Postal banking has emerged as a potential approach to expanding financial inclusion for consumers who lack access to traditional bank accounts. Unbanked households often rely on alternative financial services, including payday loans, which can carry substantial borrowing costs and make it more difficult for consumers to establish financial stability.
The proposal would use the extensive network of U.S. post offices to provide basic financial products, potentially including checking and savings accounts and small-dollar loans. Although the concept represents a significant change to the current banking landscape, postal banking has historical precedent in the United States: the Postal Savings System operated from 1911 until 1967.
Not having access to banking services – i.e., being “unbanked” – can be expensive. For those unbanked who rely on payday loans, the interest rates can be very high, costing individuals and families a large percentage of their annual income. A recent two cents blog discusses a solution to the problem that has been proposed by U.S. Senator Kirsten Gillibrand.
“New York Senator Kirsten Gillibrand has unveiled legislation offering one solution to the problem: requiring U.S. postal offices to offer basic financial services to customers, including checking accounts, interest-bearing savings accounts and short-term loans.”
A history lesson in a recent American Banker article reminds us that the U.S. post office offering savings accounts is not a new idea. A U.S. postal savings account program ran from 1911 to 1967, when it was dropped due to the lack of deposits.
Bringing back this program could provide some relief for those paying high interest on payday loans but would likely meet resistance politically. As pointed out in the two cents blog:
“It won’t be an easy win for Gillibrand – payday lenders are powerful in Washington (just ask Mick Mulvaney, the director of the Consumer Financial Protection Bureau). But it’s one solution to a serious financial problem worth considering.”
The debate over postal banking centers on whether the existing postal network could provide a practical alternative for consumers who have limited access to traditional financial institutions. Post offices already serve communities across the country, including areas where convenient access to bank branches may be limited.
Supporters of the proposal see that geographic reach as an opportunity to provide basic financial services while reducing consumers’ dependence on higher-cost alternatives such as payday loans. The historical Postal Savings System also demonstrates that providing financial services through post offices is not an entirely new concept in the United States. USPS records show that the system provided accessible savings services from 1911 through 1967.
However, recreating postal banking would require decisions about the types of products offered, how accounts and loans would be administered, and what consumer protections and regulatory requirements would apply. It would also introduce a new source of competition into portions of the financial services market.
Whether the proposal gains sufficient support remains uncertain, but the underlying issue is significant. Consumers without affordable access to mainstream banking services may face higher costs simply to borrow, save, or manage their money. Postal banking offers one potential model for addressing that financial inclusion challenge by using an existing nationwide infrastructure to broaden access to basic financial services.
Overview by Ryan McEndarfer Editor-in-chief at PaymentsJournal.com