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.
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:
|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%|
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.
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.