The Incredible Change That Could Save the Postal Service

The Postal Service may be preparing for a fundamental change that could affect the lives and wallets of millions of Americans.

A scary past
In November of last year, the United States Postal Service (USPS) issued a press release that made the terrifying admission, "despite revenue growth and record productivity, Postal Service loses $5 billion in 2013 fiscal year." This marked the seventh year in a row the Postal Service reported a loss, and this was despite the fact it has reduced its annual expenses by more than $15 billion since 2006. 

Source: Flickr / Images of Money.

The words of Patrick Donahoe, the Postmaster General and Chief Executive Officer, ring true, saying it "achieved some excellent results for the year in terms of innovations, revenue gains and cost reductions, but without major legislative changes we cannot overcome the limitations of our inflexible business model."

Consider the Postal Service has had almost $200 billion in revenue since 2011, but has still had a total net loss of nearly $26 billion over the same time period.  

Yet a recent report has proposed a major change to the business model of the Post Office itself. It may be the key to the turnaround efforts by providing valuable services to the poor, and actually would result in the Post Office somewhat resembling a bank.

1 incredible change
It was recently proposed in a paper from the Office of Inspector General of the USPS for the Postal Service to begin offering "non-bank financial services to help the financially underserved," which would include substitutes for high interest payday loans as well as, prepaid cards, money orders, and other services often utilized by nearly 68 million Americans who do not use or have access to a traditional bank. 

The paper highlighted the average household who uses "alternative financial services" spends nearly $2,500 a year -- or 10% of their income -- on interest and fees alone, and the Postal Service is seeking to provide those services at lower costs. It gave the powerful example of how the Postal Service could provide an identical $375 loan to someone that may use a payday lender, yet in such a way to save the borrower almost $475:

  Payday Postal
Loan amount $375 $375
Average months to repay 4.5 5.5
Average bi-monthly payment $99 $38
Total interest and fees $520 $48
Effective annual interest rate 391% 28%

Source: U.S. Postal Service Office of Inspector General.

Sizable benefits
As you can see, providing individuals access to affordable financial services could have monumental benefits and result in Americans saving hundreds of millions of dollars each year. Those savings could be put back into the American economy, instead of the pockets of payday lenders.

In fact, the paper highlighted the average individual who files for bankruptcy is only $26 short on their monthly expenses. These services could potentially save more than 50,000 Americans from entering into bankruptcy, preventing more than $10 billion in loans and debts going into bankruptcy court.

Source: Flickr / Aranami.

But the benefits would not be exclusive to the customers of the Postal Service, but could also be the exact thing needed to bring the USPS out its spiral of annual losses. More than $89 billion was spent in 2012 on the alternative financial services the Post Office is looking to provide, and another $95 billion is expected in 2013. This means if the Post Office were able to secure just 10% of the market, it could result in nearly $10 billion in additional revenue, which could be exactly what it needed to turn around its money-losing ways.

The paper even suggested financial institutions likes banks and credit unions could benefit, as most of the targeted customers have no access to financial institutions -- more than 59% of post offices are in ZIP codes with one or fewer bank branches -- and through partnerships, the banks could benefit too.

And ultimately, the benefits would extend beyond those three groups, and could extend to the entire American economy. As the paper highlighted, some of the money saved would likely go back into the economy and "businesses small and large would benefit."

Will it happen?
For any of the proposed changes to come occur, they must be approved by politicians in Washington tasked with the oversight of the Postal Service. When you consider postal institutions in other countries like Great Britain, Germany, and Japan, all offer such services and the US did too from 1911 to 1967, and the benefits could perhaps extend to every individual in the United States, one can only hope if this is a change that is made.

The banking revolution
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. And apart from the potential change coming to the Post Office, there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Read/Post Comments (8) | Recommend This Article (7)

Comments from our Foolish Readers

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 23, 2014, at 6:07 AM, cricket23 wrote:

    The Government can't even collect on College loans!

  • Report this Comment On February 23, 2014, at 7:40 AM, fingerlakes54 wrote:

    Living in very rural America --this seems like a good idea. Even high cost check cashing service companies don't do business out here. The first Post Master -Ben Franklin knew that to provide basic service in equal proportions to all areas of the USA was a necessary part of a responsible government. Thus we got a postal service that is by most definitions a "Public Enterprise". Public Enterprise is when a service or product is needed--but it's set up and operation goes beyond what private enterprise would be willing to invest or had too small of a return or no return on investment. Necessary--but not profitable. Many projects like this were done in the 1930's and there was hooping and hollering about the costs. Yet the Rural Electrical Act--brought electricity to rural America and advanced our farms, and the Tennessee Valley Authority still provides a great deal of the Souths electricity. Bringing financial services to financially unserved America could be a stimulus to re-invigorate small town life in rural America.

  • Report this Comment On February 23, 2014, at 9:55 AM, rayrock1 wrote:

    They can already compete with Western Union to transfer money and here’s how.

    The Post Office sells money orders and the they will cash a money order sold at any Post Office. What they can do is sell a money order, and then ship it overnight to the recipient who can then cash it at their local Post Office. The cost for the money order and next day shipping will be about $15.00 which is competitive with Western Union. They can even hold the envelope to be picked up by the recipient at the Post Office so they can get it and get their cash as soon as the Post Office opens.

  • Report this Comment On February 23, 2014, at 11:11 AM, Booman49 wrote:

    If this is such a good idea then why haven't other companies started doing it?

  • Report this Comment On February 23, 2014, at 12:38 PM, honestyproject wrote:

    It's interesting that the post office started losing money the same year that automation of mail processing was completed. If the post office is determined to be profitable, who will the profit go to? Delivery of the mail is not where postal revenue comes from. Postal revenue come from processing mail. The majority of the mail that is processed is processed by independent mail processors who were created by the post office. The mail that they process is not monitored for delivery. This is the same mail that use to be thrown away. The contracts that have evolved between postal officials, equipment manufacturers and the independent mail processors are tax free, no-bid contracts that have never been monitored or audited. The post office does not pay taxes. What money are they losing? Who does this money belong to? Before automation, no consideration was given to the post office making a profit. Read the book GOING POSTAL, THE STORY BEHIND THE FOREVER STAMP on Amazon.

  • Report this Comment On February 23, 2014, at 1:39 PM, saturn617 wrote:

    I like the Incredible idea unfortunately it will take decades if ever for some of these changes to be implemented.

  • Report this Comment On February 23, 2014, at 9:45 PM, ricksdfool wrote:

    The post office is profitable if all of Darrel Issa "kill the post office" bills are revoked. First is the one that requires the post office to fund a pension program 75 years in advance. NO business in the world could afford this. They are paying for pension of people that are not even working at the post office. It does not take much thinking about this and other bills by Issa if you look to see who his donors are (FDX and UPS). That phase I hear that the post office is losing money because "nobody writes letters anymore" is nonsense. When was the last time your mailbox was empty. FDX and UPS outsource junk mail to the post office because they have a lower rate. Amazon does most of their delivery business with the post office.

  • Report this Comment On February 24, 2014, at 12:17 PM, DrArthurIde wrote:

    The Post Office has been for a very long time the one connection that rural America has had with the rest of the nation. The Post Office has also afforded a regular means of contacting people within urban centers that carries more of a sense of humanity than anything developed on the internet. It is great that the Post Office has the opportunity to help the poor and those who live from paycheck to paycheck. This idea must be implemented.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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