A Timely Idea to Save the Post Office: Bring Back Postal Banking Services
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On July 27, 2012, the National Association of Letter Carriers adopted a resolution at their National Convention in Minneapolis to investigate establishing a postal banking system. The resolution noted that expanding postal services and developing new sources of revenue are important to the effort to save the public Post Office and preserve living-wage jobs; that many countries have a successful history of postal banking, including the U.S. itself; and that postal banks could serve the 9 million people who don’t have bank accounts and the 21 million who use usurious check cashers.
The USPS has been self-funded throughout its history, but it has been recently driven to insolvency because in 2006, Congress required it to prefund postal retiree health benefits for 75 years into the future, an onerous burden no other public or private company is required to carry. The USPS has evidently been targeted by a plutocratic Congress bent on destroying the most powerful unions and privatizing all public services, including education. Britain’s 150-year-old postal service is also on the privatization chopping block, and its postal workers have also vowed to fight. Adding banking services is an internationally proven way to maintain post office profitability.
Serving an Underserved Market, Without Going Broke
Many countries operate postal savings systems, providing people without access to banks a safe, convenient way to save. Great Britain first offered this arrangement in 1861. It was wildly popular, attracting over 600,000 accounts and £8.2 million in deposits in its first five years. By 1927, there were twelve million accounts—one in four Britons—with £283 million on deposit.
Other postal banks followed. They were popular because they serviced a huge untapped market—the unbanked, underbanked, and rural populations. Though that may sound like a losing proposition, numerous precedents show it can be quite profitable. According to a Discussion Paper of the UN Department of Economic and Social Affairs, banking revenues are actually crucial in many countries to maintaining the profitability of their postal network. Public postal banks can be profitable because their market is large and their costs are low: the infrastructure is already built and available, advertising costs are minimal, and government-owned banks do not award their management extravagant bonuses or commissions that drain profits away. Profits return to the government and the people.
Some Successful Postal Banks
New Zealand’s postal bank had a return on equity of 11.7% in the second half of 2011, with net profits almost trebling. It is the only New Zealand bank able to compete with the big four Australian banks that dominate the New Zealand financial sector.
In fact, it was set up for that purpose. By 2001, Australian mega-banks controlled some 80% of New Zealand’s retail banking. Profits went abroad and were maximized by closing less profitable branches, especially in rural areas. The New Zealand government launched a state-owned bank that would keep costs low while still providing services throughout New Zealand, by opening branches in post offices.
In an early version of the “move your money” campaign, 500,000 customers transferred their deposits to Kiwibank in its first five years—this in a country of only 4 million people. Kiwibank consistently earns the nation’s highest customer satisfaction ratings, forcing the Australia-owned banks to improve their service to compete.
China’s Postal Savings Bureau:
China’s Postal Savings Bureau was re-established in 1986 after a 34-year lapse. Savings deposits flooded in, growing at over 50% annually in the first half of the 1990s. By 1998, postal savings accounted for 47% of China Post’s operating revenues. The Postal Savings Bureau has served as a vital link in mobilizing income and profits from the private sector, providing credit for local development. In 2007, the Postal Savings Bank of China was set up as a state-owned limited company that provides postal banking services.
Japan Post Bank:
By 2007, Japan Post was the largest holder of personal savings in the world, boasting assets for its savings bank and insurance arms of more than ¥380 trillion ($3.2 trillion). It was also the largest employer in Japan. As in China, Japan Post recaptures and mobilizes income from the private sector, funding the government at low interest rates and protecting the nation’s debt from speculative raids.
Switzerland’s Swiss Post:
Postal financial services are by far the most profitable activity of Swiss Post, which suffers heavy losses from its parcel delivery and only marginal profits from letter delivery operations.
India’s Post Office Savings Bank (POSB):
POSB is India’s largest banking institution and its oldest, having been established in the latter half of the 19th century. The Department of Posts is now seeking to expand from savings and small banking services to a full-fledged bank that would offer full lending and investing services.
The head of the highly successful state-owned Sberbank has stepped down to take on the task of revitalizing the Russian post office and create a post office bank. PochtaBank will operate in the Russian Post’s 40,000 local post offices.
Brazil instituted a postal banking system in 2002 on a public/private model, with the national postal service ( ECT) forming a partnership with the nation’s largest private bank (Bradesco) to provide financial services at post offices. The current partnership is with Bank of Brazil.
The U.S. Postal Savings System:
The now-defunct U.S. Postal Savings System was also quite successful in its day. It was set up in 1911 to get money out of hiding, attract the savings of immigrants, provide safe depositories for people who had lost confidence in private banks, and furnish depositories with convenient hours. Deposits ranged from $1 to $2,500, and the postal system paid 2% interest on them. It issued U.S. Postal Savings Bonds that paid annual interest, as well as Postal Savings Certificates and domestic money orders. Postal savings peaked in 1947 at almost $3.4 billion.
The U.S. Postal Savings System was shut down in 1967, not because it was inefficient but because it became unnecessary after its profitability became apparent. Private banks then captured the market, raising their interest rates and offering the same governmental guarantees that the postal savings system had.
Time to Revive the U.S. Postal Savings System?
Today, the market of the underbanked has grown again, including about one in four U.S. households according to a 2009 FDIC survey. Without access to conventional financial services, people turn to bill pay, prepaid debit cards and check cashing services, and payday loans. They pay excessive fees for basic financial services and are susceptible to high-cost predatory lenders. On average, a payday borrower pays back $800 for a $300 loan, with $500 going just toward interest.
Another underserviced market is the rural population. In May 2012, a move to shutter 3,700 low-revenue post offices was halted only by months of dissent from rural states and their lawmakers. Banking services are also more limited for farmers following the 2008 financial crisis.
Countries such as Russia and India are exploring full-fledged lending services through their post offices; but if lending to the underbanked seems too risky, a U.S. postal bank could follow the lead of Japan Post and use the credit generated from its deposits to buy government bonds. That could still make the bank a win-win-win, providing income for the post office, safe and inexpensive depository and checking services for the underbanked, and a reliable source of public funding for the government.