Why Postal Service Banking Is a Bad Idea

The U.S. already has a competitive, supervised bank system.

A bank customer making a transaction with a bank teller in a retail bank.

The Postal Service won't do a better job serving banking customers.

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Postal banking is rooted in a time before the emergence of an efficient, supervised banking system in our country. In fact, the U.S. Postal Service once offered savings accounts and other financial services, but these were eliminated in the 1960s after years of declining use as consumers found a better deal at their local bank branch. Shoring up the finances of the U.S. Postal Service - a government agency which lost $46.2 billion over the last eight years - by expanding its business footprint to cover retail banking could only have been cooked up in the D.C. echo chamber, which believes the federal government knows best how to run a business. A report from the Postal Service's inspector general was produced by an office with zero experience operating a modern financial institution. It lacks any significant experience navigating state and federal banking regulations, underwriting loans, handling consumer financial data or building a nationwide financial services network.

The most ironic portion of the report is the suggestion that it should offer small-dollar loans based on customer deposits in prepaid debit card accounts. Just days before the report's release, nearly every bank in the U.S. which offered small-dollar (deposit advance) loans eliminated the product because of new regulatory guidance from the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The two bank regulators made it all but impossible for these banks to offer small-dollar, short-term loans, thereby eliminating a product favored by the vast majority of consumers who used it responsibly under transparent and fully disclosed terms.

Forcing banks out of this lending business took away safe options from consumers and pushed them towards payday lenders and fly-by-night entities. If the plan were adopted as proposed, then the federal government would be getting into the very business it just eliminated.

Fortunately for consumers, we have over 6,800 banks in our country ranging in size from national institutions to one-branch community banks in addition to the nation's 7,000 credit unions. Furthermore, digital channels are reshaping the way consumers interact with banks. Today, it is not necessary to visit a branch to conduct business, including cashing checks, transferring money and paying bills. Banks, however, learned that lesson much quicker than the Postal Service. According to AlixPartners, consumers visited a branch "39 percent fewer times per month after adopting mobile banking services." Bank of America alone sees over 100,000 checks cashed each day via mobile devices.

The development of digital channels has led to the elimination of some bank branches as the industry adapts to consumer demand. However, the FDIC still counts 96,339 branches across the country, in addition to 420,000 ATMs. The Postal Service has just 27,000 post offices, according to Mark Strong, president of the National League of Postmasters, meaning only one post office serving every 131 square miles - not exactly convenient considering the hundreds slated for closure each year.

Because of a strong, convenient and competitive banking industry, consumers have many choices to manage their money. Encouraging consumers to participate in this marketplace ensures the safety and soundness of the overall financial system and helps grow the nation's economy. The Postal Service is more likely to burden our already strained federal budget than increase access for consumers.




Corrected on July 16, 2014: The original version of this article incorrectly attributed the Postal Service’s losses.