Time to Revive the U.S. Postal Savings System?
Today, the market of the unbanked and underbanked has grown again, including about one in four U.S. households, according to a 2009 FDIC survey. Without access to conventional financial services, people turn to an alternative banking market of bill pay, prepaid debit cards and check cashing services, as well as payday loans. The unbanked pay excessive fees for basic financial services, are susceptible to high-cost predatory lenders, and have trouble buying a home and other assets because they have little or no credit history. On average, a payday borrower pays back $800 for a $300 loan, with $500 purely going toward interest. Low income adults in the U.S spend over 5 billion dollars paying off fees and debt associated with predatory loans every year. People with access to banks are better able to resist these services and break the cycle of poverty.
Another underserviced market is the rural population. In May, a move to shutter 3,700 low-revenue post offices was halted only by months of dissent from rural states and their lawmakers, who said the cost-cutting would hurt their communities. Banking services are also more limited for farmers, following the 2008 financial crisis. With shrinking resources for obtaining credit, family farmers and ranchers are finding it increasingly difficult to stay in their homes.
Postal banking could be a win-win in these circumstances, providing jobs and income for the post office along with safe and inexpensive banking services for underserviced populations. Countries such as Russia and India are exploring full-fledged lending services through their post offices; but if lending to the underbanked seems too risky, a U.S. postal bank could follow the lead of Japan Post and use the credit generated from its deposits to buy safe and liquid government bonds. That could still make the bank a win-win-win, providing income for the post office, safe and inexpensive depository and checking services for the underbanked, and a reliable source of public funding for the government.