Postal Banking in the U.S.? It’s Not as Unlikely as It Sounds
(Bloomberg Opinion) -- Should U.S. post offices also be banks? Lately, a group of legislators including Bernie Sanders and Alexandria Ocasio-Cortez has been championing the idea as a way to address economic inequality.
It might seem far-fetched, given how the postal service has been struggling recently to even deliver the mail. But the idea shouldn’t be dismissed.
Many people in America lack access to decent, fairly priced financial services. As of 2019, an estimated 7.1 million households had no bank accounts. About 14% of Black households and 12% of Hispanic households are in this position. A constellation of businesses — payday lenders, check cashers, tax preparers, auto dealers and so on — acts to fill the gap, but often at excessive cost. A study in 2011 found that paying for these services can eat up almost a tenth of an unbanked household’s income.
The problem isn’t as bad as it used to be. The proportion of Black and Hispanic households without bank accounts has declined significantly in recent years. More banks are offering inexpensive accounts without overdraft fees (which cost the poorest customers billions of dollars a year). The government’s pandemic response may have helped, too. According to one survey, 7% of U.S. consumers said they’d opened new accounts to receive Covid-19 relief payments.
Still, the U.S. compares poorly to countries such as Australia, Canada and Germany, which are almost 100% banked. In many American neighborhoods, bank branches are nonexistent. Fintech startups are trying to meet the need but struggle to satisfy the licensing requirements of 50 different states and to draw consumers from less scrupulous lenders with big marketing budgets.
This is where the postal service comes in. Its network of 30,000 branches dwarfs those of even the largest banks, with a presence in some of the most neglected places, both urban and rural. Most countries use their postal networks to deliver banking services — and so did the U.S. from 1911 to 1966. Despite its financial and operational difficulties, the post office remains popular with users.
Turning the post office into a full-fledged bank isn’t the way to go. That would require expertise in risk assessment, account management and security systems that it doesn’t have. But the post office does have infrastructure, access and reputation. If Congress granted the necessary authority, these assets could be used to build a distribution network for a curated selection of financial services provided by others. Finance companies could compete to offer appropriate products, and the winners would gain retail exposure and the post office’s imprimatur. For fintechs facing daunting state regulations, an easier path to a national presence could be part of the bargain.
This idea could be good for the post office and its partners, as well as for their new customers. To be sure, it’s no cure-all: Many people lack bank accounts because they have little or no income, a different and less tractable problem. Other, simpler ways to widen access to financial services should be explored as well. For instance, the government could nudge people to open an affordable account when they apply for benefits, as the Internal Revenue Service did when distributing economic impact payments.
Even so, postal banking could make a useful difference in solving a real and persistent problem. It’s well worth a try.
Editorials are written by the Bloomberg Opinion editorial board.
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