Postal workers in Carlsbad, California in 2013 (Mike Blake / Reuters)
Senators Kirsten Gillibrand and Bernie Sanders want the Post to address a problem that the private sector has already resolved.
W.help The idea of offering banking services in post offices continues to excite progressives in Congress and, if implemented, is unlikely to be very appealing to the intended customer base. It’s hard to imagine that in today’s digital world, bankless millennials would flock to their local post office to check their balances and checks.
Senators Kirsten Gillibrand (D., NY) and Bernie Sanders (I., Vt.), Along with three members of the House of Representatives, hope to start post-banking pilot projects in the 2022 budget year. When announcing the plan, Gillibrand said:
Mainstream financial institutions and predatory lenders often take advantage of Americans with under-submerged banks and high fees and interest rates that keep them in a cycle of poverty. As families across the country try to recover from the economic crisis, the introduction of pilot programs for post banks would ensure these communities have financially secure and reliable banking services. . . Expanding basic financial services in post offices in rural and urban communities would help families who understand the cost of being poor in America. This pilot program is taking important steps to help troubled Americans and reintroduce post banking to widespread use.
Senator Gillibrands publication goes on to say that 63 million Americans are “underserved” and rely on a Federal Reserve report which the Americans categorized as fully banked, unbanked, or underbanked. The Fed defines a person without a bank account as a person who does not have a current, savings or money market account. About 6 percent of adults fall into this category. The larger poor banking category, which makes up 16 percent of adults, includes those who have a bank account but have used alternative financial products such as money orders, check cashing services, pawn shops, car title loans, payday loans, paycheck advances, or tax refund advances.
This definition of “underserved” seems too broad to include people who are underserved by the financial services industry or who would benefit from post banks. For example, tax refund advances are often available from tax preparation services without Interest or fees to their customers. While these services charge fees for preparing tax returns, many consumers prefer to pay such fees rather than tediously filling out tax forms.
Money orders are usually inexpensive ($ 1 or less at Walmart) and offer more security than identity checks. In fact, the US Postal Service offers Money orders, albeit at a slightly higher price than Walmart. Cashing checks can be expensive, but it can be more convenient than using a bank, especially after normal business hours when counters (and post office clerks) are not on duty. Walmart cashed preprinted checks for a flat fee of $ 4 for amounts less than $ 1,000 or $ 8 for checks between $ 1,000 and $ 5,000. This is hardly a predatory price. In summary, it can be said that people who have a bank account but also use tax refund advances, money orders or some check cashing services do not need a new Postbank in order to remedy their “under-bank capacity”.
The various types of short-term loans used by the so-called underbanked can have unfavorable terms. But the high annual percentages that lenders charge are in part a function of the high default rates of borrowers. If the Post wanted to run a bank on a break-even basis, it would also have to charge high interest rates from some categories of borrowers.
Without a large taxpayer-funded subsidy to compensate for the losses caused by the more favorable terms of these loans, the market for a Postbank would be significantly smaller than the 63 million that Senator Gillibrand states. And even if there is a legitimate need for better access to these services, other institutions step in to serve potential users of a Postbank. In the past few years, a group of venture capital-backed firms has formed to meet the needs of those without a bank account. These “Neobanks“Have no physical branches, but are available to customers around the clock via smartphone apps. The leading neobank, Carillon, has raised $ 1.5 billion in venture capital and is valued at $ 14.5 billion. It offers an online account with a debit card and no fees, minimum amounts, or credit checks. Chime has several well-funded competitors, including Dave, N26, and Varo. Robinhood, the online stock exchange for younger customers, is now also there Provision Cash management services.
Together with many traditional banks, neobanks facilitate the processing of financial tasks online. Consumers have long used desktop and mobile banking to check balances, pay bills, and transfer money between accounts. More recently, the use of smartphones to deposit physical checks has become commonplace. According to a Cornerstone advisor survey, 32 percent of 55 to 64 year olds prefer mobile check deposits over personal deposits. Among the 18 to 24 year olds, the preference for mobile check deposits rises to 65 percent. As more and more people become familiar with banking technology and apps, these proportions will almost certainly increase.
Cash transactions cannot be made through mobile banking apps, but neobanks have found ways to make them convenient. Glockenspiel, for example allowed both cash deposits and withdrawals at Walmart, Walgreens, CVS and other retailers. It’s also important to consider how the decline in the use of cash is transforming banking. Even before the pandemic, Pew Research found that 29 percent of US adults did not use cash in any given week. In 2020, the number of Americans using mobile payment platforms like Apple Pay rose 29 percent and is projected to exceed 100 million in 2021 according to Market research company eMarketer.
These trends lead to fewer visits to bank branches and a shrinking branch network. A survey The study conducted by Self Financial found that over half of those surveyed go to the bank once a month or less. Self also noted that the number of bank branches has declined 6.5 percent since 2012 and that closings are accelerating.
A new US Postbank would enter an environment characterized by rapidly evolving financial technology innovations and a rapid transition away from personal banking. Not known for its agility and strained by thousands of idle stationary facilities, it’s hard to imagine how the U.S. Postal Service could effectively compete in this environment, let alone what value it could offer.
