In 2014, the United States Postal Service lost $5.5 billion; in May, the agency announced it lost $1.5 billion in its most recent quarter. These are difficult times for the USPS: First-Class Mail and Standard Mail volumes declined 2.1% and 1.1% respectively, during the second quarter compared to the same period last year.
So last month, the USPS Office of Inspector General (OIG) reintroduced an idea to shrink the Post Office’s budget woes: offer banking services, which, according to the OIG, could add as much as $10 billion in annual revenue to the USPS.
One proponent of this plan is Sen. Elizabeth Warren, D-Mass, who published a letter in the Huffington Post in February of 2014 when the plan was first introduced by the OIG. In this letter, she cites the fact that 68 million Americans do not have (traditional) checking or savings accounts, who “are underserved by the banking system,” she writes, and have to rely on services such as payday lenders or check cashers.
“Collectively, these households spent about $89 million in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household." About the same amount they spend on food, she writes.
The USPS’ plan would permit unbanked and underbanked customers to take out small loans, cash checks, pay bills, and open savings accounts at their local post office. By simply expanding the financial services the USPS already offers — including adding electronic wire transfers and ATMs and expanding international money transfers — could raise as much as $1.1 billion in additional revenue.
The USPS is the largest single provider of paper money orders in the United States, selling $21 billion worth of money orders in fiscal year 2014, bringing in $165 million in revenue. It also offers prepaid cards, international money transfers, and limited check cashing.
What This Means For Credit Unions
At this point, this plan is nothing but a proposal, backed by a well-known senator. But the idea, depending on a variety of legal and regulatory issues, would appear to give the hurting agency another avenue to generate revenue and expand services.
Based on its resources and geographic footprint, the USPS is, according to the OIG report, “well suited” to provide financial services. “In addition,” the report reads, “its well-trained workforce is already experienced at handling complex transactions and watching out for related fraud and other risks.”
According to its website, the USPS manages 31,662 retail offices (or one post office every 93.45 sq. miles) and operates 211,264 vehicles, a footprint that covers a huge swath of the 50 states. As traditional players such as credit unions and banks continue to invest in cheaper and increasingly adopted digital channels, this network of brick-and-mortar and person-to-person availability could prove an attractive option for the unbanked.
Although the USPS has closed offices and laid off workers in recent years due to significant financial losses, its network of 31,000 locations is greater than the 21,000 brick-and-mortar branches credit unions operate as of the first quarter of 2015, according to data from Callahan & Associates’ Peer-to-Peer analytics.
To see a better statistical representation of this, one can look at a Pew study from July 2014, “The Geography of Banks and Post Offices,” that studied just the impact of bank and credit union branch locations on the underbanked. The findings as they relate to banks and the post office:
Of the 74,000 Census tracts (small statistical subdivisions of a county) in the United States:
53% if Census tracts have no bank branch
Among these, 17% have a post office
45% do not have a bank branch within one mile of their population center
Among these, 42% have a post office closer than the nearest bank branch
10% do not have a bank branch within five miles of their population center
Among these, 76% have a post office closer than the nearest bank branch
And while large banks pay more attention to larger metro areas, the opportunity exists for credit unions to fill the banking needs of rural customers, especially those in banking deserts. And branch locations may very well be the best way to reach this potential member demographic. In fact, the traditional branch may not be extinct after all. A 2014 Bankrate study found that half of all bank or credit union customers had visited their local branch within the past 30 days for reasons other than the ATM.
That’s reason enough for credit unions to consider the USPS as a legitimate potential competitor and to spur the industry into more actively serving the underbanked and unbanked in banking deserts. Because, as the inscription reads on the James Farley Post Office in New York City reads: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds."
And just like our mailmen and women, it's time for credit union's to put their boots on and get to work.