Would you open a bank at the post office? The issue is on the congressional agenda, following the proposed Postal Banking Act that would establish permanent essential financial services in post offices in every U.S. community.
Supporters such as Senators Elizabeth Warren (D-MA) and Kirsten Gillibrand (D-NY) call it a “public option” offering financial services to the un- and under-banked; others believe it provides a new revenue stream for the Post Office, while others believe the post office should deliver letters. Period.
However you look at it, post office banking is about more than just money.
The postal banking saga
Postal banks started in Great Britain in 1861 and are still going strong in Europe. Even the United States once had postal banking, for more than 50 years during the 20th century.
The United States Postal Savings System bill passed in 1910 (it was initially introduced in 1871!). By 1934, in the midst of the Great Depression, some $1.2 billion in assets (about 10% of the entire commercial banking system) poured into the safety of the government-backed postal banking service as small savers fled failing commercial banks (Note: One well-off French post office bank account holder told me this was the reason she had opened an account in the public sector, in addition to her accounts at French commercial banks).
President Franklin Delano Roosevelt created the Federal Deposit Insurance Corporation (FDIC) and chose it over the post office as a way of stabilizing and reforming the banking system. Post office banking in the U.S. continued until postmaster generals started endorsing an end to the system and in 1967 postal banking ended with a stroke of the pen as part of President Lyndon Johnson’s "streamlining" of the federal government.
Then, as recently as 2018 the Trump administration revisited the matter and in March 2020, as the Coronavirus pandemic reached crisis mode, the U.S. Government Accountability Office (GAO) said in a report that “while postal banking would provide options for the unbanked, additional offers may generate minimal revenue and that USPS may face factors limiting the viability of these offerings.” Today, this view is not held by senators such as Elizabeth Warren and Bernie Sanders, who are supporting postal banking legislation in the Biden administration.
How they work in Europe
Postal banking remains an important economic force in Europe, providing significant revenue streams and using a variety of business models, largely dependent upon whether the post offices also hold banking licenses.
In the United Kingdom, the post office does not have a banking license; instead, it has an exclusive partnership with the Bank of Ireland to offer bank accounts to customers – but only at 110 locations.
Germany's century-old postal bank has been largely privatized over the past 25 years and today is more than 90% owned by Deutsche Bank. The Postbank has a large network, offering select financial services at more than 4,500 post offices and at 1,100 of its own branches.
The Italian post office has offered savings accounts for nearly 140 years with Banca Posta, which partners with private banks to write mortgages and make personal loans.
In Spain, Slovenia, and the Czech Republic, post offices act as agents for multiple private-sector banks, and employees execute customer transactions on their behalf using computer terminals that tap into the private-sector banks' systems. The postal services receive a fee for each transaction they process.
The post offices in China, Japan, and France hold universal banking licenses and compete against private-sector lenders in a wide range of product categories. As a result, these postal banks tend to be quite large: France’s La Banque Postal is the country’s fourth-largest bank, with 17,000 outlets throughout the country and 20-million customers (out of a total population of 67.4 million) according to the bank’s 2020 annual report.
Different models, same aim
But while their operating models may differ, and while many have been at least partly privatized, postal banks in Europe have had the same primary goal from the outset: financial inclusion.That means low account fees, low or no charges, and widespread presence.
This is no small objective, and it is still relevant today. Even in the U.S.
Who are the Unbanked?
The World Bank says more than 1.6-billion people in the world (31% of the global adult population) today are “unbanked;” that is, according to the Oxford English Dictionary, a person or entity “not having access to the services of a bank or similar financial organization.”
Globally, about a quarter of unbanked adults live in the poorest 20 percent of households within their economy, with the biggest percentage concentrated in seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan. Not surprisingly, women are over-represented among the unbanked population. But this issue is not limited to the developing world.
In Western and Central Europe, 6% of the population experiences a measure of financial exclusion, while in the U.S., a 2019 Federal Reserve report shows that 22% of adults in the United States (63 million) were underbanked (16%) or fully unbanked (6%).
All variables aside, the unbanked everywhere are strikingly similar, including those in the US. According to a Global Finance 2021 report, they are low-income and less educated, often lack the identification and documentation requirements to open a bank account, tend to live in rural areas far from bank branches, and are self-employed – the most common form of work for the unbanked who are economically active. Most respondents said they hadn’t enough money to open an account.
The high cost of financial exclusion
Never mind the practicality of checks or ATM machines, let alone the luxury of credit cards or airline miles: financial exclusion is time-consuming and expensive. The unbanked have no checking, savings or mobile money provider accounts, no access to basic financial products such as insurance, loans or mortgages, no financial protection from theft or loss. This makes them vulnerable to the high fees of predatory lenders and makes rising out of poverty all but impossible.
And it’s not just the quality of life of the un- and under-banked that suffers. Economic exclusion is bad for national economies. Consulting firm EY Global estimates (pdf) that broader access to banking, savings and lending products could boost GDP in virtually every country – by up to 14% in large emerging countries such as India, up to 30% in frontier economies such as Kenya.
There are hurdles to overcome in instituting postal banking – especially costs. Aside from the physical infrastructure required for banking services (offices, counters, ATMs, etc.), postal banking will require a significant investment by the postal service in product services, people, and security, not to mention the technical capacities necessary to set up mobile banking and related apps and expanded Internet service.
And, even more importantly, there is the expertise and training and customer service. Even long-standing European post office banks have problems on these fronts, especially as they try to compete with the private sector: poor customer service was the biggest complaint against La Banque Postale in France, despite its widespread customer base.
One professional reviewer from 01 Banque en Ligne gave the bank a rating of 14 out of 20 and wrote:
The opinion on La Banque Postale is not positive for several reasons. First of all, the quality/price ratio is not there, for at least 71,40 €/year [note: about $85 for an account and a debit card] you get lamentable customer service while it’s impossible to make transfers of more than 3 000 €/day unless you make an appointment with a La Poste advisor. The advisors are not sufficiently well trained to respond to your investment projects. The only positive point of the postal services operator according to the La Banque Postale opinion is that the banking offer is complete, but the bank still charges fees such as deposit fees for life insurance whereas these fees are free in an online bank.
Other revenue streams?
Despite these complaints, postal banking in France and in Europe is becoming a power in an expanding field of financial services, not all of which are bank-related (think of money transfers through services such as Wise or Zelle or Vinmo). Today, most post office banks offer insurance, mortgages, check cards, and mobile banking – online or through apps, a big favorite among the GenZ cohort. Financial services make up a significant portion of their revenue streams.
Post offices in Europe are also trying on various business models to monetize their far-reaching physical presence. In France, for example, the Post Office offers a “check on your parents” service for adult children living far from aging parents. The service includes in-person visits, telephone assistance, and even delivery of groceries and medicines.
But will this work in the U.S.? Postal banking alone won’t solve the USPS funding problems, but it could open the door to some creative thinking about other possibilities. The last such proposal, remember, took 40 years to become law.