In postal banking, your local post office offers some basic financial services, much like a commercial bank. Postal banking is common in much of the world and was once available in the United States. Now some supporters think bringing it back could be a low-cost solution for the country’s large unbanked population.
Key points to remember
- Postal banking is common in other countries, but hasn’t been seen in the United States for decades.
- Proponents believe bringing it back could make low-cost banking accessible to low-income Americans.
- There are approximately 7.1 million American households that do not have a checking or savings account.
- High fees and account minimums often prevent people from opening accounts.
- Unbanked people depend on retailers for basic financial services like cashing checks or paying bills, which can be expensive.
How postal banking works
Along with the postal bank, the local post office also acts as a bank branch. It can provide, for example, check cashing, bill payment processing, and even small loans.
Today, post offices in the United States generally do not provide these services, although they may sell money orders, a convenience for people who need to pay a bill or want to send money securely. to someone who does not have a checking account. Recipients can also cash money orders at a post office.
Generations ago, post offices were not so limited. From 1911 to 1967, the United States had a postal savings system, where Americans could deposit their money in interest-bearing government-backed accounts. But as commercial banks raised their interest rates on savings accounts, demand for the Post Office Savings Scheme declined, and the program ended in 1967.
PO Bank and Unbanked
In the United States in 2019, the most recent year for which figures were available, more than 5% of households (approximately 7.1 million in total) were unbanked, meaning no household member does not have a current or savings account in a bank or credit union. For these households, basic banking services like cashing a check can be prohibitively expensive.
According to a 2019 survey by the Federal Deposit Insurance Corporation, most unbanked households are low-income and do not have access to a bank or credit union for reasons such as:
- High account minimums. The most frequently cited reason was that the household did not have enough money to meet the banks’ minimum balance requirements.
- Lack of confidence. Many people said they don’t trust banks to handle their money.
- Costs. Unpredictable (and often excessive) fees, such as overdraft fees, monthly account fees, and withdrawal fees, prevent some people from opening or maintaining accounts.
Without access to a checking or savings account, unbanked households turn to services such as check-cashing stores and payday loan centers to conduct financial transactions such as cashing paychecks and payment of utility bills. In a California check cashing chain, for example, fees can range from 1.79% to 14.99% of the face amount, depending on the type of check.
Postal banking advocates say a postal banking system would not only allow low-income people to cash checks at cheaper rates, but would also keep them away from predatory lenders. Being able to go to a post office for small loans could end their reliance on expensive alternatives, like payday lenders.
Current status of postal banking proposals
In 2014, postal banking saw renewed interest thanks to a white paper published by the US Postal Service Office of the Inspector General. The paper said underserved households spent an average of more than $2,400 a year on interest and fees from alternative financial sources, and postal banking could significantly reduce that amount.
The white paper started new conversations about options for underserved Americans, and in 2020, Senator Kirsten Gillibrand (D-NY) sponsored a bill – the Postal Banking Act – that would allow the Postal Service to provide basic financial services. She was joined by co-sponsors Sen. Bernie Sanders (I-VT) and Sen. Jeff Merkley (D-OR).
In October 2021, the United States Postal Service, in partnership with the American Postal Workers Union, launched a small postal banking pilot program in four cities. In some locations, post offices would provide services such as cash checking, bill payment, and ATM withdrawals.
The Postal Banking Act and the Postal Banking Pilot Program faced significant opposition from Republican leaders in Congress and the banking industry. The American Bankers Association (ABA) released a statement that read: “The American Bankers Association has long been a vocal opponent of postal banking and has previously noted that it could be seen as a government-approved provider competing with taxpayer banks and would create risks that the USPS is not adept at managing.”
The ABA argues that, rather than the post office, the answer to the unbanked problem lies with its own branches: “It’s easier than ever to open a bank account in this country, including Bank On , which are now available in more than half of all U.S. bank branches and offer lower costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill payment” , says the association.
What is postal banking?
Postal banking refers to the provision of basic banking services at local post offices. This can include things like cashing checks, paying bills, and even small loans.
What is the advantage of postal banking?
Proponents argue that postal banking could make financial services available to the millions of Americans who are currently unbanked, giving them a low-cost alternative to expensive check-cashing stores and payday loan providers.
What is the argument against postal banking?
The private banking industry in the United States argues that the US Postal Service is ill-equipped to add banking services to its other services, and that many banks now have low-cost programs that could better serve the currently unbanked population.
Postal banking is increasingly cited as a potential solution for low-income households that do not have access to traditional banks or credit unions. Although postal banking has gained ground in Congress in recent years, it still faces significant opposition from the banking industry. Unless postal banking becomes widespread, most people will continue to depend on banks and credit unions (or check-cashing stores and payday loan providers) for banking services.