bank financial services are a different matter and present a much more sensible opportunity for the Postal Service.


A Devoted Dead Tree Fan (but not on this one)