Stamps and Debit Cards: How the USPS Could Serve as a Financial Institution for Underserved Populations
JACK NOLAND, ECONOMIC DEVELOPMENT DIRECTOR
Your neighborhood post office may be good for more than just mail. As a monumental white paper from the USPS inspector general (IG) argues, by providing financial services in local offices, the postal service can both aid millions of Americans underserved by major financial institutions and help shore up its own insolvencies. This may be one way of helping the USPS remain in business, after the agency posted a $5 billion net loss in the 2013 fiscal year, the seventh consecutive year in the red.
According to the Federal Deposit Insurance Corporation’s (FDIC) National Survey of Unbanked and Underbanked Households, 9.9 million households did not have a bank account, and were thus considered “unbanked.” In addition, 24 million households rely on alternative financial services (AFS), alongside a bank account. These services may include money orders, check cashing, payday loans, and pawn shops, among others. Financial institutions can be essential to personal income security and growth, especially given that an unbanked family may spend roughly ten percent of their income to gain “access to credit or other financial services.”
This gap in access can be seen especially in the District of Columbia, which ranks in the fifth quintile for both unbanked (10.21 to 15.10 percent) and underbanked (22.01 to 31.22 percent) states, significantly above the national average. It is difficult to understate the overall economic problems in a district with a poverty rate of almost 23 percent, adjusted for cost of living expenses. This lack of access to financial services only exacerbates the issues in DC, as those with already diminished incomes in real terms may, due to inflation, have to pay more here for less.
It is also important to note that many minority groups are disproportionately underserved. The IG report finds that “Black (21.4 percent), Hispanic (20.1 percent), and American Indian (14.5 percent) households have the largest proportions of unbanked households.” The current banking system is particularly failing households where Spanish is the only language spoken, 36.9 percent of which are unbanked.
Senator Elizabeth Warren of Massachusetts has come out in favor of the inspector general’s proposal in a Huffington Post piece. “With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don't have basic banking services because there are almost no banks or bank branches in their neighborhoods,” she writes. The Post Office in its omnipresence is well-suited to provide a number of financial services to these individuals.
The IG report specifically points to payment services, savings incentives, and credit offerings as the primary means through which the post office could operate. A prepaid, reloadable card would enable individuals to load their paycheck without needing a bank account at an institution that may be outside of their neighborhood. This would allow currently underserved people to access ATMs across the country and pay bills as needed, thus integrating those who may currently be marginalized. Also, the postal banking program could incentivize greater savings rates for emergencies or larger purchases, which help to improve credit and security, especially when 50 percent of surveyed households had less than three months’ expenses in savings. Crucially, such a USPS program could improve credit services by offering small loans to the currently underserved, who may lack the requisite checking account for traditional bank credit. This could also help protect people from being forced to use pawn shops, payday loans, or high-interest credit cards to cover unexpected expenses.
Such a program would be good for both those left out by current banking models and the ailing USPS itself. For these households, the average savings could be up to $2000 dollars per year, as the postal service could provide these services at a 90 percent discount. Remarkably, this could lead to $8.9 billion for in revenue for the post office, calculated as a speculative 10 percent of AFS spending diverted to the USPS instead. This could be critical in helping to make the USPS financially solvent, and could allow for increased employment opportunities.
It is unacceptable that over one-third of US households are unbanked or underbanked in the current system. Secure, reliable financial services can empower individuals to increase investment and consumption in the economy, help to improve credit, and can lower eviction and foreclosure rates as people can store and access their money at lower costs. By implementing payment services, savings incentives, and credit opportunities, the United States Postal Service could help provide to those who have been underserved by banks. The USPS is faltering through budget deficits and increasing market incompatibility. Millions of Americans lack the financial services needed for economic stability and growth. Drawing these two groups together could help to eliminate the separate factors bringing them down.
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