How the Postal Service Can Earn $8.9 Billion a Year by Helping the Poor

Last week, the U.S. Postal Service Inspector General released a report that has created quite a bit of buzz. It highlighted the challenges that the 68 million Americans who are outside of the mainstream banking system face, and the tremendous revenue-generating opportunity this vastly underserved market creates for the Postal Service. Sen. Elizabeth Warren (D-MA) penned an op-ed promising to promote the idea in Congress. David Dayen of the New Republic supports the idea and called on President Obama to explore implementing this policy to fight income inequality.

As I read the report, I too found it both disturbing (sky-high fees for hard-working people to access their own money) and exciting (tremendous opportunity for the market demand to be met). But, in a very personal way the report hit me hard. From my experiences working for a non-profit organization in Haiti, I had seen this problem before, but I had never fully understood the magnitude of this economic challenge here at home.

Fighting for your money

Driving through Haiti – whether through the congested streets of Port-au-Prince or the soaring mountains of Cap Haitien – you see many things. You might look out the window and see local women setting up their streetside marketplaces to sell fruits and vegetables, or men working to repair a flat tire for a broken down bus called a "tap-tap." You would see people selling cell phone minutes, food, or disposable bags of water.

What you would likely not see is a bank.

As in most emerging markets, Haiti's lack of accessible and affordable banking services creates tremendous challenges for its people. It makes it a harder place to do business and access one's own capital – forget accessing affordable financing to grow or expand one's business. It forces many to live outside of the standard banking system, resulting in people holding a substantial amount of their total net worth in cash – increasing the potential for devastating loss and decreasing the likelihood of substantial savings.

The lack of accessible and affordable banking services was not just an inconvenience for the Haitian employees I worked with; it was a real, costly challenge. It was yet another barrier on the pathway to economic self-advancement. While there have been some innovative mobile money solutions to combat this challenge, for many, paying high fees to send money from one town to another or spending an entire day trying to cash a check is simply a way of life.

While the American banking system is far more sophisticated than an emerging market, the vast scope of Americans who are outside of or underserved by the mainstream financial system is truly stunning. A quarter of American households do not have bank accounts. In 2012, this subset of Americans spent nearly $89 billion on interest and fees – to access their own money.

For an average underserved family, that means they spent $2,412 for basic banking services that the other three-quarters of the country receives with far greater ease and at a far cheaper price. These unnecessary costs can mean the world to a struggling family. In 2012, the average gap between a person filing for bankruptcy or staying afloat was only $26 per month.

The data released in the report makes clear that this is a major economic challenge for the nation, but also a ripe opportunity for an entity to meet this demand.

How helping the poor could help save the Postal Service

The report makes the case that the Postal Service is uniquely positioned to meet the demand of America's financially underserved communities. The nationwide reach of the Postal Service logistical network – over 35,000 locations – in big cities, small towns, and everything in between is unmatched. Plus, nearly 40% of USPS internally managed locations are in zip codes without a single bank. Another 21% of their locations are in zip codes with only one bank.

Without access to basic, affordable, financial services, some of America's most economically vulnerable citizens pay severe and unfair penalties. For instance, a payday loan, which is often used to access cash quickly to pay a medical or car bill, contains an outrageous fee that can be compared to paying an annual interest rate of 391%. In contrast, the report predicts that the Postal Service would be able to offer consumers this same service at an effective annual interest rate of as low as 28%.

The report does not suggest that the Postal Service should attempt to compete with traditional banks for customers. Just the opposite. It recommends that the Postal Service explore partnerships with private banks that can bring their expertise to the USPS physical network, and give millions of Americans access to basic banking services such as reloadable prepaid cards, mobile transactions, direct deposits, bill payments, and small loans.

Building these partnerships and capturing this market opportunity could be a game-changer for the Postal Service. With an annual underserved market size of $89 billion, capturing just 10% of this market for basic financial services could bring in $8.9 billion of new revenue each year. These are major figures for an institution that reported a net loss of $5 billion in FY2013 – despite revenue growth and record productivity.

 Win-win proposition

Analyzing the recommendations of the report and developing a thoughtful implementation strategy could generate substantial benefits for the Postal Service and the general public.

While it might not be a silver bullet to solve all of the Postal Service's fiscal challenges, capturing even a portion of this opportunity could make a real difference for its bottom line. The Postal Service has already entered into several innovative private sector partnerships with Amazon.com and Staples to increase its revenue-generating opportunities. USPS also currently offers some limited financial services such as money orders and international money transfers – services that could be built upon and expanded with private sector support.

This model of a postal network providing basic financial services has already been successfully implemented around the world. Both Italy and New Zealand allow their postal service's to offer basic financial services and more than 65% of the profits from their respective organizations comes from providing this service.

In addition to the benefits for the Postal Service's bottom line, millions of Americans would be able to access affordable financial services – the same basic services that many of us take for granted each day. Billions of dollars in fees and high interest rates would be saved, effectively raising take-home pay for 68 million Americans. Families who are working paycheck to paycheck could see an average annual savings of over $2,000.

Will it happen?

If strategic partnerships can be forged and a sound implementation plan can be put into place – it should.

While USPS officials are still reviewing the report's recommendations, the debate over whether this change would need Congressional approval has already begun. Whether this is an initiative that the president can advance on his own, or whether Congress needs to come together to support a solution to a national economic challenge – it should get done.

There is also the need to communicate this plan effectively, as proposed; this model would not be a new government effort to invade the private banking industry. It would be creating partnerships with the private sector to leverage the USPS physical infrastructure in order to meet the needs of the market.

The bottom line is that the 68 million Americans who are currently underserved by the mainstream financial system deserve the same basic financial services as the rest of us. When we are presented with solutions to difficult challenges, it is up to us all to come together and act. 


Read/Post Comments (9) | Recommend This Article (10)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 07, 2014, at 9:19 AM, pondee619 wrote:

    ". A quarter of American households do not have bank accounts" Why don't people just open an account instead of going to the check cashing vendor?

    " nearly 40% of USPS internally managed locations are in zip codes without a single bank. Another 21% of their locations are in zip codes with only one bank." Really, 61% of USPS internally managed locations are in zip codes with one or no banks? ALL of the banks in this country are in just 60% of the zip codes? I find this difficult to believe. Perhaps it is the use of zip codes instead of towns or cities. We can't be saying that 40% of the people in this country don't have access to a local bank. Social Security payments are now direct pay into a bank, as are public assistence payments. Are we really saying that 40% of these people have no access to their money because there is no (or only one) bank in their zip code? On your way home tonight count the number of banks and post offices you pass. How many of each were there?

    Let's start a poll: Is it easier for you to walk to a bank or a post office?

    http://www.sun-sentinel.com/business/sfl-post-office-poll-11...

    Poll: How many times did you go to a US post office in the last six months?

    More than 10 times (386 responses) 28%

    About five times (237 responses) 17%

    Less than five times (420 responses) 30%

    I only went in to ask for directions (3 responses)0%

    I did not go at all (350 responses) 25%

    1396 total responses

    72% of the responders went to the Post Office once a month or less. How many times have you gone to a bank/ATM in the past 6 months? Which is easier.

    The reason " A quarter of American households do not have bank accounts." (if that figure is correct) is not inaccessiblity of banks. It must be another reason. The Post Office can't fix that.

    "Families who are working paycheck to paycheck could see an average annual savings of over $2,000" YES, all they have to do is go to their local bank and open an account.

    Again, how many banks did you pass on your way home last night?

  • Report this Comment On February 07, 2014, at 3:05 PM, TXObjectivist75 wrote:

    I guess if you count zip codes in far west Texas, Montana, North Dakota etc, where the population density is measured in sq miles per person, instead of the other way around, that number makes some sense. However, I seriously doubt the PO could make any money off those zip codes. Plus, given the fact that a majority of the poor live in urban areas, there are banks available (even if it means walking from the projects a few blocks to a nicer part of town). I'd bet 25% or people don't have accounts because a) they have no income b) are here illegally, and a bank account is too visible, or c) aren't educated enough to know their method of money management is a poor idea. How is the USPS going to fix that?

  • Report this Comment On February 08, 2014, at 12:53 PM, cmalek wrote:

    "the Postal Service would be able to offer consumers this same service at an effective annual interest rate of as low as 28%."

    AS LOW AS?! How magnanimous!!! NOT!

    While that is low in comparison to payday loan rate, it is more than double the usury rates in most states. Nevada has no usury limit, Colorado has 45% as the usurious rate, and there 4 or 5 states that have rates of between 20% and 25%. In all other states 12% is the number above which the rate is considered usurious.

    USPS is having trouble managing their affairs right now and somebody wants them to become a bank to the poor?! I suppose paying hundreds of dollars to access their money is better than paying thousands.

  • Report this Comment On February 08, 2014, at 3:22 PM, xetn wrote:

    I think they will have to really hustle (something the USPS isn't used to) to earn enough to cover their annual deficit of more or less $10 billion.

    That $10 billion is from the taxpayers and the deficit never seems to disappear even after raising postal rates almost every year.

    If the USPS did not have a monopoly on 1st class mail, they would essentially be out of business. (Most of the mail they deliver is junk). That monopoly was created by the US Congress to prevent a private postal service (created by Lysander Spooner in the late 1800s) from putting them out of business. His service was not only faster, but cheaper.

  • Report this Comment On February 08, 2014, at 3:26 PM, moonbuffer wrote:

    The check cashing joint knows its customers. You do not get to do business there unless you are known or with someone who is known and is willing to bet their future relationship with the joint that his buddys check is good. The local bank has so many employees that they each do not know every person who enters. You need to have more in your account than any check that you wish to cash. There are no such rule at the check cashing joint. The extra costs are necessary to pay for the occasional bad check and the off duty cops who are hired as a necessary cost of security for the large amount of cash is kept available for customers.

  • Report this Comment On February 08, 2014, at 5:47 PM, wjcoffman wrote:

    Govt healthcare? Sure. Govt banks? Wait, we already have that with the bailouts a few years back. Maybe part of the bailout would be to have the banks extend service to those less fortunate. Oh, wait - the banks didn't even make loans with the $$ the gov't gave them, to those NOT less fortunate. I'm confusing myself.

  • Report this Comment On February 08, 2014, at 7:53 PM, cmalek wrote:

    Lest we forget, USPS DID offer savings accounts between 1913 and 1967. The question is why did they stop?

  • Report this Comment On February 08, 2014, at 9:37 PM, hoop98de08do wrote:

    It isn't the 1st class mail that is the problem. It is the man power cost to process 2nd class & bulk mail, plus ( and I may be cutting my own throat) the free cost of mail forwarding while I sun my body in Florida all winter & nobody pays cost of forwarding services. Hmmmm! Get real about what really are the issues. hoopdedo

  • Report this Comment On February 13, 2014, at 2:34 PM, suziathome wrote:

    Finally got around to reading this article. Surprised at some of the comments. I live in a Midwestern rural area. There is no bank in my zip code. The nearest bank is 8-1/2 miles away so no walking to it. There are six banks in the entire county--two of them in the county seat. Given that info, I also have to say that most post offices in rural areas do not have conducive hours for working people to use them. They open at 9 a.m. and close between 3 and 4:30 depending on the size of the zip code for that post office. On Saturday morning they are open 1-2 hours. My post office closes at 3 p.m. M-F and is open 1 hour on Saturday. The next nearest post office to me is also 8-1/2 miles away. It at least closes at 4:30.

    I agree with one of the comments above that the underprivileged poor often do not have the education nor are they given the education in school to know how to use a checking account properly nor do they learn from their families. Some have misused checking accounts in the past with insufficient funds problems and are on a blacklist of undesirables, so it isn't easy for them to open another checking account. In addition, a bad credit history equals higher fees--no free checking accounts for them. The Village in which I live had 50% unemployment at the height of the depression b/c many of them worked in manufacturing and construction, so they lived from unemployment check to unemployment check. Even now, our Village still has 25% unemployment b/c they don't have the money to pay for fuel to drive 60 miles one way to work, and they can't afford to buy a more fuel-efficient vehicle. Add to that the fact that some of the employers in the larger towns around us are using debit cards to pay their employees now, and it costs money each and every time they use the debit card, so they don't even get all the money they've earned for their labor. Trust me, poverty is not restricted to urban areas.

    Now to competition for the Post Service: The nearest "big" town is 22 miles away. Most of the grocery stores in that town have both banks and post offices inside the grocery stores, and I believe that is true for a lot of the larger grocery store chains. There are also ATMs at most fuel stations, including in our county. Is the post office to become a bank to the poor, b/c they're willing to just "cash" checks for a fee, which is what many of the rural poor want? This would make the post office as bad as the payday loan places, especially at 28% annual interest rate. I realize that the Post Service needs to make more money, but do they need to make it on the backs of the poor who are already struggling to put food on their tables?

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