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United States
April 03, 2014
By Charles Ellison


When we think of the U.S. Postal Service, we think of a crumbling mammoth of red ink annually pushed to the brink of extinction by mismanagement and lack of federal vision. Yet, despite rumors of its demise, lawmakers in Washington think the post office could be your next friendly neighborhood bank. 

That all depends on a number of factors, namely what gets negotiated as Congress mulls passage of the Postal Reform Act (PRA), introduced in December by Sen. Tom Carper (D-DE) and already run through several Senate committee mark-ups. Discussion on the fate of the U.S. Postal Service typically centers on a legacy institution—the first government agency to truly connect the Union in its pre-Civil War infancy—that found itself at a loss of $5 billion in FY2013. 

Yet, somehow, a new debate has emerged which puts an antiquated paper-driven postal model in the center of a broader ongoing conversation about the future of banking. 

Just about everything you’ve heard about resuscitating the aging tentacled beast of a mail carrier seems to be on the table. Of course, the larger struggle is about how policy makers can somehow transform a very analog (actually, a very pre-analog) organization into a much nimbler and more efficient service adapting to the digital landscape. Obviously, “postal service” and the impending “Internet of Things” don’t appear to be the most compatible of phrases. Even with the fad-driven reintroduction of throwbacks, “DIY” and increasing demand for personal touch customer experience, the Postal Service can’t seem to keep up. 

Interestingly enough, as the PRA slowly slides onto the Senate floor for a vote, the most compelling aspect of the discussion is what happens to postal service buildings. A recent Senate Homeland Security and Governmental Affairs committee markup session caught members throwing out a number of predictable ideas to see if something would finally stick, namely the sale of underutilized or abandoned postal facilities and land as a way to raise funds. But, if the federal government can’t keep up with its estimated 77,000 empty cribs, as dropped by a recent NPR segment, what makes us think the USPS can do the same?

However, one of the more intriguing alternatives came from a January Inspector General report suddenly elbowing itself into the banking space by citing the 68 million or so Americans who are “underbanked.” Making an eager play into financial services, the IG assumed USPS could simply change from mail carrier jump suit to three-piece suit: just go the way of New Zealand’s KiwiBank and Japan Post Bank, the latter being the largest publicly-owned banking player on the planet. The report prompted Sen. Elizabeth Warren (D-MA) enthusiastically pushing for the transformation of postal service facilities into small micro-banks or loan servicing centers in a February HuffPost. State neighbor Sen. Bernie Sanders (I-VT) couldn’t resist the temptation to jump on board. While Warren’s office hasn’t yet committed to an actual bill (no call back, yet), she’s continuing a quiet push for USPS as the substitute to payday lending shops … through the use of postal service facilities. Whispers on Capitol Hill suggest an amendment to the PRA or quieter insertion in the language.

Naturally, payday lenders aren’t exactly feeling this, in addition to the pressure from regulators seeking rules to rein in three-digit interest rates on same day loans. This is a ginormous $7.4 billion industry of 20,000 plus brick-and-mortar shops supposedly serving, on average, 12 million Americans. But they’re still considered a segment of the underbanked population, which spent nearly $90 billion in 2012 on payday and check cashing interest and fees.

Traditional banks don’t like the idea either, with Consumer Bankers Association president Richard Hunt proclaiming in American Banker that "[t]his would be like the banking industry moving into running the airlines.” Just as banks caught on to the nearly $80 billion underbanked growth market, here comes the postman riding in to gobble up a big chunk of it. Post offices could theoretically become the next TBTF (too big to fail) bank. 

These latest developments simply add a new dimension to the broader debate on the future of the bank, anyway.  While it’s not like a postal bank is something new—hat tip to Kiwi and JPB—neither was the dramatic reconfiguration of the banking landscape. There’s Warren’s push, with back-up from state neighbor Sen. Bernie Sanders (I-VT), is giving rise to a broader discussion on postal facilities as more than payday lending kiosks and maybe as financial service centers, particularly in underserved or “underbanked” communities and many remote rural locations that don’t have a bank. Could a USPS bank connect less banked or less financial literate citizens to the financial world? 

While not yet a part of the PRA debate—nor has Warren or Sanders introduced a bill—there is growing interest from many experts watching the digitalization of the financial services sector. Banks are using technology to cut costs and make service delivery more efficient (as evidenced by recent mass layoffs in the sector) while figuring out how to best tailor the customer experience. Some experts note that banks are even undergoing a “debranching” process while shifting to online tools, mobile app enhancement and social media. Others argue that banks are struggling through a paradigm-changing redesign of not only services but service delivery methods. 

Redesign of banking locations and service methods will require technological building blocks that can connect underserved or remote areas to the marketplace. IT and project management expertise will be needed as the sector moves to a microbanking model that could very well rely on existing facilities or brick-and-mortar space for build-outs. Questions arise over future broadband spread and scale, especially in rural areas. But if Warren’s post office bank concept were to catch steam, cable, tech, wireless and satellite companies looking for future revenue streams may want a piece of the action. 

Could Washington be on the cusp of creating new banking ecosystems in which digital is Lego-snapped into postal buildings or other aging government facilities? The jury is still out on that—Washington can barely pass a budget, much less decide what to do with post offices. And naturally the payday lending industry, along with many retail bankers, isn't in love with the idea. That’s potential competition they don’t want. But should a compromise be reached and banks decide to sign on (since someone will have to set it all up), technology firms should be a phone call away for the impending business opportunity.

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