More than a quarter of all American households – about 68 million people – rely at least in part on nonbank financial services like check cashing or payday lending. These unbanked and underbanked households pay more – a lot more – for the kinds of basic financial services the rest of us take for granted. In 2012, the average income for these families was about $25,500, and they spent an average of $2,412 just on interest and fees for nonbank financial services. That was just under 10 percent of their annual income – or about the same amount as they spent on food.
Think about that: The average underbanked family spends roughly the same amount on getting checks cashed, bills paid and the occasional short-term loan as they do on food for an entire year. These families aren’t looking for mortgages and business loans that require more business judgment. They just need access to basic banking services.
Why aren’t these families using traditional banks to cash their paychecks and pay their bills? Many have been shut out of traditional banking. Banks are rapidly abandoning low-income and rural neighborhoods. SNL Financial documents a shift in banking, with banks opening new branches in areas where the median income is over $100,000 while simultaneously closing branches in areas where the median income is under $50,000, shutting out families of modest means.
Luckily, there is an organization with the public mission, the infrastructure, the experience and the well-trained employees needed to help address this problem: the U.S. Postal Service. A recent report from the USPS inspector general found the Postal Service already has the statutory authority it needs to partner with banks and credit unions to provide basic, affordable financial services like check cashing and small-dollar savings accounts at post office branches. The services could be offered to customers at much lower prices than expensive private alternatives. The Postal Service could partner with community banks and credit unions to help train workers and provide back-office management.
With nearly 60 percent of post office branches in ZIP codes where there are either one or no bank branches, postal banking could fill the void banks have left by closing branches nationwide. The Postal Service already has a presence in low-income and rural communities, and it could leverage that infrastructure to provide access to lower-cost basic banking services. This idea is a win-win: The Postal Service could offer affordable financial services for underserved families and, at the same time, shore up its own financial footing. The inspector general estimates the USPS can generate billions of dollars in new revenues by offering these services for modest fees.
Postal banking is not a new or untested idea, either. The USPS already provides some financial services, like international money transfers to certain countries and domestic money orders, and it used to provide small-dollar savings accounts as recently as the 1960s. Moreover, the postal services in a number of other countries – from Germany to Japan to Brazil – have been offering basic financial services for some time.