Every day, roughly 1 billion people in over fifty countries around the world rely on their favorite bank for financial services. That bank also happens to be their post office according to the Universal Postal Union, the United Nations agency that helps the post arrive on time. Japan, Switzerland. Germany, the United Kingdom, China and South Korea are among the countries offering postal banking. Japan’s postal bank is one of the world’s largest financial institutions based on assets. In many of those countries, financial services are the post office’s main source of revenue.
What is Postal Banking?
If Congress follows the advice of the Office of Inspector General, United States Postal Service, in its White Paper of January 27, 2014 the United States Postal Service (USPS) will be providing Americans with low cost financial services soon. Post office banking is not new to the USPS, the nation’s second largest employer (behind Walmart).
From 1911 to 1967, the USPS ran the very successful Postal Savings System which served as an introduction to the banking system for immigrants and those who did not trust traditional banks. Even today, it provides limited financial services such as selling money orders and providing limited international electronic remittances.
Who Needs Postal Banking?
The Federal Deposit Insurance Corporation (FDIC) found that about 10 million American households have no access to traditional financial services (the ?unbanked?). Another 24 million American households have limited access to financial services (the ?underbanked?). They may have a bank account, but still use alternatives such as check cashing stores, pawnshops, or payday lenders.
A comprehensive government study, published in 2012, found that more than half of African-American households were either unbanked or underbanked. The numbers were similar for Hispanic and unmarried, female lead households. The unbanked and underbanked represent one in four households in the U.S.
Many Americans cannot find a bank in their community and that situation is worsening. Since 2008, 93 percent of all bank closings have occurred in zip codes where the average household income is below the national average. Banks are rapidly abandoning low income communities. At the same time, banks are aggressively expanding in communities where the average income is $100,000 or more.
A large segment of the American public is getting gouged as costs for alternative financial services are high. Predatory lenders of last resort charge exorbitant interest on small, short term payday loans with interest which can run from 300 to 800%. Check cashing services can cost $6 per transaction and prepaid debit cards nickel and dime every step of the way. Payday lending companies collect over $89 billion a year in fees and interest from their low-income customer base.
According to the Postal Service IG report, the typical underbanked American household has an average income of approximately $25,500. It spends $2,412 a year, about the same amount it spends on food, on interest and fees for alternative financial services. Approximately one-tenth of their gross income goes directly into the corporate accounts of unscrupulous, and predatory, operations.
The USPS, providing the same services at lower rates, could save families thousands of dollars, freeing up cash to pay for food, childcare, and transportation. Not to mention that it would pump millions, if not billions, of dollars back into the economy.
The old Postal Savings System taught Americans, who lacked prior financial experience, how to manage basic financial tools without having to navigate the complicated services offered by traditional banks. That training is essential to upward economic mobility.
A USPS banking system would protect the economic stability of low-income Americans. The recent, bank induced, Great Recession hit low-income households the hardest as they had little, or no, financial buffer to withstand the losses. A postal banking system, run by the USPS, would be separate from the vagaries of the tradition banking system and conservative enough to shelter its customers from their financial storms.
